Weekly Wrap Up

Eric Sprott on the US Dollar, commodities, and gold in the Pilbara region. (Weekly Wrap-Up, January 26, 2018)

It’s been a wild week: gold and silver are both up, but the US Dollar staged a late-week rally. Does this mean the dollar is back on track?

Eric Sprott says, “Not so fast.”

“For all Americans, they’re losing purchasing power on an international basis. Your Nissan is going to be 20% more expensive, other things being equal. The cost of any imports—it doesn’t matter what it is—the dollar has less purchasing power, so it’s a very, very significant thing…”

Add to that a bear market for bonds and a weak Fourth Quarter GDP, and the pressure on the dollar keeps mounting.

“We’re getting lots of indications that things aren’t as strong as they should be. Most of the ISMs have been weak. The Fed surveys have been weak. Retail sales were weak in December… There’s lots of talk of a boom, but I’m not so sure there is a boom. The data doesn’t support it.”

What does this mean for gold and the commodities market? Listen to Eric’s full thoughts here:


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

Craig: Well, hello again from Sprott Money News and sprottmoney.com. It is Friday, January the 26th, and this is your weekly wrap-up. I'm your host, Craig Hemke, and joining us as usual again this Friday is Eric Sprott. Eric, good morning.

Eric: Hey, Craig, great to be here.

Craig: It is great to be here. It's been a wild week, but it is always great to make it through. And hey, before we get started, of course, I've got to ask you, did you know, Eric, that the deadline for RRSP season in Canada is fast approaching?

Eric: I did know that.

Craig: The deadline this year is March 1, 2018, so our friends at Sprott Money have partnered up with Questrade to make it even easier for you to buy and store physical gold and silver in your registered retirement account. Don't miss the deadline. Invest in your future today. You can call 888-861-0775 for more details or visit sprottmoney.com as well. Eric, it has been a wild week. Let's just start out this discussion by at least mentioning, I guess some perspective, gold is up $18 on the week, silver's up 37 cents. I'd take that every week, wouldn't you?

Eric: It's been a great week. It was a greater week until the taller rally for momentarily yesterday and the kabal would beat up on gold, and of course they use these opportunities because there had been many opportunities this year for them to point to something that's gold negative. And I guess that mini-rally when President Trump said, "We believe in a strong dollar" was an opportunity. So far today, the dollar is very week. Gold looks like it wants to rally here. I think there's many, many factors all coming together that look good for the precious metals this year.

Craig: You know, we should talk about the dollar because we've been talking about the dollar it seems for the last, I don't know, three or four months, because this is a trend that is clearly our friend in 2018. A weaker dollar seems to drive interest and funds into commodities in general as they arise. And that's gonna lift all of the boats, you would think, and the dollar already down more than three points, year to date, so about 2.5% just here in January. That trend continues, you would sure think that's gonna help us all throughout the year, right, Eric?

Eric: Well, I'd assume that you're thinking, Craig, you don't wanna annualize that 2.5% decline in three weeks, okay. It would be pretty significant by the end of the year. But you know, even in my simple little mind, as I look at that dollar chart, you break 90 on the DXY, I mean, looks to me like it goes to 80. So, you end up with another double-digit depreciation issue. We had a double-digit depreciation last year. How many years in a row can you take this before you say, "You know something, I should do something about this?" Because for all Americans, they're losing purchasing power on an international basis.

You know, your Nissan is gonna be 20% more expensive, other things being equal. And the cost of many imports, doesn't matter what it is, just the dollar has less purchasing power, so it's a very, very significant thing. And there might be lots of reasons, perhaps the biggest reason in my mind is that, you know, this bond market is...we're in a bear market in the bond market, and that's where the big money shifts are, right? And if people in the world think that U.S. bond rates, the interest rates are gonna go higher and bonds are gonna go lower, and they wanna get out, I mean that's a flood of money that's trying to get out. And of course, two things go wrong. One, interest rates go up and, as you know, the 10 years around, I think it's 263, 264 today, been a little higher earlier in the week.

