Great/Bad News: Gold, Silver, and Coronavirus - Weekly Wrap Up (April 17, 2020)

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

Craig: Hello, once again, from "Sprott Money News" at sprottmoney.com. It's Friday, April the 17th. It's time for your "Weekly Wrap-Up". I'm your host, Craig Hemke, and joining us, as usual, is Eric Sprott. Eric, good morning.

Eric: Good morning, Craig. It's been a crazy kind of week here. It looked really good at the outset, and it's kind of cooled out here a little on Friday, but lots to chew on out there, but most of it medical, by the way, but let's take it from there.

Craig: Let's do. And as everyone knows, most bullion companies are considered non-essential at this point, for whatever reason. So we still are operating though at sprott.money.com, and we are still offering great insights that you can sign up for the "Sprott Money" newsletter if you visit the site. And I will be discussing a number of things with expert Rob Kirby next week. I know Rob is a big fan of Eric and vice versa. If you have any questions for Rob Kirby that you'd like me to ask him next week, please send them into us at the email address submissions@sprottmoney.com. We'll try to get to them and have that posted for you at the sprottmoney.com website next week. But, Eric, let's get right to it in terms of what you've seen this week. A lot of interesting news on the virus and some attempts to kind of restart parts of the global economy. What are your thoughts?

Eric: Yeah, lots to think about there. First of all, today being Friday and the futures being up and a seemingly an announcement by a reporter that Gilead, who has a drug called Remdesivir, that they did some study, I think it was in a Chicago hospital, and it was suggested that of the 125 people tested, only 2 died, and a lot were discharged quickly. So the markets kind of shot up here thinking that we may have a solution. And, of course, a vaccine would be a wonderful solution because I don't know what other solution we're gonna have other than everyone going through it, and let's see who survives. Now, the company Gilead did describe this information as being anecdotal and not supported scientifically yet. So, you can take it for what it is. Obviously, I can't know the answer whether it's gonna work or not work, but the market's quite convinced that we might be getting closer.

One of the things I did wanna talk about today was an article in the "L.A. Times" and the article, the headline was "The coronavirus may have severe impacts on liver and heart function in some patients." And you know, read some of it here in a study posted this week, "Scientists in China examined the blood test results of 34 COVID-19 patients over the course of their hospitalization. In those who survived, mild and severe disease alike, the research found that many of the biological measures had failed to return to normal. Chief among the worrisome test results were readings that suggested these apparently recovered patients continued to have impaired liver function." And then it goes on to say, "At the same time, as cardiologists are contending with the immediate effects of COVID-19 on the heart, they're asking how much of the damage could be long-lasting. In an early study of COVID-19 patients in China, heart failure was seen in nearly 12% of those who survived."

Now, the use of the word heart failure doesn't mean you're dead, by the way, because if you were dead, that would mean the death rate goes from 3% to like 15%. It means that your heart's been damaged by the virus. And we do read a lot of articles about that and we hear things about that. Of course, I'm not qualified to make some decision whether it's bad or good, but I was shocked by that. Further, I was shocked when the Chinese also announced that 30% of the people who survived had no antibodies, which makes it a very scary type situation. And, of course, the South Koreans announced that, of the people that recovered, 100 of them were reactivated. So, this virus is a very, very complicated thing. It almost makes you wonder, well, how are we gonna get a vaccine that can actually cure this virus because it seems like it's very, very complicated?

On another note, I noticed that Wuhan, the city, indicated today, "Oh, by the way, there were 50% more people died than we reported," and they reported that this morning. So, it's still the elephant in the room. We all have to see how we're gonna deal with a restart here. I struggle with, "How do we do a restart versus us all being left in our personal prisons here for a little while longer?" And I think my personal view is that because we're in an economic depression, as easily defined, this is itself gonna have some health effects that will be negative. I mean, I could go to the extreme and say, well, maybe we'll get some rioting and kill people that way, or people get depressed and shoot themselves, the things that are manifested because of the depression.

We just can't keep going on with all these industries shut down. And so I thought to myself that maybe we say to the people under 40, you know, everyone back in the pool here, because their likelihood of getting it is not that high. However, having read, as I've just explained, what some of the long-lasting effects are, maybe that would be too early. But obviously, people are giving this a lot of thought, politicians are giving it a lot of thought, because of our very negative economic consequences of 22 million people being unemployed and rising, and not being able to put food on the table. So, this is gonna need a lot more consideration going forward, "How do we restart this?"

