“People are going backwards here.” - Eric Sprott on The Jobs Report (Weekly Wrap-up, March 9, 2018)

Transcript:

Announcer: You're 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, March, the 9th and this is your Weekly Wrap-up, I'm your host Craig Hemke and joining us as usual this week is Eric Sprott himself. Eric, good morning.

Eric: Thanks, Craig. I'm great to be here.

Craig: Another fun week in the markets, Eric, but it is still just March and so that means we are gonna continue our push toward IRAs and holding physical metal in your IRA for an American listener. You can do that, and it's not a bad idea to do it at all. And Sprott Money and New Direction have teamed up to help assist you in purchasing and storing your precious metals within a self-directed IRA. It's easy, it's seamless. And you can diversify by storing in depositories across the United States and Canada.

You got to do this, of course, by April the 15th. So you need to visit sprottmoney.com or just call 888-861-0775 to get the ball rolling. And the ball has been rolling this week, though it's been rolling the wrong way for the last couple weeks, Eric, and we got the employment numbers this morning. Big blowout jobs number here in the US, but once again, average hourly earnings are below expectations. Your thoughts on all of this?

Eric: Well, it's always interesting to look through the numbers and I just happen to catch the fact that of the 300, and I think it's 313,000 jobs, 171,000 was part-time. Okay? So by far, the majority of the jobs are part-time, and who knows what part-time means. Maybe it's 5 hours or 10 hours or whatever. And the fact that the wage increase was only 0.1%, which by the way is 1.2% annualized, which is less than inflation i.e., people are going backwards here, it should be worrisome to the average person. Of course, that's what's been happening for decades here, that the workers' wages are going up slower than inflation and everyone's essentially moving backwards in terms of total net compensation. So, yes, it looked like a good report on the surface, but it wasn't particularly strong when you get into the guts of the matter.

Craig: Yes, yeah. And gold at least is holding in there so far this morning, though it's down $8 or $9 on the week I suppose. You know what's really getting kicked around here late in the week is Bitcoin. You have any thoughts on that, Eric?

Eric: I keep reading about these exchanges where people are...the coins get lost and where they're run by crooks and, like, this just died...I mean I've read data points where like 10% of all the coins have been lost and every time I think about having your wealth on a computer, whoa, and then you lose the computer. Or how about the computer explodes or something, your lithium-ion battery ignites. And all of a sudden, all your wealth is gone. I mean, it kind of boggles the mind to think about the things that could happen to you with your money, your wealth in electronic form. I mean, God forbid, you ever had a fire in your house, you could be a millionaire one day and broke the next.

So I just deem practicality of Bitcoin or sort of cryptocurrencies always amazes me. And when that...There's a coin exchange in Japan that lost 500 million in coins and they said, "Oh, that's no problem, we'll pay everybody back." And I think we'll wonder what fees those guys are charging to trade those bitcoins that they would have $500 million to pay people back out of their capital. And I have heard that the cost of trading cryptocurrencies is quite expensive. So they don't seem to be serving the purpose of a currency, that would be my bottom line. And of course, I think the fact that they've gone down in value is going to bring more people back to gold and I would love to see that the stock market continue to kind of shake a little here and have people think more about diversifying their assets and getting them to the precious metals.

Craig: Yeah. And commodities in general even is about the only undervalued sector at present. And what's, I think interesting to a lot of folks this week, especially those of us that watch the internals of these markets is the latest Commitment of Traders report, particularly in silver. Gold is somewhat neutral it seems from a historical standpoint, but silver is quite interesting, Eric, and I'm sure you've followed this yourself over the last 15 years. Let's put it this way, it has been 15 years since the, what was called the large speculators, the silvers, the hedge funds, the trading funds, managed money. It has been 15 years since they have been net short on the COMEX. That's rather historic by any measure, Eric. What do you make of this latest Commitment of Traders report?

Eric: Yeah, no, there was a tremendous reversal there in the positions and the commercials have covered their shorts, the funds have gone short. I mean, it's the perfect setup for silver to move higher here. Most of the things you tend to read about silver demand are quite strong because the world theoretically continues to grow at 2%, 3%, 4%. The mining production of silver went down last year. I think the expectation is it goes down again. They favored silver over gold just because the ratio used to be 15 to 1 in terms of price ratio between the two, it's now 80 or 80 plus silver versus gold. So yeah, I think we're well set up for things to happen. Of course, you can always have a black swan event come out from anywhere and they're all...all manner of things can happen here and silver is in a position where it could re-put a rally on. So, yeah, it looks quite exciting looking at the Commitment of Traders report.

