Gold Prices Set to Fall? - Chris Marcus

Craig: Welcome back to Sprott Money and sproutmoney.com. This is your September version of "Ask the Expert." It's that podcast where once a month, we bring in an industry mover, shaker, otherwise expert, to get their opinion on what's going on in the world. And man, there's a lot going on in the world. That's for sure. I'm your host, Craig Hemke. Joining us is my good old friend, Chris Marcus of arcadiaeconomics.com. Chris, it's always nice to see you, my friend.

Chris: Well, it's a pleasure to be here. It was certainly nice we got to record a call where I was asking you questions before we started this one. And as you pointed out, there are certainly a lot of things going on, not the least of which, I guess by the time people hear this, we will have already had another presidential debate, which should be fascinating. And anyway, lots going on in gold and silver too, and appreciate you having me here to talk about it.

Craig: People need, in this space, as many high-quality sources of information as they can get, right? Because gold and silver's so overlooked in the regular financial mainstream media. So, I'm always asking people, find somebody objective, fair, and honest, that you can trust. Tell everybody about what you do, your YouTube channel, everything else where they can find you.

Chris: Well, we talk pretty much a lot about gold and silver, the reasons that people have been talking about gold and silver for a long time. And certainly, as we've seen an evolution, I think it's interesting, especially at this...we're not in the '90s anymore, where it's, one day the debt's gonna be an issue, or some of the foreign counterparties might think, gee, this system doesn't seem too equitable, where every time something happens, there's more borrowing, there's more debt and printed money. So, trying to guide people along that path, and also following the things that are happening in the markets. Obviously, this year has been a rather historic one. And as I think you want to dig into, we did recently set a record for the largest bank gold short position, and actually saw some short covering in the past week, yet still pretty large out there, and similar situation in silver, and leaves us in the position where obviously, when those short positions get large historically, has usually been in front of a price decline. I know, and certainly, once silver crossed $30, there was a lot of talk, are we on our way to $50? Are the banks getting overrun? I don't think we're there quite yet, but interesting that as the prices of both metals have gone up, that position has been pretty big, and gonna wait and see how that gets resolved, but it's sitting out there.

Craig: Well, help everybody with a little detail of that, because I know silver investors and stackers that come to Sprott Money and want to add to their stack, it's kind of a catch-22. You want the price to go up so that your existing stack is doing well, but at the same time, you don't want the price to go down either, because it just doesn't feel very good. And so, silver's had a good year. It hadn't had a good a year as gold. To what do you attribute all that, Chris?

Chris: Well, I personally think that part of the gold picture this year, I don't think it's entirely unconnected to what is happening with the BRICS. And it was interesting, I got a call from a guy named Matt Riley, who is @EFbullion on Twitter, a really smart guy who is now also a wholesaler. And he was telling me about those plans back in February, this was before we saw the rally in either metals, and showed me the white paper for what he believed they were proposing. And it's interesting, it was shortly after this where we started to see the price rise. We saw the buying out of China. Since then, we've seen activity out of India. We can also talk about some of the things that have happened in Russia recently. So, it felt to me that gold was driving that. Again, can I say 100% that's connected to what the BRICS are doing? No, but it sure would fit. And especially at a time where countries with reserves, investors, they're seeing what's happening with the treasury market. It's not rocket science to see this isn't a very sustainable solution, and I think a lot changed back in 2022. I know you've talked about that quite a bit, how we had the inverse correlation between rates and the price of gold, which had been intact for a pretty long time, and it's not an accident that the central bank gold buying really started to pick up shortly after Russia was kicked out of the SWIFT system.

So, then you have record central bank buying for two years. I believe the first half of 2024 was another record. And throughout that, it felt like silver was kind of eventually forced up along with gold. Because yes, we continue to have the silver deficit. [inaudible 00:05:03] you have conditions that are not encouraging additional production in silver yet. That didn't change in February and March, so I do think the BRICS had a fair amount to do with that, and I'll put a few data points on that, so it's not a matter of my opinion or what I'm suggesting. But you can show some of the things that are know-nows, and these give people a place to look if they want to examine that further. But you did ask also about the short position. And you and I talked about this. I was stunned. Not stunned that we would be in record territory for a bank short position, but I was looking back, is this really the biggest we've had? Now, that came in a little bit last week because there was some short covering above $2,500, yet this black line, we're looking at goldchartsrus, and you can see swap dealer net. And, I mean, this is beyond what we had in 2016.