And so, it's been a very gut-wrenching time for bondholders. I'm not a bondholder so I don't get to experience this, but you know that there's been some serious losses. And of course, the fear of the big loss, imagine if the bond actually changed by 100 basis points, oh my god, the losses, the bonds would be staggering. So, there's lots of reasons to think that the pressure could stay on the dollar. There's lots of reasons for people who had been in gold, when we've seen it rallying now, we're in the third year of rally, like it could get very exciting here this year. There's lots of people coming out in favor of gold who otherwise hadn't been in favor of gold. So, things are looking up.

Craig: Yeah. And the clown show of this week doesn't instill a lot of confidence in global investors either, you know. We're talking about the dollar, the reserve currency of the world, and you got the secretary of treasury saying, "We want a weak dollar here in the U.S." one day and then the very next day, the president has to turn around and correct him. I mean, that does not instill confidence, you know, in the competence of the U.S. administration. I would think that doesn't bode well for the dollar either.

Eric: Yeah. And I might add, the president, who says one thing one day and can say the opposite thing the next day, so you never know where we all stand here. And of course, the whole trade issue on washing machines and solar panels, there may be some action out of some of the countries affected here, which will have a negative impact. But those sorts of things cause people to be disappointed in the dollar as well. And you know, we have other economic data that's been weak and maybe we should talk to that too.

Craig: Well, you mentioned the data, the data this morning was weak, fourth quarter GDP first guess came in below expectations at 2.6 versus an expectation of 3. And the durable goods orders down here in the States, everybody thought they look good, just on the headline number, but if you strip away the spending on aircraft for Boeing and strip away the spending on bombs and guns and everything else that make war, durable goods core is actually negative. It doesn't really bode well either, doesn't it?

Eric: No. And we're getting lots of indications that things aren't as strong as they should be. Most of the ISMs have been week. The Fed surveys have been weak. The retail sales were weak in December. Like, there's lots of indications that we're not starting off in a...there's lots of talk of a boom, but I'm not so sure there is a boom. The data is certainly not supporting it, and wouldn't it be interesting if all of a sudden that data just continued to stay soft and we realize, you know what, crossover America, who's receiving their 20% increase in their healthcare bill, and their rent increases, and the food going up, and you know, we're seeing more signs in place, and even the GDP report, I think, in place was 1.9% in the fourth quarter. Well, you know what, many people don't get 1.9% wage increases. So, it's been tough for the average guy here. In fact, it's been ridiculously tough for the average guy. And I think that will continue to play out, you know. You can't expect someone to spend money that he doesn't have, particularly when prices around him are actually going up.

Craig: That's right.

Eric: You know, they've not recorded this going up. So, that's a big concern.

Craig: So, it all kind of piles together into making an interesting stew for higher metal prices as we go through the year. You know, not straight up, everybody wants things to go straight up like Bitcoin, but certainly the trend is going in our direction with flows of money from around the world now looking for an undervalued sector. Commodities are it, and if the dollar's gonna keep falling it would seem to be that commodities would keep rallying and gold and silver are treated as such. And so, it looks good. The GLD is adding metric tons, if you think that's important. And all in all, it looks like we're off to a good start, doesn't it?

Eric: It sure does and, you know, it's not just precious metals. I mean, we've had some pretty good rises in base metals here: lead, zinc, nickel, copper. I was shocked to see the price of lumber is almost $500 a thousand board feet, which is twice what it was a couple years ago, which gotta mean the cost of housing is going up. So, there's lots of action in an asset class that looks like it's the last class to go. Everything else is gone, and some of them are still going. So, yeah, it looks like there's lots of room for commodities to continue to run here because the money, no one has recommended anyone be in commodities for a long time. And it looks like our time has come.

Craig: Yeah. Now, I know you keep a close eye on the cryptomarket because you find it fascinating. What have you seen there this week?

Eric: Well, it's interesting. I mean, the fact that Bitcoin is down, I think it's around $10,500, actually touched below that probably last week, sort of rallied this week and then it's given up that rally here on Friday. There's a coin exchange in Japan that closed, that they stopped withdrawals. One of the larger ones actually, it was called Coincheck. And there's recent studies come out that have said that 10% of all coins are just hacked and lost, which how could anybody invest in something like that where you lose 10% by hacking? Well, you know what, that can happen every year, right? Give it time. You'll have nothing. So, that's been very surprising.