Craig: Yeah. At least on my end, it makes you wonder. There's probably not a lot of downside from here, though we might have to be patient waiting for the upside. Has that been your experience?

Eric: Well, it seems to be pretty resilient in here. You know, normally you might expect it to get bombed a little more. In fact, I think there was one-day this week, it was down like 25. So it's showing some relative strengths for sure. So we're ready to go here and I think people realized the kind of strange policies going on in the developed world and I'll even put it that way. For example, the March car sales were weak, the March housing's weak. And now we're gonna...now we're supposed to take another 100 basis point increase in rates this year? I mean, what's gonna happen to housing and autos that are so reliant on lending when they're already weak and we haven't, you know...we're going to see another 100 basis point increase theoretically this year or 75 basis points? So I don't have nearly the confidence that the economy is going to exhibit the kind of strength that the supposed economic experts think will manifest itself when we're already seeing signs of weakness

Craig: Eric, I want to close with kind of a big-picture question for you. The news broke earlier this week that the LBMA, which has been running their twice daily fix for gold as a kind of the...for folks that don't know this, it's kind of an institutional price. It's the price a lot of wholesale jewelers, people like that use as a benchmark around the globe, they've been doing that for 90 years. And usually, you get those prices twice a day and it's reported about 15 minutes or so after that price is settled. Beginning April 1st, the LBMA is not going to let anyone know what those prices were until about 12 hours after those auctions take place, midnight the next night. Eric, is the LBMA becoming irrelevant? Does this have to do with the pending launch of that Yuan denominated crude oil contract? What do you make of this?

Eric: Well, I mean, I never believed the data that they trade, what do they say, 1.5 million tons of gold in the LBMA when we produce 23,000 tons in the free market. I mean, it's like some incredible multiples and I just can't even imagine trying to envisage this stuff moving around, you know? And then meanwhile, there's five key members of the LBMA who would be in that price-setting mechanism. So I don't think it's nearly as critical. I mean, it's not used much over here in North America anymore. I would imagine that the Chinese certainly wouldn't use it. They got their own gold exchange that they would price off of. So its relevance, I think has diminished a lot.

You did mention that on March 26 the Chinese Yuan will be used to settle oil contracts and will be convertible into gold. And we've noticed a little movement of gold from China into the UK. That never happens. Okay? And first of all, gold never leaves China, but for some reason, some gold has gone over the UK and maybe to the LBMA, and perhaps to be used in this kind of exchange where people will trade oil for Yuan and then trade the Yuan into gold and they might want to have gold in certain places geographically that make that somewhat convenient.

So yeah, I think it's gonna be interesting watching what happens on March 26th here and in fact, we may see things start to move up ahead of time if people really believe it's going to take hold. And there aren't a lot of commentators that believe that. I'm personally uncertain about it. There's been so many false starts in terms of things trading in China with gold that were supposed to be significant to the gold price that never really got off the ground. So I'm a little hesitant to suggest that it will work but it's something we all have to keep in mind and watch for the development of that market.

Craig: Yeah, what good is a global benchmark if you can't get the price of that benchmark for until a 12-hour delay? I mean, it almost appears as if the LBMA is ready to cede that authority to other parts around the world.

Eric: You're right, Craig. I mean, you know, because the price is always going to be $5 or $10 difference, but then that's just the way that the gold market is, so I don't get it. I just don't understand and I'm sure the whole gold market won't understand it.

Craig: Yes.

Eric: In fact, they'll probably be suspicious of what the real intention is, and I don't blame them for thinking that way.

Craig: Right, I hear you. Well, it is going to be an interesting week next. The next thing we'll have on our plate will be the FOMC coming up for March and an expected rate hike there and everybody will be pouring over the headlines that come out and everything else. The merry-go-round never seems to stop, Eric, but at least it gives us fodder to talk about these things every Friday. And so I want to thank you again for your time today and I guess we'll just look forward to seeing where we are by next Friday.

Eric: Well, I think that lots of interesting things are happening here. I love the fact that bitcoin's weak, I kind of enjoy the fact that the economy's weak, I think there's lots of indications that demand for gold is strong. I keep reading about the backwardation in London. So I mean I, too, will look forward to next week and let's hope that we have something much more positive to report.

Craig: Time to turn things around. All right, my friend. Have a great weekend, and again, thanks for your time and we'll talk again next Friday.

Eric: Okay, Craig, all the best.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening and yeah, have a great weekend.