We take a quick look at silver, you can see similar. Although, in silver, they were more short in 2016. And as you and I talked about earlier on the other call here, you see that position got really short, right, as silver was finally getting up to $20, and that's how that one got resolved. I know you've detailed this quite thoroughly for the past decade, but again, here it is. It's sitting out there. So, maybe one way of phrasing it is that traditionally, you might expect a price decline. I wonder also, though, if the fact that we saw short covering above $2,500 in gold, are people realizing that they don't think the price will be going substantially lower to be able to cover at a lower level? I suppose it's a little bit early to have a conclusive answer on there, but certainly one of the things that we'll be keeping an eye on, and I know you will as well.

Craig: And on silver, Chris, it's such an interesting pricing scheme. We know about the fundamental items, like the ongoing supply deficit for the last four years, right? Or, you get these surges of demand out of places like India. Gold price goes up, India switches to silver, it takes off. All of those are very strong fundamentals, but they don't necessarily play out intraday when you see the price. So, you wonder if there could be something out there that could really upset that dynamic. One of the things caught my eye over the last month, and I know you've been following it too, is this new electric vehicle battery, that has been, I guess, perfected, if you will, by Samsung, that extends, what, it more than doubles, I think, the distance that you can travel on a charge. So, it's not a real long walk to go, "Well, why isn't this gonna be the new industry standard?" Right? Why wouldn't... Because that's the problem. You can't drive more than a couple hundred miles without having to pull off and pump some electrons into your car, and then drive another 300 more. Well, but if you can go 600, maybe that's a little more feasible. So, if this becomes industry standard, I've seen numbers, I don't know, you could probably fill in the blanks better than I, as to how much silver demand that might be a year, and I wonder if that might be enough, longer-term, to get us closer to a different pricing structure.

Chris: Well, it's certainly possible. In fact, our shared friend, Craig Francis, he wrote a great article for your site where he... I mean, again, there's a lot of estimations. How many people are buying the electric cars, again, is, what I've read, it seems like it's not going quite as smoothly as the government would want. Could this change some of the reservations that people have about switching? Certainly, it would make it more appealing. But at least, I think, Craig, took about 99 million vehicles expected to be produced in 2024, and if you get 10% of that EVs, and they were to adopt this battery, it was about, I think he had 288 million ounces, based on some rough projections. So, again, we'll call them projections. We don't know exactly, but certainly, is it, when you think about what's going on with the electric vehicles, and the changes that are being advertised here, it certainly seems possible.

And I thought it was interesting your call with Eric Sprott a couple weeks back, where he mentioned that it wasn't just a matter of they developed this, and maybe one day they'll share it with other companies, but he mentioned that that process had already begun, and saw there was one plant that was supposed to open between Samsung and, forget which other company it was, but that had been delayed. Yet it seems like they're already at the stage of this is something that could be shared. So, again, if you look at the solar projections that we get, or just look at the historical data, and then look at the projections that the governments are calling for for 2030 and 2050, I mean, that amount doesn't look like it's going down. So, I mean, you're... At the way things are currently stacked up, even if the Samsung battery didn't exist, you're headed towards a problem. If you add that Samsung battery on top of that, and it is as advertised, and gets adopted in any significant format, which, it would seem like people would have an incentive to do, then certainly that would, could add on a substantial chunk that...

Craig: Yeah.

