Weekly Wrap Up

“Everything says we should be bottoming.” - Eric Sprott on the nascent rally-Weekly Wrap Up (August 24, 2018)

Head Shot of Eric Sprott Weekly Wrap Up

August 24, 2018

Things appear to be stabilizing here, with Gold up more than 1% on the week and other signs looking good for precious metals. Eric Sprott is back to break it all down for us.

This week on the wrap-up, you’ll hear:

Why Gold is not just a proxy for the U.S. dollar

Which developments the market is ignoring

Plus: why bank profits are “disproportionate”

“I would think that the people in most countries today would be thinking about owning gold, with their currencies getting decimated on a regular basis. I mean, you look at the damage of currencies yesterday, and there were probably ten currencies that fell over 1% in the day. You know, currencies are supposed to be stable. They’re not supposed to be like stocks or something. But they’re truly very, very weak, whether it’s Iran or Venezuela or Turkey… There are so many reasons for people to want to get out of paper currencies and into something hard.”

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To hear Eric's full thoughts and more, listen here:


Announcer: You're listening to "The Weekly Wrap-Up" on Sprott Money News.

Well greetings once again from Sprott Money News and sprottmoney.com. It's Friday, August 24th and this is your Weekly Wrap-Up. I am your host, Craig Hemke, and joining us as usual this fine Friday morning is Eric Sprott. Eric, good morning.

: Craig. What a weird thing to happen to us. We have the price of gold going up this week.

Craig: What?

Eric: How about that?

Craig: Really?

It's been a while. It went up, apparently.

I didn't think that was legal. Okay, yeah no, exactly. It's up more than 1%, Eric. How about that? That's something new for us to talk about. So good sign for once, perhaps. Now before we get started, just want to remind everybody that these calls are brought to you by Sprott Money, and Sprott Money has an exciting announcement. We have our summer closing sales coming up. We hate to say "goodbye" to summer, but at least we have the sale to look forward to. And there are going to be great deals on some very special products. So please stay tuned at sprottmoney.com. Keep that in your favorites bar for more information coming soon.

But man, talk about some great deals. We're down here around $1,200 for gold, just is remarkable the price has fallen that far. Silver is down below 15, but like you said, looking to stabilize a little bit, Eric.

Well it looks that way. I mean, you and I always talk about the commitment, the trader's report, and of course there's excellent work done by Ted Butler on that. And we are at just record positions here, in terms of the speculators getting themselves short. We have a record outstanding, open-order position on silver. I mean everything says we should be bottoming, including, I'm sure, a lot of the technicals, that I don't put a lot in to. But we're obviously over-sold, and I think just probably lots of reasons to think that this whole huge strength in the U.S. dollar that everyone's talking about, it's kind of muffled out here a little. And we're not exactly going up in a straight line anymore, in fact I would say that maybe in the last three or four weeks it's actually net gone down.

And of course it is a competition between a bunch of weaklings. I mean whether it's the euro or the yen or the Chinese yuan. I mean they all have their problems, and really gold should be standing out in this situation. So I think we kind of have a lot of reasons to think that this sort of nascent rally should continue here.

And of course the stocks have just gotten bombed. I can't believe how awful it's been in stock land. But obviously with a change of momentum in gold and silver, things can change very, very quickly on the stock side.

That's for sure, we've seen that before. When all looks lost, like it did back in January of 2016, suddenly things can turn. So it's a good time to keep your eye on things.

And one last thing about the COT that I want to point out to you internally and just get your response. This really caught my eye. In the large speculatory category, we're talking about hedge funds and the like, the total amount of contracts they own short, not the net number, but just the total gross number of short, is 44,000 contracts more than the banks hold short. Have you ever seen anything like that?

Craig: Yeah, yeah. No, it's amazing. I don't know, I guess everyone thinks that gold is just a proxy for the U.S. dollar. But it's way more than that, as we know through the test of time.

: Right.

