Weekly Wrap Up

“Light at the end of the tunnel.” - Eric Sprott on the week behind us. -Weekly Wrap Up (September 14, 2018)

Head Shot of Eric Sprott Weekly Wrap Up

Sept 14, 2018

Lots to talk about this week: Gold and Silver are both up, and things finally look like they might be turning around after five long months. You won’t want to miss this value-packed discussion, as Eric stops by to help us break down the latest happenings in the world of precious metals, including:

Why the dollar is on the verge of breaking down

Morgan Stanley’s surprising new recommendation

Plus: Eric answers listener questions

“The whole premise for gold going down, which is this phony premise about the strong dollar and that interest rates are going up, it’s just a narrative that covers for what’s going on in the paper market. It’s just a narrative, OK? The reality is that… we talked last week about India buying 100 tonnes of gold in August. I mean, that was an incredible purchase! … And various central banks have been buyers of gold… It’s like, man, there’s not going to be enough gold around. So, I think we’re looking good.”


To hear Eric’s full thoughts on these topics and more, listen here:


You are listening to, The Weekly Wrap Up on Sprott Money News.

Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. It's Friday, September the 14th, 2018, and this, of course, is your weekly wrap up. I'm your host, Craig Hemke. And joining us, as usual, this morning is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Good morning. A little light at the end of the tunnel here. So a few things to chat about.

Craig: Let's hope so. Let's hope there is some light at the end of this five-month-long tunnel, that's for sure. And to celebrate that and the hopes that we are finding some type of bottom, Eric's pick of the month is a one ounce Britannia gold bar. So perhaps we'll start there. This is the first time that the Royal Mint has released bullion bars. The brand new Britannia gold bar are crafted on 49 pure gold and have a new Britannia design. You can get them of course at sprottmoney.com or you can call 888-861-0775. And what's fun is those little one-ounce gold bars are $9 more expensive than they were a week ago. We haven't said that very often lately. Gold's up $9 for the week, at least as we speak. And silver's ups eight cents. Are we finding a bottom, my friend?

Eric: Well, I think there's reason to think that. And of course, the thing that you and I talked about most often, is the commitment of traders report and the positioning of the commercials versus the technical funds. And the commercials have massively gone from being short to now being net long, which would suggest that the price of gold should go up here. And of course, it looks like it's bottoming. We were down to 1175 and today we're at whatever, 1205. So we've got a bit of a move here. Interestingly, the dollar, which you know, was strengthening, it's on the verge of breaking down here. I mean, as I read various technical guys, if it breaks through 9450, on the downside, the DXY, then you have a technical breakdown of a dollar, if you can imagine, with all this chatter about strength in the U.S. dollar and all that.

Meanwhile, it's weak and like, it's right on the cusp of breaking down here. And it could be that, for example, the world doesn't think that the rate hikes are coming. We had a retail sales number this morning that was I think up point one for the month. Like point one, excuse me, what kind of growth is that? So, do we really need to continue to clamp down here? And of course, we had the CPI and PPI were also weak. So, theoretically, there's no inflation. I don't believe those CPI and PPI numbers. But theoretically, from the Fed's perspective, there's no inflation. So there's lots of reasons to think that the bottom is in, and gold should rally. And I might mention that there's another sort of a shift that's going on. I noticed that of all people, Morgan Stanley, in their private wealth department came out and recommended by 3% to 5% weighting in gold.

Craig: What?

Eric: Now, he came out and recommended a 3% to 5% weighting of portfolios in gold.

Craig: Seriously. Wow.

Eric: Now, of course, they preface it by saying, well, we don't really believe in gold and it's not a long term investment and it doesn't really belong in portfolios. But for right now with the stock market being vulnerable, we suggest 3% to 5% investment in gold. I always find that interesting because I think gold and gold stocks represent about 1.5% of one 1% of all the equity in the world. So if you're going to try to put 3% to 5% of your portfolio in there, you're not going to be able to do it at these prices. So that was a very, very interesting thing to read that. And then the Goldfield Mineral Services, GFMS, who in my mind has been negative on gold forever, came out and thought gold prices would rally towards the year-end. So now I'm seeing two sort of big institutions in the financial business recommending gold. I mean, it's almost unheard of.