Chris: And I might add, at the same time, another great call you did, if I may be as bold as to say so, but the interview you did with Chris Ritchie, I've been thinking about for three weeks, now, where there's SilverCrest, one of the lowest-cost providers. And on their website, in their last earning statements, they had here 2024 guidance for the remainder of the year, $14.90 to $15.75 for silver equivalent ounce. And he came on there and said when all the true costs are accounted for, that brings them over $25 pre-tax. And I'll pull this one up, which maybe will help put this in perspective. Here's a, Visual Capitalist, and they showed North American, I believe this is the average, at $19.44 for the all-in sustaining costs. So, SilverCrest was at $15, and their true cost, they said was $25-plus. So, if these guys had a similar cost structure on average, you start to see that we have a situation that's calling for more silver, and the demand is there, yet the conditions to bring new projects online are not matching that.

And we have a guest named Steve Cope who runs Silver Viper Minerals, and I was talking with him about this on the show, and I said, would it be fair to say, obviously, each project is different, but that if you had a group of investors that said, okay, we see a silver deficit, we wanna start a project that can capture that, or gain exposure to that, I said, "Steve, is it reasonable to say that, in most cases, probably expecting new incremental silver to come onto the market is gonna cost you more than 25 bucks?" And everyone I've talked to, especially people who are quite knowledgeable in mining, seem to agree it's gonna be kind of hard to get lower than that, so... And that's even with inflation on the low side, without any of the other things being resolved, or once interest rates start getting cut, or when QE resumes. So, appetizing picture, although, at least from the silver supply and demand, like you said, it doesn't go in a straight line, and it doesn't happen day to day, but when you see some of these things moving together...

I would note that perhaps one thing that doesn't get accounted for maybe as much as it should is that there's about 3 billion ounces of silver that's been purchased by retail in the past 10 to 15 years. Well, it's somewhere in the 2 to 4 range, or 3 billion. Certainly a lot of that has come back on the market in the past year. In fact, I was meeting with a bullion dealer who has a coin shop in person today, and he said the majority of it was not people who'd been holding since 2018, and they bought their silver at $16 and finally wanted to get out. Majority is just people trying to raise cash, but you've had a lot of that silver come back on the market. And when you think about it, it's 2021, 2022, we saw silver coming out of COMEX and LBMA. Then 2023, it seemed like more of the silver was coming out of the ETFs. And I would say in the last year, again, don't have exact numbers on that, but certainly there's been lots of reports from bullion dealers that there's a lot of customers selling. We have had reports of some of that silver being melted down to be used for industrial. So, I mean, you see how these things line up, and certainly it would suggest that if... I don't know what the scenario is that could reverse this. You know, in 10 years, different things can happen. But certainly, when you look at where things are lined up right now, it doesn't seem like $10, $15 silver in five years is gonna work.

Craig: Yeah. You know, you mentioned...I've seen that on my site too. There's an element to the physical sales, the retail physical sales, that's actually economically-driven, I think, too, Chris. Some people, they don't understand what they have, because they've inherited it or something like that. Or they just, I mean, it's tough. All these people losing their jobs and working three part-time jobs, and just trying to make ends meet. You know, I've got this silver here that I can take down to the "We Buy Gold" people, and get instant cash. It's like a payday loan or a title loan or something like that. But that is a real source of potential supply in the short term, but it's also kind of a finite amount, too. And I wanna, one other thing, too, on silver, and I'm curious what you think. You can't really say, "A to B, and this..." Throw out what happened in 2011, and all of the, everything with the banks and all the stuff that I talk about all the time. If you just go, just use those two data points, one, price, and two, The Silver Institute. And these annual supply deficits begun in, what, the year 2020? Right? 2021, '22 and '23? Right. And it's [crosstalk 00:16:03]

Chris: Five years if you include the exchange traded funds. Three years, if you do not include [crosstalk 00:16:07]

Craig: Okay. So, and 700 million ounces or whatever it is. And we roll back the clock to pre-COVID, what was silver trading, about $16, $18? So, absent all the other noise and stuff that I rail against on a daily basis, we've gone from $18 to $28, with four years? I mean, that's 50%. $18 to $27 would be a 50% move. So, this stuff can really have an impact, this supply deficit stuff. Just not day to day, okay? COMEX still can do their thing. But you see where I'm going with that?

Chris: Yeah. And we got a taste of that, very funny, right, in the cocoa market, which, obviously, a perishable commodity, so...

Craig: I see what you did there.

