Why Eric Sprott thinks 2018 could be an interesting year (Weekly Wrap-Up, December 22, 2017)

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 is Friday, December 22nd, 2017. And this is your Weekly Wrap-Up. I'm your host, Craig Hemke, and joining us as usual this holiday season is Eric Sprott, himself. Eric, good morning.

Eric: Hey, Craig, good morning. Kind of an interesting week. Lots of major changes going on here. So we'll have plenty of things to talk about.

Craig: No doubt about that. And it is Mr. Santa Sprott. We're just a couple days away from Christmas. And so as we mentioned several weeks in a row, people really should check out that 2017 holiday catalog from Sprott Money. It is fantastic, all kinds of great deals in there. Sprottmoney.com is where you will find it. Yeah, still time to get the perfect gifts, 2017 holiday catalog. All right, my friend, it has been an interesting week in price. We bottomed out for the third year in a row right after an FOMC rate hike in December.

And now, we've moved higher. Moved higher nicely, even though interest rates have moved higher, all that kind of stuff. And a lot of it looks like we've had the cap structure washed out and looks like all that ties together. How do you feel in here as we close in on the end of the year?

Eric: Well, I mean, I share your optimism towards what's happening. Of course, you and I talk about the commitment traders have put so often. It's kind of crazy but we all know that it has such a huge effect on the price of the metals. And of course, the last Friday's report was just stunningly positive for the future of both silver and gold with a tremendous reversal in the commercial short position. But at the same time, the elimination of the hedge funds or technical funds long position.

So the commercials now have the technical funds exactly where they want. They got a short position that they probably have to cover here. And I would imagine that we should look forward to a period of time here when the prices just keep rising. And of course, this tends to happen coming in the year-end here seems to me the pressure comes off and away we go. So we have then to look forward to. I think the stocks would react kind of smartly to gold getting back above $1,300 here. And then certainly the silver could pop back from 17. I think you'll see lots of interest in the shares as well.

Craig: Yeah. We've already seen, Eric. In the last seven days, the HUI index is up 7%. And so that seems to be already bouncing back. Do you think we're already through the period of tax loss selling and that kind of thing because the shares are doing better than the metals?

Eric: Well, I would certainly think we're through the tax loss suddenly. I mean, people have, you know, lots of days to do their tax preparation, they don't have to wait for the last day, and the last day hasn't arrived yet. And I guess the last day might be...we might have like two trading sessions before, so you can realize that capital loss. So, yeah, I don't think that's gonna be an impact here in those two days because most people would have already done things to get their books in order. But, you know, it's interesting, Craig, when I reflect on what happened in the cap, that's what I mean, the changers report. I mean, it's just again sickening. We play it against them, right?

Craig: Yeah.

Eric: Run it up, commercials get short, run it down, commercials cover the short. I can't understand that the technical funds were just there get their heads beaten every time. I mean, it's hard to believe, and there's a lot of things about the CME that are hard to believe by the way. And I would probably, we should now maybe move into these exchange for physical things, shenanigans that kind of go on at the end of every day. And I think you have some data about how many tons of products theoretically were shipped over to London this last week.

Craig: Yeah. Another 50,000 contracts that were, I guess, we'll call it settled or moved off of the COMEX. Now, there are 50,000 contracts just this week. And again, since we've been keeping track now, it's been four weeks, and that's about the running average. We're up, I don't know, what is that now? What was it, 200,000 as of last week? So now, we're 250...I mean, it's just remarkable.

Eric: I was gonna say the huge amounts when you put them in tons too, right? It's about 150 tons a week. I mean, you start doing over 600 tons a month when the mines, X Russia, X China only produced 2,200 for the full year, and we're flipping 600 tons over to London. And there was a great article written by Stewart Dorothy who talked about these exchange from physicals and shipping them off to London.

And I think the essence of this article was, well, this is where, you know, they ship these contracts that are entered into between the various banks. They ship them over there to die, and die in a sense that it's an unregulated market, it's opaque. And, "Okay, boys, we've got to settle this all up now. I sold this to you, you sold this to me. Okay, we all get it, end up not losing money here," and the contract disappears, and the open interest was always updated and then used the bids of the COMEX to knock the price down, and then they settle it up over in London, which seems to make some sense because there's no way that we could be settling 150 tons physical over in London every week.