And everyone thinks, I guess because all the other currencies look so weak, that the dollar has to rally, and they're playing it that way. But normally when the speculators get this far to one side of the boat, it always reverses. So I think that it is very, very much in our favor here if we can pot back to $1,200. Maybe... there's lots of reasons to think that the U.S. dollar could be weak, including the goings-on in the "world of Trump" down there, that you never know from one day to the next what's likely to happen. And I would think that between the political machinations, the deficit...the weak economic numbers.

We keep getting these weak economic numbers. We had housing sales were weak, new home sales, existing home sales were weak. The purchasing manufacturers in both services and goods were weak. We've got durable goods orders were weak. I mean the whole... the macroeconomic statistics are playing downwards here. So to think that 4% GDP growth will continue I think is being way too optimistic. And as I've said in these other chats, the 4% will probably get revised lower anyway, which is typically what they do. So I think there's lots of reasons to think that the dollar is not going to be leading the parade too much longer.

And yet today we're going to have Fed Chief Powell speaking in Jackson Hole talking about additional Fed funds rate hikes, while at the same time, you mentioned, the economy is slowing and it's not even a yield curve anymore, Eric, it's more of a yield plane, since it's so flat. What do you...

And even the trade war. I mean we've got a trade war that's still in full blossom here, right? And a trade war's not going to be good for people, you know? Because there's inflation because of trade wars and tariffs and things like that. And disruption of jobs, and so on. So there's a lot on the table that the market seems very willing to ignore that is going to continue to lean on the economic growth going forward here.

A couple of other items I want to get your thoughts on this week, Eric. One, I saw a report a couple days ago that the Russians, who have been consistent buyers of gold now for several years, added in July 800,000 ounces, which is a lot. It's actually ahead of their run rate. They've been adding about 600,000 ounces, on average, the last four or five months. Now they're at 800,000. They've basically sold all their treasuries, and now they're increasing their gold purchases.

They're definitely stepping up here, which is very encouraging. And I would think that most countries...the people in most countries today would be thinking about owning gold with their currencies getting decimated on a regular basis. I mean you look at the damage of currencies yesterday, and there were probably ten currencies that fell over 1% in the day. You know, currencies are supposed to be stable, they're not supposed to be like stocks or something. But they're truly very, very weak whether it's Iran or Venezuela or Turkey or...so many countries where...the South American countries, the Brazilian real's been ridiculous, the peso's been weak.

I mean there's so many reasons for people to want to get out of paper currencies and into something hard, and it's the majority of the population. Because you've got China in there, you've got India in there, you've got most of South American in there. And there's hardly anybody that's not in that kind of dew-loop that we're seeing going on in the currencies these days.

Yeah, "Gold's no longer a safe-haven." Well, tell that to the people of Venezuela, or Iran, or Turkey.

Yeah. There's lots of reasons to own gold. And by the way, while I have the podium, I did want to make a comment about bank profits. There was an article suggesting that banks in the U.S. have $60 billion of profit in the quarter, which is $240 billion annualized, which is a profit of $750, roughly, for ever American citizen.

So if you're a family of four, the banks made $3,000 of profit...profit, not revenue...from your family, directly or indirectly. I mean a lot of it's corporate-lead related, but nonetheless, we all have to sustain the corporations too, right?

Craig: Unbelievable.

So it's just amazing that that one group of the business world could make profits that are just so outrageously...

Craig: Obscene.

Eric: Obscene I guess is...yeah, I wasn't going to use that word, but disproportionate I guess is the word I would use. Disproportionate to what they create, create, which I don't think is a word that bears much relationship to banking, by the way. So anyway, and it happens both in your country and our country and probably everywhere in the world that the banks seem to profit no matter what the situation is. Which is, again, a little perplexing, it takes us back to the silver trade, right? Theoretically, as Ted Butters... "JP Morgan's never lost on silver." Well that's kind of interesting that you've never lost on silver. Maybe you have a hand in the market.

Craig: Right.

That's the way it works.

Craig: I'm reminded, though, of the old adage, you know, "You give a man a gun he can rob a bank. But if you give a man a bank, he can rob everybody."

That's true. Well that's exactly what's happening, obviously, right?

