Gold and Silver Clear Low Bar for Good Week - Eric's Weekly Wrap Up

Man: You're listening to the "Weekly Wrap Up" on "Sprott Money News."

Craig: Happy Friday from Sprott Money News at sprottmoney.com. It's Friday, October the 2nd. Q4 is finally upon us. This is your "Weekly Wrap Up." I am your host, Craig Hemke. And also upon us is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Very interesting developments this week, I gotta tell you. Little bit of a show going on down there, but we've done okay with the precious metals as the week's coming to an end here.

Craig: Yeah, actually compared to last week, I guess the bar was set pretty low, but yeah, we've had a nice week. It'll be interesting to see where we wrap up the day after the employment report. These "Weekly Wrap Up" segments are brought to you by sprottmoney.com. We want to thank all our listeners for sending in questions and comments. We always try to get to as many as we can in the time that we have. You can always listen to "Weekly Wrap Up" on YouTube, SoundCloud, Twitter, Facebook, any place you can find it, whichever channel you prefer, be sure to subscribe, hit the like button if you enjoy listening every week. And I think you'll enjoy listening this week. We got a lot to talk about, Eric. Let's start with what you've seen this morning alone with the U.S. economy and the jobs report?

Eric: Well, you know, I gotta start with what I saw at one in the morning this morning, in that President Trump and his wife having COVID-19, which is, I don't know how we all deal with that. I'm no expert on what to think that does down there, I mean, it obviously takes him out of action. Maybe it's not a bad follow-up to that debate which was so chaotic, it was a joke. Maybe he'll have a good reason for postponing those, but it just brings a little bit to reality.

And by the way, while I'm on COVID-19, I mentioned last week that I thought that there was some light at the end of the tunnel in the sense that the death rate was so low, and there was a Center for Disease Control Study that came out that actually documented that. And, I mean, the likelihood of dying if you got COVID-19, from anywhere from age 0 to 50, was like 0.2%, something that low. That's about equivalent to the flu, by the way. Now, of course, it's, once you're over 60 and 70, it gets up to around 5% if you get it. So that's obviously the position that President Trump is in. He's got a 1 in 20 chance of it not turning out well. But as one of the listeners pointed out, it's not just dying, it's the effect, the long-lasting effects that can stay with you. Now, I don't have data on that, so I can't talk to it, but I'm certainly aware of having heard about things that happen to your heart and other organs that are more life, you know, long-lived problems. So it's facing a new wave, if you will, here in terms of people's awareness.

Craig: Yeah. And it just adds to the uncertainty heading into October. You know, people are always worried about the stock market in October anyway. And now there's another layer of uncertainty, we got the election looming, everything else going out there. But, Eric, you know, we wrapped up the fiscal year down here in the U.S. I looked at the debt clock, as that was ending, we ran a budget deficit in the U.S., Eric, of $3.15 trillion. Eric, do you remember when it was like $315 billion and people were going crazy?

Eric: Right. Yeah, I know, it's just stunning. It's stunning that, we're obviously in, you know, a huge recession save sending checks to people. You send a check to people and they don't feel like they're in a recession, but somebody's gotta pay for that, and that's your deficit number. And that will have to be, well it doesn't have to be paid someday. You're either gonna inflate your way out of it, i.e. don't pay it, or you're gonna have to, you know, squeeze it down, raise taxes, do whatever you can do. And these deficits are so large now that even raising taxes makes no difference.

Craig: Right.

Eric: You know, I think the income tax that people pay might be even less than $2 trillion, so what do you do with a $3 trillion deficit? I mean, you're gonna raise taxes by 50% and change the tax rate from two to three, and you've only taken care of one-third of the deficit and everyone's paying 50% more taxes. That's not gonna work. Imagine what kind of recession you would have then?

So, it's a real mess, and I look at the whole economy thing with the rents that the landlords are having trouble collecting, rents that people that aren't working have trouble paying, the problems with bankruptcies of small businesses, which are just gonna continue to get worse, the whole weakness begets weakness theory that we're now in here. We had a jobs number today, and it was kind of a weak 661,000. I don't even know how they say they create all these jobs when every week I have to listen to initial, initial, unemployment claims, weekly, of 800,000.