Chris: ...some different dynamics, but you can see, when you have an imbalance, it often goes on until it doesn't, and then things can change quickly, which is not to say that we're there, or that it's guaranteed to happen, but certainly, with the way things are going now, is lining up that that becomes a growing possibility.

Craig: Yeah. All right, Chris, one last question in our remaining time. Again, obviously this is September. In October, we have this long-awaited annual BRICS conference in what, like, for Kyrgyzstan or someplace, isn't it? Where the heck are they doing this?

Chris: Kazan, Russia.

Craig: Oh, all right. Kazanistan. I knew it was some place.

Chris: I thought you were gonna be a speaker there.

Craig: Yeah, right.

Chris: [crosstalk 00:17:47] his right-hand silver analyst.

Craig: Yeah, my schedule's booked. I couldn't quite... Anyway. All right. So, this Kazan summit is coming. And there's a lot of folks that have been waiting because there's this papers that we've seen, reporting that we've seen, about something called the "Unit," and how the Unit might be... They might at least unveil that they're formally talking about it, or that they might recognize its potential existence. Maybe that's all they'll do. But I know you've been following this story. This will be something that'll be coming up in October. Tell everybody a little bit about it. [crosstalk 00:18:27]

Chris: Sure. And again, I'll send you these links, so anyone who's interested to read it can certainly go through that further, because there's a lot of interesting things in there. And as I mentioned before, Matt Riley, of EF Bullion, was the one, it was back in February. He sent me the Unit white paper. And you can see here, which includes a 40% basket of gold in the underlying assets, and somewhere in this block of text says the remainder is in the local currencies of the participating members.

Craig: Like an SDR with gold in it.

Chris: Perhaps not all that far off. So, I had this in the back of my mind, and, you know, continued talking with him. And certainly, when we had this story, this one from Pepe Escobar, who I think many people are familiar with, a well-known reporter. And this was coming in May 13th, "De-Dollarization Bombshell: The Coming of the BRICS+ Monetary System." "Welcome to The Unit, a concept that has already been discussed by the financial services investment group, working up to the BRICS Business Council." And if we go down here, is an interesting highlight. "As it stands, the priority for the Unit conceptualizers is to inform the general public about the new system." Which, we'll come back to that in a second. But also down in this article, you have comments from Sergey Glazyev, who many people are familiar with at this point, someone who's spoken a lot about gold. And here, there was a quote for him where he talks about, makes, "...anchored in physical gold and BRICS+ currencies, makes Unit the most promising of several approaches being considered." "New Development Bank and BRICS+ shall embrace the concept..." So, again, I'm saying this not to convince anyone of what is going to happen, but just, this is, these are some of the data points confirming that, you know, it's not just you or I talking about it.

Then, later on, after the St. Petersburg meeting, we had another article from Pepe, and he mentions, "That was arguably the major breakthrough in St. Petersburg. Putin stated how the BRICS are working on their own payment infrastructure." "Putin had a special meeting with Dilma Rousseff, president of the BRICS New Development Bank. They did talk in detail about the bank's development" and about the Unit. So, you see at least being reported that Putin has been aware of that. And then the other one, somewhere up here... There we go. [inaudible 00:20:58"] this is the gold reserves. But TASS, which is the Russian news agency...

Craig: Yep.

Chris: ...and I'll send you that link. I think many people have seen that, but on Friday, they had a comment from one of the officials, mentioning that the Unit is on the docket for discussion in the October meeting. So, where does that leave us? There could be some sort of announcement. It could, in October. I don't know that that's a guarantee. They could discuss it. It could be that it's discussed and ultimately discarded. I would say my own personal feel, and I'll defer to Matt on this one slightly, who's been studying this for quite a while, although it seems like it is on track, and that, I would think more likely than not something like this could successfully be pushed forward. If that does end up to be the case, two things that may be worthwhile that we could leave people to think about is, one, if half of the world, and a growing portion of the world, has some sort of gold backing to their currency, and this already includes, I believe it's 51% of oil exports, oil-exporting countries, that are currently included, with a whole bunch of others that have expressed interest in joining.