Craig: And in the end, it's gonna take a lot of more money printing. The thought that whatever $3.7 trillion deficit in the U.S.'s fiscal year. I think that's still a bit of an undershoot, don't you?

Eric: Well, I sort of debate mentally whether this problem is too big to resolve. And, of course, there's two types of problems. One is the economic problem that's a fiscal problem. Then there's the monetary problem of, whatever we have, a quadrillion of derivatives, and the high yield market breaking out, and then the corporate bond market choking on lack of funding. All of the banking system needing support. The mortgage system meeting support. There's so many groups. The airline business needing a big handout. It's quite likely that this is bigger than the resources at our disposal. And yes, I guess we could just do MMT, modern monetary theory, and just print a hell out of the money and pretend that it's all for a good cause, which it is a good cause, but what's the final outcome economically? Do you end up with some bizarro type economy where the inflation goes crazy?

And that, to me, is a big fear these days. I personally fear that the food prices are gonna start going up here, particularly both in the U.S. and in Canada. I think the biggest meat plants have now had outbreaks of COVID-19, and they're being forced to shut down, and these are the biggest ones. The one in Canada I think supplies something like 40% of the beef in Canada. And I know we had a poultry operation, Ontario had to shut down because of the same thing. Which, by the way, tells you a little about the restart, right? Those people who have continued to operate are now all of a sudden finding out that they get outbreaks in their operations.

One of the most noteworthy ones is Amazon in France, where they had this outbreak. The Union took the company to court, the court said, "You gotta shut down or pay a fine of $1 million a day." And Amazon shut down their whole French operation. And so, there is a risk in operating, and we've seen in the food industry, which is considered essential. I guess we saw it in Amazon, which we considered essential. And I'm sure we'll see many, many other manifestations where look at this thing as virulent and it's easy to go from one person to the next. So, we're gonna have to tread very, very warily in terms of how we restart this.

Craig: Then as we come out of it, Eric, you touched on this earlier, maybe some price inflation this time. I've thought a lot of it as maybe being kind of a stagflation area environment. I've been writing on my site this week a lot about how I think maybe this decade might look a lot like the 1970s. Now, I know you remember that well. You were about my age back during the 1970s. And so I wonder what...sorry, I didn't catch that. You were about my age during the 1970s.

Eric: I got it, Craig, don't worry.

Craig: What do you remember about the 1970s and the gold price and the price of the shares and the environment back then?

Eric: Sure. Well, of course, I guess gold peaked out in 1980s. The '70s were pretty good. Of course, in 1971, we went off the gold standard and, of course, the price shot up from what was a controlled $35 to I think it got to $800 in 1980. And the stocks did, of course, incredibly well. We had many, many stocks that jumped thousands of percent. And I think you're absolutely right. I mean, I can suggest inflation. I'm certainly not suggesting a prosperous economy here, right? Like, that is so far from the truth that it almost has to be stagflation. That we get inflation in things where supply is restricted. And the supply is restricted because the economy has fallen apart whether it's because we have to shut down or whether it's because of the disease, you still have a huge supply shock, and some of the impacts of supply shock. And we saw oil in the '70s, as a matter of fact, right? That was the first oil crisis in '73, and the price of oil went from whatever, $5 to $50 or $100, I forget what it was, but there was a lot of inflation back in those days. As a matter of fact, inflation got up to 18% a year before they put a stop to it with Mr. Volcker in 2000, it just kept running up. So, it's a big risk.

Before we get off sort of the economy and the market, one thing I should point out, we got this suggestion that we have a vaccine, is it good timing? We have options expiring today. And, of course, the back of my mind says, "They wouldn't run the market up on option expiry, would they? Oh, yeah, they would. That's exactly what they do, isn't it, so that they can clip the greatest part of the herd." So, I'm very dubious that the market holds together. I think, I mean, economically, is just, it's a disaster. I mean, I don't know how else you even describe it. And unless there's some way of getting out of this, it's gonna stay a disaster, which sort of suggests...and people talk about price earnings multiples. How about price multiples to loss? There's likely to be a net loss for the economy if 50% of the companies aren't even in production.