So, you know, maybe of course, they might also know that the commitment of traders report is suggesting that the prices should rally here because it's all set up for these big financial institutions to take another, you know, shot at the technical funds here. So I do believe that there's some very interesting developments and I think the Morgan Stanley and the GFMS thing is kind of a real significant macro change here. So, I think it's going to be quite uplifting for us.

Craig: And you mentioned that commitment of traders positioning, Eric. Buried within that report, if you break it out, as I know you like to do, is this again, managed money category, which is mainly hedge funds and the like. And the net short position that they have in gold is something like 260 metric tons. Do you know any hedge funds that are sitting on 260 metric tons that they're hedging, that they can deliver at any time? Or are they just making a bet that price is going to go down?

Eric: They're making a bet and the way its sort of playing out here with the price slowly eking out these gains, I find it rather interesting that it's a nice slow climb because maybe they won't get particularly agitated, you know, if you move up to like we have this week $8 this week and $8 next week. Nobody's going to panic here. And in fact, I'm even going to look forward to this week's Scott Report. Maybe they went even more short. It's entirely possible. But the whole premise for gold going down, which is this phony premise about the strong dollar and that interest rates going up, it's just a narrative that covers for what's going on in the paper market. It's just a narrative, okay? The reality is that, you know, we talked last week about India buying 100 tons of gold in August. I mean, it was an incredible purchase. And of course, the Russian central banks buying the Kazakh central banks buying various central banks have been buyers of gold here and now we got Morgan Stanley saying we should buy gold. Like, man, there's not going to be enough gold around. So I think we're looking good.

Craig: Well, unto that point, you know, you've got Morgan Stanley though. It's telling their clients basically buy gold exposure. Whether it's the GLD or maybe some futures or something like that, it's that break apart between the physical reality and then that paper price that seems to be still very... I mean, that's what's most troubling. That's what has bothered all of us for years is that the paper trading is what determines the physical price.

You know, Eric, I go back three years ago when we'd kind of gone through a similar period where the dollar had soared, there was this disinflationary environment, all the commodities got smashed. And eventually, the metals found what appeared at the time to be a bear market bottom. But it also appeared to be a point where, the paper price couldn't fall past a certain physical floor that, you know, below the cost of production for the miners, things like that. Around $1,100 for gold and around $14 for silver. Do you think if that's the case, Eric, do you think those costs of production, you know, floors have risen or fallen in the last three years?

Eric: Well, that's a very good question. I mean, there are some things going on in the mining business which are efficiency improvements. At the same time, the energy's gone way up. It's a big input. I guess I'd generally say that costs have probably gone up here even though there are places where costs have declined. And I don't so much put it down to the cost of production is the bottom. I think it's the world buyers that add a level, say, you know what, I think this is something I should buy. And I use the Indians as an example because they are the most persistent buyers. And for them all of a sudden to come in and find a level where they're buyers because they don't believe in currencies over there, that's the funny thing. I mean they buy...it is a currency. Gold is their currency. And of course they're watching the price and it gets low when they step in there. And I think the same thing is true in silver that you know there's going to be someone who'll say, well, you know what? Below $14, this is just a steal here.

And of course, at $14, the value of all the silver in inventory is all of $14 billion dollars. Come on. Fourteen billion. Do we know how little that is in today's world? Like it's just stunningly small. So I think it's the reaction of the market more so than the cost of production. I haven't seen any miner yet who says, well, I'm not going to produce if it's below 1200 or if silver's below 14. They're all going to be, they'll have a tough time making money but it takes them a little while to say, because of all the fixed overheads that they're going to actually limit production. In fact, they're probably more likely to do some high grading to try to survive the darn thing.

Craig: And maybe, Eric, that's a good segue into a listener question that I had emailed to me, someone that likes to listen to us every week and sees what's going on and just simply wants to know why is it that producing companies and or full countries can't band together sort of like OPEC to control output and try to affect price?