And there's been studies that have shown previously that the prices are manipulated, because then, we talked about this last week, it's an unregulated market and it looks like prices are manipulated. So, you got a pretty loosey-goosey type market out there, unregulated, volatility is unbelievable. It's obviously technically, I mean, that's pretty weak when you go from roughly $20,000 down to $10,000 in a very, very short time. That's almost shocking. It is shocking. So, anyway, and then we've also noted that from various coin dealers that some of the profits of the insiders or the guys who were first movers who have sold the cryptocurrencies, of course, what are they gonna do? They turn around and buy precious metals with their winning. So, that's been very positive as well.

Craig: Eric, as we wrap up, I've had a lot of requests this week either through Twitter, we've gotten them through the Sprott Money inbox, just for an updating that you might know how things are progressing down there in Australia, with some of the companies that we were talking about last year, things kinda gone quiet, and so, people are just wondering just your perspective at this point.

Eric: Yeah, sure. Well, obviously, the results have been disappointing in the sense that, I'm gonna refer to no-roll here, that their ability to prove the thesis has been affected by the inability to get good core samples or bulk samples. And even when they say it's a bulk sample, I mean, 500 pounds is hardly...it's called a bulk sample but it's not a lot, okay. It's less than a cubic meter, so it doesn't really tell you anything. So, unfortunately, we have to await results of a true bulk sample, it's almost like test mining in a way to try to prove they're not gonna affect at a certain level in the conglomerate.

And the one biggest thing that's happened that's a negative is that there were hopes that the conglomerate might be somewhere between potentially 10 meters of thickness and, let's say, 2 or 3 meters of thickness and it looks like...and I don't wanna jump the gun here, and I'm only commenting on what's in the public domain here, that that thickness might be as little as half of them a year. Now, that's also what they had in South Africa. They only mined, I think it was, like 40 centimeters, and of course they had over a billion ounces of gold. So, you can still have huge amounts of gold here, but it's taken us from the...we're not talking hundreds of billions of ounces or maybe tens of billions of ounces, even a billion would be fine, okay, Craig?

Craig: Right.

Eric: But it has shrunk the scale of things, and of course, it's delayed the time when we know exactly what's going on because now they've got to take these bigger bulk samples and get them tested and prove to the world what kind of consistent grade we can get, and that hasn't been done yet. So, we'll just have to wait for that, and of course, anytime you say, "Wait," stocks weaken.

Craig: Right.

Eric: In the case of no-roll, it was up to something like 20% yesterday. And there are suggestions, I believe this, that when warrants expire on these stocks...you know, there were some 85 cent warrants that expired, and I don't know how many there were, but let's say there are 3 or 4 million. You know, a lot of people don't wanna put up the 85 cents, so they just sell the stock. Well, you bring in that selling into the market, which is an unusual timing event, it can create weakness, and it would seem that most of those warrants are now...people have done whatever they're gonna do in terms of selling, so the pressure is off.

We just have to stand by and wait and see what these trenching results will do. And of course, in the case of no-roll they're gonna get to go into common well, which is 100% owned property, and I think that will certainly help the flavor of things when they get started up there. So, we really haven't had any news to hold onto, but we're still believers in the thesis that there's a major deposit there. It's just it's not being proven in the timeline that all of us bulls would like to have, we'll have to stand by on that one.

Craig: Some fabulous perspective from someone who should know. I mean, you're a legend in knowing this stuff, Eric. And so, we just really appreciate you passing along your wisdom, no doubt about it. And my friend, it has been always fun to talk to you and it has been a very fun start of the year. I look forward to next Friday. I suppose by next Friday, we'll have an employment report to discuss and all that kind of stuff again. So, it'll be another fun talk next week. But for now, I think we'll just call it a day and wish you a happy weekend.

Eric: Okay, Craig. All the best to you and all the listeners. Take care.

And from all of us here at Sprott Money News and sprottmoney.com, thanks again for listening this week. Talk to you 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.