Exactly. All right then, speaking of which, just going back to gold before we wrap up. You mentioned physical buyers, you know, like the Russians and the Iranians and the Turks and the Chinese, right? And then we're stuck with this legacy, paper derivative pricing scheme, and one of the keys to keeping that thing afloat is this thing they call "exchanges for physical."

: Oh right, [inaudible 00:09:56].

Eric: I think actually the "p" doesn't stand for "physical," it's "exchange for paper." Maybe they could change it to "exchange for unallocated metal," something like that. But back last year, when this really started to catch your attention and mine, you said, "Hey Craig, why don't you keep track of these every day and let's just see what the run rate is."

So today's August 24th, you asked me to start keeping track back on November 24th. So we are now actually nine months into this, which makes it pretty easy. Let me lay these numbers on you, Eric. In the nine months since I've been keeping track of these every day, the total amount of COMEX contracts allegedly exchanged for physical is 1,913,258. Let me do the math. That's 100 ounces per contract, allegedly, so that's 191,325,800 ounces, and that is 5,951 metric tons, which even I can do that next bit of math, that's a run rate of about 8,000 metric tons per year.

Eric: Twice the annual global production of gold.

Craig: That's just through a quarter.

Which means...

Yeah, 8,000 is what? Two-and-a-half times.

Eric: Yeah. Which means it's not being settled, right? I mean there's something very odd going on in the COMEX. I don't know how these contracts just disappear off the face of the earth. It needs some kind of explanation, which unfortunately we're not getting. And/or somebody's building up one hang of a large short position out there that's never going to be filled, which could very well happen too. We see the same thing in silver. You know, there's a huge...1.2 billion ounces outstanding, maybe 1.3 billion ounces now.

Craig: Yeah.

: We only produce 800 million or 900 million a year. And it's not as though there's inventories of silver kicking around. Yes there are inventories of gold, but not silver. So anyway, it's going to be a conundrum. You and I talk about it all the time, it will get resolved in due course. And of course it has to be positive, there's no way it can be negative.

Well yeah, exactly. And again, a run rate of 8,000 metric tons for the 12 months that will end at the end of November. Again, that's obviously not physical metal being settled, it's just a shell game. And I know Chris Powell has tried to write the comptroller of the currency, and he just gets brushed aside. It's just a remarkable part of what's accepted as the legitimate pricing system.

And I do want to go back to that silver point you made in just a minute, Eric. One last thing, the total open interest, as you said, in COMEX silver is at an all-time high of about 244,000 contracts, all-time high. You know, people say there was this big bubble back in 2011, where every shoe-shine boy and taxi cab driver was buying silver. Well the open interest back then was about 140,000 contracts. And here we are, seven years later, with price at $14, but the all-time high, 100,000 contracts more now. What does that tell you?

And of course the discussion that both Goldman and JP Morgan are accumulating silver hand-over-fist.

Craig: Yeah, at the same time, yeah. I tell you, it's an interesting world. And as you mentioned, there's a lot of things to watch as we go through the remainder of the year. Both politically, economically and everything else. So I look forward to continuing to discuss these discussions because who knows where this is going to take us?

In the meantime, just one last special reminder for everybody listening, our friend Eric here had his pick-of-the-month here in August, and he decided that it was a Scottsdale mint, Patriot Medal one kilogram fine silver bar. So if you want to really load up down here below $15, what a great way to do it. But these kilo bars are limited in availability, so don't wait. If you want to purchase one, again, you can go to sprottmoney.com or call us at 888-861-0775.

Eric, again thank you for this time this week. It is a fascinating time to be observing these markets, even as frustrating as it's been, and I look forward to seeing what the next week holds.

Eric: Hey, fingers crossed, it's been good. We've got a good day going here today, so hopefully, we'll have some things up-beat to talk about next Friday.

Craig: Fingers crossed. All right, Eric. Hey, I wish you a great weekend. And from all of us here at Sprott Money News and sprottmoney.com, yeah, have a great weekend, and we'll talk to you again next Friday.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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