Eric: Well, I think technically speaking, if a group got together with the intent of forcing the price higher, it is a legally liable situation that you're finding yourselves in. But I think, and in fact I happen to know, that there is a lot of concern amongst the gold mining companies to try to create more interest in people buying gold and explaining why they should buy gold and to be a little more proactive than, for example, the World Gold Council has been. And that may manifest itself here. I hope it's going to manifest itself. I think most of us realize... most of us in the gold...well, not most of us in the gold mining business because it's not true. Some of us in the gold mining business realize of this up and down that goes on in the commodity market, but no one ever delivery is really an injustice to the whole industry. And that maybe there are other things you can do about it that are entirely legal that bring more attention to the precious metals here. And so I do hope that that's something like that does manifest itself. And I know, I can say having been in this business, I hear discussions of things like that.

Craig: Eric, let's end the week on kind of a fun note. There was some news this week out of Australia. It doesn't have anything to do with the Pilbara, which you and I talk about quite a bit. But there was discovery of the largest gold nugget ever found, at least so far on planet earth. Made some headlines. It's an interesting story, and I know you've got some details on that too.

Eric: Well, the most humorous thing about it is, this was found by a company called Royal Nickel. Which I happened to be a big owner of because they had found things like this before at a different level in the mine, okay? And I thought, well, this could be big and they were mining nickel and gold. And so I was a pretty big shareholder. And if you'd asked me two weeks ago where this stock was going, I would've said, you know, they have a shot at going broke here. And then all of a sudden there's this announcement on I guess Sunday night or Monday morning that they had a blast in one of the holes and over a 3 meter by 3 meter by, I don't know, 2 or 3-meter blast that they recovered 9,600 ounces, which is an incredible. It was something like 70 ounces a ton, 70 ounces a ton. Unheard of.

And these are beautiful nuggets. In fact, they are so beautiful that they will either be sold as nuggets or they will be held by the Australian authorities. Now so with the company called Royal Nickel, it's listed in Toronto and their symbols are RNX. The company had a webcast on Tuesday. The webcast is available. I suggest any serious investor should go and look at that webcast and see what they're saying and I'll try to paraphrase it for everyone. So they were mining at a level and they said, well, maybe we should go down to this level down here because we have a sediment that goes across on a lateral extent that could cause gold to precipitate into what's called the [inaudible 00:14:09] sediment. And, sure enough, they go down there and wow, this is where they had this discovery. And they've said in their presentation that this sediment is omnipresent at that level throughout their tenement.

What happens is, where the sediment meets a structure that had been metal bearing, where it meets that structure gold seems to precipitate in very large quantities. And they have struck at least two two-kilometer structures, okay? So there's a big potential here that this is not going to be a one-off. It's already sort of the biggest discovery in a small amount of tons that the world has ever witnessed. And it is the world's largest nugget now. So it would be worthwhile for people to think about whether this is likely to carry on. The suggestion in the webcast is that it does carry on. So we're all going to stand by and find out if we have a world major discovery here. We'll see.

Craig: What a remarkable story. That is really something. I appreciate you taking the time to tell everybody about that one. Again, that company was called Royal Nickel, right?

Eric: Royal Nickel, yeah.

Craig: Crazy. All right. Hey, one last thing, Eric, before we go. Just to remind all of our listeners is Sprott Money is offering great deals and we're always offering great deals. And you can see them through the website. All you got to do is go to sprottmoney.com. There's a tab in the navigation bar for deals. You click on that and you find the great deals there. And actually, too, this is your last chance to take advantage of our end of summer sale as we're now in the middle of September. There's only three days left, so please visit sprottmoney.com or again, just call us at 888-861-0775. Eric, an interesting week and very interested to see what happens over the next five days and I look forward to talking to you next Friday.

Eric: So do I. There's a lot of things going on in the mining stock business. They've been some big discoveries and it's kind of heating up here and I think more and more investors seem to be coming into it. So I will look forward to chatting again next week.

Craig: Again, just makes it more valuable to listen each and every week. And we will do this again next Friday. Until then, my friend, have a great weekend.

Eric: You too, Craig.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening and we will 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.

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