And then, we had the bank earnings this week. I guess the worst was Wells Fargo. I think they earned a penny, but most of them were down sharply. And there's more to come, and they're a big part of the earnings, by the way. So, there's only very few, maybe 10% of these sectors are doing well, and a lot of those would be to do with drugs and pharmaceuticals and healthcare, but the rest are doing very poorly.

Craig: Yeah. And I might add, you talk about the impact of quantitative easing and all this cash. If we go back to when all that was announced, Monday, March 23rd, I got a little scoreboard update for you, Eric. The stock market is up about 22% in that course of 4 weeks, with all that printed cash, but so is everything that we follow. Gold's up about 16%, silver's up about 27%, so it's actually beating the stock market. And your big winner, Eric, is the GDX, which is up about 45% in a month. Now, it had come crashing down, obviously, prior to that, but nonetheless, the shares are doing great. I've got a lot of questions for you about the shares. Do you mind if I kind of head into some of them?

Eric: Well, I gotta make one comment about gold and silver for that matter.

Craig: Oh, sure. Go ahead.

Eric: It's a very, very important distinction. I think I might have touched on it last week. But it certainly has come home to roost here and that is that when you watch the action of the volume of trading and the change in open interest, it's like the commercials have gone to sleep here. Typically, if the price of gold goes up to $40, the open interest goes up 40,000 contracts. Most days, it hardly changes, which means I think the commercials have gone AWOL. They're not in the market anymore, such that when they do shake it out, there's typically a very quick recovery. When I woke up this morning, gold was down $30 and here we are, it's now down $11. And this has happened so many times.

And one of the things I still believe the commercials, and almost any group for that matter, can push the price around on a very temporary basis. But you can't keep it down unless you're prepared to stand in there and sell when people are buying, shorting while people are buying. It's very obvious to me that the commercials are not shorting in this market. They are saying, "Hands off, it's out of our control." We had a physical problem, which you've written about and many others have written about, in the COMEX and the LBMA. It's real. And we have like 89 tons standing for delivery in April. I mean, that's an incredible amount of gold, okay? We only mine about 2,200 tons a year for God's sake, in the free world. So, you can't have 100 tons standing every month and not think that there's gonna be a shortage, particularly with so many mines not even producing.

Same with silver. The open interest is like about $140,000 down from roughly $300,000 and hardly budging. So, I think the commercials are out of it, they're not in the game anymore, so we can move up quite quickly. I might also add that when you look at the silver ETFs in the last month have added 58 million ounces. You know, I love to...first of all, let's round it up to 60 and annualize it, that's 720 million ounces. We probably mine, maybe we mine a billion. I don't think we do. I think it's more like 900 million. But 720 million going into the ETS and 40% of silver production, not even producing, how does that work?

And then, in gold, they added 4.4 million ounces. Let's say it's 4 million, that's 50 million a year. We mine about 90 million ounces and 50 million annualized are going into the ETFs. Forget it. They'd be a shortage, which is exactly what's happening. There's a shortage of gold and silver. So, those things are certainly performing in a wonderful fashion. We still have to deal with the variability in the price of the metals because as you have noticed, I'm sure, many times, it can be up and down 10 bucks in like 2 minutes both ways. And it's kind of crazy what happened. I've seen some suggestions that if a guy had 1,000-contract order, he could knock it down $10 because there's nobody standing in there. Nobody is standing in.

And I even noticed that the options, for example, in palladium and platinum, they don't even trade anymore. Like, there's no change in open interest. I think one of them last night, there was no volume. And that must mean that the spread in the bid/ask is so extreme that no one goes there because no commercial will stand in there. So, anyway, I think that the positioning in COMEX is quite positive. And, of course, the physical volume and all the suggestions by many, many analysts and gurus that you should go into gold continues along.

Craig: Yeah. And, again, there's that digital trading of these phony-baloney derivatives that somehow is allowed to set price. That's a kind of a combination question that we got this week, Eric. One of them is, what will take the COMEX down finally? And from there is, what authority can lay charges and blow the whole scam out of the water? You wanna try those two?