I mean, it's just...We're talking three or four times the annualized production if it happened every week. And this tends to happen every week these days. And it's a new thing. So it just must...and of course, the headline for Dorothy's article was it just proves that the paper markets are a fraud, which of course, you and I have come to believe that a long time ago. So let's hope that our physical markets can react here. And I think we have some things happening today and this week in the crypto market that might take us there.

Craig: Yeah. Isn't that interesting? As we record here on Friday morning, it was just five days ago that Bitcoin was on Sunday pushing $20,000, now it's standing on $12,000. And you know after a sustained run-up, I'm trying to look for anything that might have suddenly sparked the sell-off. And I guess the only thing I can find is the introduction of Bitcoin futures trading back on Sunday night. I don't know if they're connected, Eric, but gosh, you and I have...

Eric: It's three letters. It's three letters, CME.

Craig: Yeah.

Eric: Chicago Mercantile Exchange, here we go. Let's do at the cryptocurrencies what we do at the gold all the time because by the way, we hate cryptocurrencies more than we hate golds because we get we get no benefit from cryptocurrencies, whatsoever. So let's just go digging this thing. And you and I talked about this and, of course, I was very leery about these derivatives turning the trade on these futures exchanges because what...you kind of had a closed loop if I can use crypto finance example because you can only create so many coins a week.

But once you start trading the derivatives, man, it's wide open. And you've seen this in the gold market where we can trade, you know, the whole year supply of gold in a day. And imagine, if somebody just wants to whack Bitcoin, there aren't buyers there at that moment in time that this guy decides he wants to sell a billion dollars worth of Bitcoin. So you see these huge fall-offs, and it's not even just Bitcoin either, right? It's throughout the whole cryptocurrency array, Ethereum, and Bitcoin cash, and Litecoin. I mean, all of these things are just huge, huge declines today, like in the 20s and 30s of percent in the day.

And of course, I've never really been a believer in Bitcoin that it really stood for anything other than, you know, I can understand people not wanting fiat currencies. I can understand people not wanting to deal with banks. I can understand people trying to hide things from the government. But look at the appreciation that happened, and you got to wonder, well, it's a greater fool clean, right? Like, somebody else has to buy this thing from you.

And if that other person stops buying it, it's over. And, you know, there's lots of people suggesting that this could go down to, you know, like a very, very, very low level. And of course, bringing it back, one of the things I think might happen here is people will realize that gold and silver are real things. When you buy them, you have a coin, you have something tangible that's not about to disappear. So I think that could be the real benefit from the sort of demise of cryptocurrencies, if you will. I'm not wishing their demise, but I'm not a participant in the cryptocurrencies.

Craig: Right. And it's like what we've experienced with gold and silver since 1974. It's like the experience of uranium futures. I'm sure you've seen that chart, Eric, where uranium was going almost parabolic like Bitcoin until about the day they began uranium futures trading in 2007. And now, once the bank sink their fangs into whatever it is they want to manipulate and profit from, oh boy, what an eye-opening experience for all of the Bitcoin believers out there.

Eric: No, I totally believe it. I was there with uranium in 2007, I saw the CME approve, "Oh boy, here we go," because, you know, they have an open-ended checkbook here. It's open-ended. I mean, these are banks that are protected by their central bank. They can sell as much as something as they want. They'll find some scheme to settle it somewhere else just like maybe they're doing in the gold markets now with these EFPs being theoretically settled in London. Yeah, sure they are. It's just a total...I mean, it's just totally disadvantaging people.

And I see, then you wonder that when I see charts about, you know, how the 50% of the population, their share of income keeps going down, and the 1% keeps going up. You know what? We just experienced that today. When the banks are probably making a 30% decline in the cryptocurrencies and the 50% are losing every damn dime of it because the system's rigged.

Craig: Yup, that's right.

Eric: It's awful.