Craig: Right.

Eric: Well, you know what? If you get four weeks of those in a row, you lost 3.2 million jobs. Are you sure you created 600,000 jobs in the month?

Craig: Right.

Eric: Doesn't sound like it based on the unemployment insurance claim, so, but you and the listeners know I'm not a great believer in the unemployment numbers. I think they're all miscalculated. But if you just look at the real life of what's going on day to day, there's a huge economic destruction going on every day.

Craig: Yeah. Hey, I just add on that, again, this is just common sense. You have 800,000 people a week, actual people, actually filling out forms online or wherever, and filing for unemployment claims. That's actual people doing it, versus just a statistical guesswork. Which one do you believe?

Eric: Yeah, right. Exactly.

Craig: Oh, my gosh.

Eric: You know the claims are real, okay?

Craig: Right.

Eric: You know those are real.

Craig: Right.

Eric: By the way, I should mention, you mentioned quarter-end and the deficit, and the thing I found most telling about the quarter end. First of all, you know, I'm a huge skeptic as to the real profitability of banks, and then the honesty of that profitability. We'll talk about the $920 million settlement with JP Morgan in a second. But I'm always amazed that these banks seem to make their numbers, and miraculously, "How did you do it?" "Well, it was trading revenue." "Well, what the hell were you trading? Stocks did nothing in the quarter, bonds did nothing in the quarter, the currency was flat in the quarter. Well, how do you guys make so much money?" "Well, you know, we cheat our customers on a regular basis." And as we moved into September 30th, I found it most instructive that all those options that those banks had to sell to the Robin Hood guys and the guy from Japan, all those options became valueless at quarter end. All the shorts that they had in the precious metals became less onerous on September 30th, particularly silver, that very conveniently fell a dollar that day...

Craig: Yes, it did.

Eric: ...for no apparent reason, okay? And so when these guys who were probably short at $16 or $17, and the price had been, let's say, $28 or $29, had some huge losses, by closing it sort of at $23 or in the 22s, you know, they cut that loss in half. And I'm the guy who's least surprised by silver bouncing back on the 1st of October and maybe the 2nd of October and the rest of October, because, you know what? They got it down, the price down, for their own convenience.

Craig: Right. They need to mark their own books.

Eric: And even in the currencies, you know, the banks were long the dollar, and all the hedge funds were short the dollar, and voilà, the dollar rallies right into quarter end, and of course now it's fading again. So, you know, I just believe, and, of course, we've seen this in the JP Morgan court case, that the traders can make things happen in the market because of their power and their ability to cheat the system, to make the system work for them in terms of pricing.

Craig: Right.

Eric: And, of course, talking about JP Morgan, by the way...and I want to tell everyone it's not just spoofing, my friends, okay? That decision did not mention just spoofing, but the manipulation of the metals generally, which is by far the bigger issue. And as Ted Butler, who I read regularly, has explained, you know, if you ever convicted JP Morgan of moving the price of gold and silver around, for the amount that it's been moved around, you'd have to knock them out of business for what they've done. You'd have to cease being in the metal business and cease being in the banking business, quite frankly. I think this is like their fifth, what do they call the charge? I don't know if you call it a criminal charge. I don't want to use the wrong word, but the fifth time that the Department of Justice has had to say to them, "Will you stop manipulating foreign currencies, the bond market, LIBOR, now precious metals? Is there something you don't?" Is there some other thing that we should be, like, "Oh, they did natural gas, too, and oil, I think?" You know, it's just unbelievable what they get away with.

Craig: How are they still a primary dealer? Shouldn't they be knocked off that pedestal for a while, seeing as how they were manipulating treasuries too?