Eric: Okay. Well, the COMEX has gone through many, many difficult times in many different products and always seems to survive. And it's always tilted to, even though if the commercials are short, we just suspend the market or cash settlement or something. Of course, if it was the outsiders who were short, they'd just run the thing right up and kill them all. But what would stop the COMEX is when everyone realizes there is no physical gold there. To recognize it, it's very difficult to do because even though you put in to get delivery, they can still just say, "We're gonna hand you a check." But they would, in that sense, have to declare force majeure, okay? Then we'd all know, "Well, why do we have this commodity exchange if you can't ultimately deliver?" The London Gold Pool has been broken on a number of occasions. And I hope that it will be broken again here, and it certainly sounds like it's starting to crumble. So, we may not have that much longer to wait, particularly with the kind of physical demand we see in the ETFs.

Craig: Yeah. All right. And I might just throw this in there about what authority can lay charges. I know Andrew Maguire has been on this now for about six or eight months working with the Bank of England. The first gentleman that he was working with over there was a head of the FCA, and he was very concerned about the exposure and the financial exposure that those banks are taking in London by these paper games. That guy now is the head of the Bank of England, Andrew Bailey.

Eric: Yeah, and he'll be reprogrammed.

Craig: Yeah, probably, probably, somebody will show him the light.

Eric: Yeah, right.

Craig: All right. That leads me then to this question, though, you've mentioned before the Save Canadian Mining Initiative. This gentleman points out, I assume it was a gentlemen, gentlelady, whatever, the evidence is overwhelming the juniors have suffered since the uptick rule was abolished. Where does that initiative stand? I know you've been involved with it.

Eric: Sure. Well, of course, you have to convince some regulator that there's a problem or the political authorities. And the political authorities, if you convince them, they could tell the regulator what to do. And it's a process you gotta go through. And I know that there's been many meetings, not that I've attended these meetings, but there's been many meetings with the people involved. And we can only hope that they see the light. We certainly try to get people interested and to talk to send letters to the regulators and their political representatives so that they see the seriousness of it. And I think it's very obvious to me what goes on in those markets, so why the regulator...?

I know the reason they got rid of the uptick rule is so that commercial banks could just willy-nilly trade things up and down and their algos and all of that, and never have to worry about the uptick rule because it was great for, theoretically, business. Now, I'm not a great believer in that. I think the algos add nothing to the true valuation of securities. And what's the point of allowing these guys to front-run a bona fide order? And, of course, you can front-run a sell order if there's an uptick rule. So, that's why it was changed, and it's sickening where we've left ourselves from the point of view of the bona fide investor who can't get a good fill and/or sees his stock price get whacked because some trader thinks, "Well, I'll scare a few people out of this thing." And you see it all the time. I mean, look at even today the action that's going on in gold when it goes down 30 bucks, you see these line going down, down, down, down, down, you know, and the guy is shorting it the whole way. Come on, if you had an uptick rule, that wouldn't happen. So, we're hopeful.

Craig: Well, it also keeps those companies reliant upon debt and going to the banks to fund their companies rather than use equity because the equity is constantly under pressure.

Eric: Of course, it is. It's tough enough in the mining business, Craig, when you think of from the point you start to look for a mine to finally getting it into production, I mean, it's a 10-year battle, okay? It's a long, long time. So you need lots of investing. And most of it has to be risk capital, not bonds. The only times it's loans is when you finally prove up the deposit, and then you can go to the bank and kind of get a development loan. But for the first eight years, it's equity capital. And if we don't have equity capital, we won't have any new mines. And we won't have any equity capital if we allow people to sell on downticks. So I think it's well worth the change.

Craig: Eric, just a couple of more questions. I very much appreciate your time this morning. This is kind of a COMEX question, again, in a sense. With the closure of the mines in Mexico and Peru, which are the largest silver-producing countries, we've yet to really see any impact of that on price. If you can comment on that. And then specifically a company like First Majestic, which has most of its operations in Mexico, how might that impact the share price?