Craig: Well, all right, my friend, in the time we have remaining, I know a lot of folks would love to pick your brain, get some expertise on what happened yesterday with the press release out of Australia regarding Novo resources. And what your thoughts are there? It's been an interesting ride this year. And now we're back down about maybe share price been about cut in half over the last 90 days. So if you could just kind of touch on that a little bit as we go.

Eric: Sure, sure. Well, of course, there was some disappointment in the news release. Let's not kid ourselves, okay. And there was...The previous release suggested that the gold was at the lower part of the conglomerate. So let's say the conglomerate theoretically was 10 meters thick that the gold tended to concentrate on the bottom of the conglomerate, which makes some sense from a precipitation thesis. In this release, they basically said that it was in sort of half a meter at the bottom and the two samples that they took them there ran, I think 15 and 17 grams, which are very good grades by the way and very minable. The one train sample they took above that only ran, I think it was either 1.3 or 1.7 grams. Let's say 1.3, which again, is still minable on an open space basis but not, certainly not an underground basis. So one of the things that it does is instead of having, you know, 10 meters of possible pay zone, now you're down to half a meter, well, that makes it a lot smaller than, you know, the tens of billions of ounces that some of us might have imagined could possibly have happened had it been through the whole structure.

So in that sense, it's downsize, not to say that can't be many tens of millions because the space, the area we're talking about, you know, is potentially 100 kilometers by 100 kilometers as we go into the former sea basin. So it still has, and they do find the conglomerate over, I think we said it was a kilometer and a half by half a kilometer, so that's where they've had these scout holes that they've found the conglomerate. So it's fairly consistent.

And now, we got to find some way to prove up a reserve, and so far, it's been difficult because these scout holes which are very narrow holes, they don't necessarily need a nugget and it's all...it's a nuggety type of deposit. But I think they build, you know, over 50 scout holes, but collectively the area that those scout holes are covers of about half a meter because they're very small little holes. So even if you take 50 small little holes, it only covers half a square meter.

So if you don't hit the nugget, you're not getting any grade. If you hit a nugget, it'll probably tell you had 100 ounces a ton or something. So that's been unfortunate. The wider diameter that's been unfortunately is too wide. So we have to find ways of whether it's trenching or doing a bit major buck sample, I think they got approval to do a 20,000 and 10 bucks, so we're gonna have to wait on that and see how that turns out. So people don't like having to wait. They don't like bad news, stock sells off. Let's hope that we can prove up that there's still a huge resource there.

Craig: Sounds good to me. And it sounds like 2018 is shaping up to be a rather interesting year. Would you say between all the different political and geopolitical risks that are out there, gosh, everything that's going on with Bitcoin, gold, I think it's gonna be a lot of fun to follow as we go along. And I look forward to visiting with you as we go through the year that's for sure.

Eric: You know, it could get very exciting, Craig. I think about all the money that theoretically went into these cryptocurrencies of which, as you know, there's hundreds of them, hundreds. It's a lot of money, okay? And if that money wants to get refocused anti-fiat, anti-bank, anti-government, there's only one place to go and it would take so little, I was just imagining for myself, you know, just a little of this money came into the silver market.

Wow, could have ever been dramatic. Maybe we could...things that would happen to silver market, the things that, like, what happened to the cryptocurrency market because the crypto is having, you know, Bitcoin having gone from I think it almost touched $20,000 down at, I think it touched something in the $12,000. So they met a serious, serious collection. It looks more like a bear market to me if you, you know, look at history and these quick declines. I mean that's way beyond normal here.

And we know that it was a bit of a mania. So, you know, what we expect coming out of that, I suspect that it may go a lot lower and it might get people focused on the markets that you and I care more about. So as we look forward to that, we're gonna have one call before the New Year's. So we'll look forward to that.

Craig: Sounds good, my friend. Until we talk again next week, Merry Christmas and Happy Holidays. And to everyone out there from Sprott Money News, Merry Christmas and Happy Holidays. Eric, I look forward to talking to you next Friday.

Eric: Great. And Merry Christmas to all the listeners. And look forward to chatting as well.

Craig: Everybody have a great weekend. Again, we'll talk to you next Friday.