Eric: I know. I know. Yeah, yeah. And Ted Butler wrote a very interesting article on Wednesday, and it will be interesting to see how it plays out, and they gave him full credit for, one, writing to the Department of Justice all the time, saying, "JP Morgan are crooks," his word. He said, in fact, he says it in every report he ever writes, and surprisingly, he hasn't been sued, but what he suggested is because the spoofing was trying to spoof the HFTs into doing things that now that you can't spoof and are not likely to spoof, which I believe they are not likely to spoof, because they're under I think a three-year, I forget what the word is for it, but they better not break the law, that now that the HFTs can get control of the market again, which is also a bad thing, by the way, Department of Justice, that we're gonna see more volatility in the precious metal prices, that the HFTs now get to run free. But I think, and I agree with Ted that ultimately, it's gonna be for our betterment, because the data that we look at is suggesting that the supply-demand for both metals is in our favor and getting better all the time.

Craig: Well, that would be nice.

Eric: So we have that to look forward to. Yeah.

Craig: Yeah, you know, I guess lost in all this, though, Eric, is it's not just JP Morgan. We've had Scotia Bank get fined for, we had the Deutsche Bank traders get convicted just last weekend or last week. I mean, this is across all the bullion banks. You just wonder if somebody else isn't just picking up the baton.

Eric: I would rather doubt it. I mean, let's face it, the DOJ, the CFTC have found a way to unlock these things, which it took them a long time to figure out I mean, they had three investigations into silver over the last decade and found nothing. And all of a sudden, the DOJ comes along, "Oh, there was something." Yeah. And of course, they pat each other on the back for finding it. Are you gotta be kidding me, CFTC? Take no credit for that. You guys are useless. We should move on.

Craig: Hey, and while we're on the subject, before we move on to the stocks, a lot of people asking this week, and I'm asking, because I don't even know. Shouldn't this lead to more class-action lawsuits, not just from investors, as you mentioned with Ted Butler talking about people that have lost money over the years, how about these mining companies? I mean, how many billions and billions of dollars have they lost in selling their product because of this? I mean, wouldn't you think this would open the floodgates?

Eric: Well, the way it's been described so far, particularly with the emphasis on spoofing, it sounds like such an intra-day thing, you know, like it's for the last, for five minutes, I arranged for this to move that way and that to move this way. Nobody's really gotten to the proof of, "Hey, you guys took the price of silver from $50 down to $15 over a long period of time." That's, I think it's tough to prove it factually.

And it's been, I think, you know, there are lawsuits ongoing. Some of them have been tossed, but I think some might still be going on. I think I've read about some even here in Canada. But I think it's a tough case to prove.

Craig: To say dollar for...

Eric: And of course, I'd love to be in it. I mean, I'm one of the most affected people in the world with the goings on in precious metal prices and the potential losses, and just the waiting for, you know, waiting for Godot, for the price of gold and silver to go up to where they should be. I mean, it's been a long wait so far. We're into our 20th year. But before we get to earnings reports, I want to talk about a couple of things that are happening on the CME.

Craig: All right. Lay it on me.

Eric: And the first one is the October nominations for delivery, over 30,000 contracts, 90-plus tons. That is a big number. And further to that, as, for example, I looked at yesterday, just yesterday, we picked up 1400 contracts in open interest after 8400 contracts were either delivered or EFP'd. We picked up 1400 of open interest. And those, the 8400 comes off the open interest, other things being equal. So these guys are, they're not getting off these open interest contracts. Same with silver.

Silver, for example, yesterday, we had added during the day, just yesterday, 435,000 ounces of new demands for deliveries. It's not even a delivery month. That's 14 tons of silver yesterday. So I think there's lots of good data coming out showing that people are standing in there for delivery, and it's gonna bode very well. I've even noticed November, which is certainly not a delivery month, it's starting to build already, and, I mean, I don't suspect will do anything late November, but then again, we have December with 400,000 open contracts here, so that will be a very interesting one.

So I think the CME is coming around with all these physical deliveries they had, people buying the ETFs [inaudible 00:14:52]. And imagine if some of these countries come back in to buy, and one of them that is coming back in to buy is India. India bought something like 30-odd tons in the month of September, I think it was. It might have been August, but they're, no, it was September, I'm pretty sure. And now the premiums in India are back on, so that every day now, they can be big-time buyers. You know, the Indians have an incredible market where they just wait for these corrections in price, and then they just charge in. So, they are always the number one consumer of gold, so if they come back into the market, I think it holds a lot of promise for us.