So, if they're trading, and they can get something with a gold backing, versus Treasuries or dollars, does that at some point force the West to match, to remain competitive?

Craig: Yeah. Good point.

Chris: And then, the other thing I mentioned, which I said I'd come back to, about how their next step is to raise public awareness. I've been thinking about this and talking to people about it a couple of months, and I'm not saying this in a critical sense, but it's some of the people that you and I talk to, I'll mention it to them, and they haven't heard it. Which makes me think that probably, outside of the precious metals community, there's even fewer people who have heard of it. So, if they do roll this forward, and do successfully implement it, and raising public awareness as part of that, if you see the government starting to make a move towards gold and silver, at some point, do the people try and front-run that, as they see it happening?

Craig: Right.

Chris: So, perhaps one last thing to add to that is, last year, we had $128 billion of investment go into gold, versus $6 billion go into silver. So, in terms of seeing silver catch up, A, that would be one thing that has not yet happened, where we're seeing money go into silver. Certainly seems like it's possible, with some of the things that BRICS are doing, that you could continue to see that go into gold. And in the same way that five years ago, talking about some of these things might have seemed far-fetched on the gold side, at some point, do we see that flow over into silver? I would think, for a silver investor, once you start seeing more actual investment in silver, so far, the majority of what we've been seeing this year, I would say is industrial demand, but if you have that, then certainly that's a scenario in which silver could catch up. And anyway, it'll be interesting to see what comes out of the BRICS meeting next month, if there's any further clarity. But, again, I'll give you these links, so that at least people can see that. It's something that I think you should be aware of, whatever you ultimately decide, or your view of whether it gets implemented or not. But there's growing evidence that there's some data points behind this now.

Craig: Yeah. And either way, that news, as much as they let trickle out, or the news about increased silver demand, through things like that Samsung battery, all of these things augur for higher prices long-term. Doesn't mean higher prices next week. However, you look at the bigger picture, about demand, use, supply, all of it, makes pretty good sense for the precious metals investor. Chris, you make a lot of good sense for the precious metals investor. Again, arcadiaeconomics.com?

Chris: Yep. You can find us there, arcadiaeconomics.com. Similar, the YouTube channel, also Arcadia Economics. And I might add that this week, there was an interview with one of the finest in the space, Mr. Craig Hemke. So, either case, we're there, talking about this stuff, and just trying to provide some helpful information as we go through what...sure seems like we're headed towards a change in the way things are run. And I think there's a growing awareness that even people aren't saying gold or silver, but realizing, okay, there's something broken with this current system. I think we're getting to the point where even the people who are running the show are realizing, okay, this is not gonna work too much longer, whatever "too much longer" ends up being. Does not necessarily mean tomorrow. But certainly an important thing, in my opinion, for people of any capacity on the planet to be aware of, as some of these things happen.

Craig: And if central banks are taking their dollar reserves and putting into gold, maybe, as individuals, we should think about taking our dollar reserves and putting into gold too. They must have some idea of what's coming. Chris, it's always great fun getting caught up with you. And I very much appreciate you sharing your time with us here on the Sprott Money channel. I wanna make sure everybody remembers, though, on the way out. I mean, this stuff doesn't just magic... Well, it does magically appear every month. We got content all through the month. However, somebody pays the bills, and that's Sprott Money. So thank them. Visit the site, sprottmoney.com, and buy yourself some physical metal. Or if anything, hit a like or subscribe on whatever platform you've been watching this. That really does help. It helps the algorithms notice. It creates a wider distribution of the content, and the more people we can get listening, better for all of us. So visit sprottmoney.com, hit like, subscribe, do all that kind of stuff, and help us spread the word.

And again, keep an eye on this channel too. We're not done. It's only middle of September. There's gonna be more to come here even this month too, so... Anyway, Chris, thank you so much for your time. It's always fascinating to visit with you, and I learn something new every day. Thank you for all you do for the community.

Chris: Thanks, Craig. It's a pleasure to be here with you.

Craig: And from all of us at Sprott Money, sprottmoney.com, thanks for watching, but keep an eye on this channel. There'll be more to come here as we go through September.