Eric: Yeah. Well, it's difficult...well, first of all, yes, they have definitely shut down. I think there's definitely a tightness. I discussed that I think last week when I said I was trying to buy some silver. And I always have to ask the people before I even put the order in look at is, "Is his gonna disturb the market?" And these are silly little orders on irrelevant basis, okay? But I think it's very tight. We still have refineries operating at low capacity with many mints still shut down. I think you had a mint just shut down in the U.S. that was doing Silver Eagles, if I'm not mistaken, or Gold Eagles. I'm not sure which one it was, but it was just shut down because of disease. That's the funny thing. You decide you're gonna stay open, and then all of a sudden, you find that you're spreading disease. Yeah, what did you think was gonna happen, right? So, anyway, it will show up. I think it's being manifested as we speak here when we see this bifurcation of pricing between the LBMA, the COMEX, the online sites and things like that. So it's happening as we speak. We just haven't had a failure yet, but I suspect that's not too far off.

Craig: And then, as it comes to specific companies...

Eric: Oh, yeah, First Majestic, I was supposed to talk about that. Of course, I know Keith Neumeyer very well. I've been formerly a big owner of First Majestic. I don't own it now because he's way too successful for me and recognized, and he's got a very nice market cap. I try to look at smaller companies. But I have a lot of difficulties wondering, "What should something trade at when your operations are shut down and the price is going up?" And it's funny. I had someone say to me yesterday that everybody is buying the explorers because they're not expected to produce anything, but the value in the ground is going up. And there's a certain sense of logic to that.

But I guess it's also true of the producer because his resources in the ground are going up, but his next reported earnings won't look that interesting, and it's a bit of a trade-off. Which is more important, the reported earnings or the value of the long-term asset in the ground? And I think ultimately, the important thing is the long-term asset in the ground here. We're not buying it for one quarter's earnings. In fact, I try to look for it...I mean if the price of silver starts going to $25, First Majestic will be a wonderful performer. So I think that's the essence of the answer, that if the price goes up, these silver stocks are gonna go up. And I think they've done better than almost any group of stocks, the silver stocks.

Craig: All right, just one last question for you, Eric. And just in recognition of people that have sent in questions, I asked Eric and he just doesn't currently have an opinion on America's Gold, or Greatland, or Silver Elephant, or De Grey. But the one question I did wanna as you, Eric, is just a straightforward and simple one. Someone had written in and said, "Okay, in a hypothetical situation, if you could only buy one or the other with some cash that you're sitting on, would it be Wallbridge or Novo?"

Eric: Sure. Well, as you know, I've been a quite significant buyer of Wallbridge over the last 12 months or 2 years, I guess. I was a big buyer of Novo probably 18 months, 2 years ago. I haven't really purchased much since. The progress in Australia has been a little bit halting and, of course, we're still struggling with the economics of extracting the gold from the gravel. I think the one thing that is great for Novo, and anybody looking for gold, of course, the price of gold being $1700 U.S., or in the case of Australia, they get like $2,400 or $2,500 Australian, so there's a huge advantage there. And so the economics are coming towards you just because of the exchange rates and the price going up.

So I'm sure that Novo can be economic, just that we can't say it's economic yet. But my preference would for Wallbridge because I think we're setting up to have a great, significant discovery at the Fenelon deposits. And they haven't restarted drilling although, luckily, Quebec just this week said that mining was essential and is letting the mines reopen. I don't know if they're gonna say that exploration is essential, so I don't know whether Wallbridge can go back and start drilling the Fenelon. So far they're not, so we'll have to stand by on that one.

Craig: To see how tight supplies get maybe then they'll deem not only mining but drilling is essential.

Eric: Yeah, let's hope so, fingers crossed.

Craig: Eric, anything else on your mind before we wrap up?

Eric: I don't think so. It's such a fluid situation, particularly with the coronavirus, and getting the mixed reports of great news and horrible news and, of course, the whole analysis of how do we get out of this thing, which I think is gonna occupy it for quite some time here, okay? And you can sort of see the battle shaping up. One country says, "We wanna open up." Another country says, "We're shutting down." So, it's very fluid and it keeps everybody on edge here, myself included.

Craig: Yeah, that's for certain. Well, we'll see where we are by next week. But for now, I guess we'll wrap up. Thank you for all your time. It's been valuable as it always is. And I hope you're able to relax and have a safe, healthy weekend.

Eric: You, too, Craig, all the best.

Craig: And from all of us here at "Sprott Money News" and sprottmoney.com, thank you for listening, stay healthy, keep those hands clean, and then come back next week for another weekly wrap-up. Until then, it's time to go. Again, thank you for listening. We'll talk to you again next week.