Craig: Yeah, and, you know, I might just add, when we're talking about October and gold deliveries, October, usually the lightest of the six months by far, because the interest usually shifts straight from August into December and skips by October, and so to have 30,000 contracts standing when it went off the board is extremely, unusually high. And I might add, too, that that October open interest, because it shifts, I don't think it was ever more than 65,000 contracts. And so we've got 30,000 of those standing?

Eric: Yeah, I know.

Craig: Sure makes you wonder what December is gonna look like?

Eric: Yeah. And as I say, I mean, the open interest's not going down, but the deliveries are still there, right?

Craig: Yeah.

Eric: Normally, you'd think the open interest would go down as you're making...let's say they make 30,000 contracts of deliveries this month, which can stand for delivery. Well, what if the open interest doesn't go down by 30,000? What if it just stays where it is?

Craig: Yeah. That's right, that's right.

Eric: Wow. How'd you like to be facing that if you're short these things?

Craig: All right. Let's move on to some of the shares, Eric. And I mentioned earlier, this is kind of a quiet time. We're gonna start getting a lot of production reports next week, and we'll start moving into earnings reports at the last week of October into early November, but for now it's real quiet. And so when I was rattling off names for Eric, things like Orex and Silver One and Spanish Mountain and some of the other names that have been...Bonterra is another one, all these companies, there's just really nothing new to talk about. We're waiting to get more interesting news, but I know there's a couple that we can address, Eric. But first, let's get to in general, again, it's those production reports that we'll start to see next week.

Eric: Yeah. And not that, I don't think the production reports will be spectacular. I mean, there'll be better than the second quarter because of COVID-19. But I think there's still impacts of COVID-19 with some of those major companies that have mines all around the world. But, you know, we know the price is up nicely in the quarter, we know that production will be much better in the third than the second. And I really think when we get to the earnings reports, that's when we'll see the biggest delta for investors. So that's all forthcoming here.

We haven't had much in the way of drilling reports. I mean, there's three or four companies that I'm involved in, including Bonterra, that came out with a good result. A company called Galway had some interesting drill results, Summa Silver did, Grande Portage did. I don't know that any of them are needle-moving things until the sentiment in precious metals improves, and of course, the sentiment will be a function of the price of the products going up. And I think as we move into this quarter, now that we got the quarter end out of the way, that it will look much better.

I mentioned last Friday that it was a presentation that Ken Konkin was making to the Denver Gold Show, he's with Tudor Gold, and that I hadn't seen at that point in time. I've subsequently listened to it, and I very much enjoyed the presentation. I have no doubt that the Goldstorm Zone that they're drilling is gonna be in the 10 million to 20 million ounce area for sure. And the new zone, called the PS2, he sort of suggested that it has as much possibility as Goldstorm. So, there's not enough drilling to prove anything, but he's had some initial results drilling out there. He's put three holes in it. But I think as they move into the southwest and northwest, they're hoping to get things like Goldstorm, if not better, so that's pretty good.

Come Teuton, which I'm involved with in, and have mentioned here before, they came out with some drilling on one of their properties called the Del Norte property, that Decade Resources is doing. Looked good. And it'll be interesting to see some of these companies who have these huge tracts of land up in what we call the Golden Triangle of BC, but huge tracts of land, where, you know, it's called the Golden Triangle because so many huge mines have been found up there. So if some of these other properties can come to life, it could be pretty exciting for all the people in the Treaty Creek.

And I guess I'm closing in terms of companies, I mean, I sort of say, well, you know, I'm very comfortable just living with things like, you know, Pure Gold Mines, Wallbridge and their good drilling discovery, the size of the ore body. Jaguar, gonna be interested in seeing their earnings, and their production, for that matter. Freegold Ventures, I had a chat with management just to see how things are going. I still believe this company will easily find 10 million ounces. And the more I look at what an ounce should be worth these days, the more I think you can buy the stock just based on almost what they have already, without any further high-grade, but there's more coming there, so, or hopefully more coming there. So I'm comfortable just living with these things. A lot of them have corrected a lot. Some of them have started to bounce already, but I don't lose any sleep over any of them.

Craig: Can you reassure some of our southern climate friends that the drilling and all the work continues, even though it's getting cold and dark up there?

Eric: Well, it depends. Now, in the Golden Triangle per se, I think most of them have to shut down. I know Tudor, for example, I think Ken Konkin publicly said he hopes to drill to the end of November, but that, even the end of November I'm sure would be pushing it hard. But there's other things, like Freegold Ventures, they can drill all your around, and lots of companies prefer to drill in the winter, by the way. For example, I think even Bonterra, they like when things are frozen, because then you can move things around on the surface, whereas if it's muskeg, you can't move things around. And you get a more stable foundation for your drill pad. So, no, there'll be lots of drilling in the winter. Not so much in the Golden Triangle, some, but certainly up in Alaska, where Freegold Ventures is, they're only 25 miles by road from Fairbanks, Alaska, so they can drill all the time.

Craig: Yeah. And, we should point out, too, we now have ended the third quarter obviously, and we're gonna start moving toward these earnings reports for the producing companies, a lot of producing companies. If you go back and look, we're reporting an average price for gold in the second quarter of around $1,710 maybe $1,720. The average price of gold during the third quarter, if you run just a, you know, 60-some-odd day moving average, was $1,930. Eric, that's 15% increase.

Eric: Yeah, I, $200, you know, a guy produces a million ounces a year and it gets an extra $200, that's $200 million. That's not small change. That's very significant. You know, that's a lot of market cap there.

Craig: No doubt about it. You would think that'll, well you would like to think that'll probably help us, but we've got a battle through October. One last thing that folks continue to ask about, Eric, you know, it is October, stock market historically is, I don't know if it's coincidence or not, but often had some difficult Octobers. A lot of people worried about, you know, what do you think you'll do? What are your concerns if the stock market, in general, begins to decline 10% or, you know, 15% or something like that?

Eric: Sure. Well, I find it instructive that even today, just up to the start of this phone call that, you know, the market's under a lot of pressure because of the President having COVID-19, gold and silver have hung in there, which is exactly what I'd like to see. And, you know, there's still money around, so even though maybe everyone decides to sell their tech stocks, well that doesn't mean they won't turn around and put some of that money in what's winning. And if what's winning is precious metals, I... And a lot of people's eyes have been opened up to this in the last 12 months that were never open to this. So I think we stand a much better chance of surviving some kind of carnage in the general stock market and seeing gold shares rise. I mean, it happened in 2001, it happened in, after '09 that the gold stocks just went crazy after having gone down quite a bit, but they went right back up again. So if you can hold on and stomach some pain sometimes, you do get a big, big, big payday owning precious metal stocks.

Craig: Yeah, no doubt. All right. Let's, we might as well begin to wrap up, but on your way out, please don't forget that this is all sponsored by sprottmoney.com. With prices experiencing a pullback, as we all know these last couple of weeks, you want to check out sprottmoney.com. We've recently added a number of new products. So you can call us also at 888-861-0775 to place your order, or just simply ask questions to any of our folks on the team. We'd love to chat precious metals with you and all the reasons for owning some. We'll store it for you too. So again, sprottmoney.com, or just call us, 888-861-0775. My friend, it's always a pleasure visiting with you. I'm very curious to see what we'll be talking about next week?

Eric: Well, there should be some news coming out at least with the production numbers, and we'll have the earnings numbers to look forward to, hopefully drilling results. Drilling results have been very slow this year. I cannot believe how long it takes for all these companies that we're involved with to get their drilling results out, and I think it's just because there's so much drilling going on and the COVID-19 is slowing down the labs, and it's a frustrating experience. But hopefully, we'll continue to see a slow rollout here, and have more to talk about next week.

Craig: Yep. Have a great weekend, Eric.

Eric: Okay, thanks, Craig. All the best to you.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thank you for listening. Talk to you again next week.