Price Manipulation and a Case for Physical Silver – Weekly Wrap Up (Aug 14, 2020)

Craig: Happy Friday from Sprott Money News at sprottmoney.com. It is Friday, August the 14th, 2020 and it's time for your Weekly Wrap-Up. I'm your host, Craig Hemke and joining us today is, of course, the great Canadian outdoors man, Eric Sprott. Eric, good morning,.

Eric: Hey Craig, good morning. I'm in Kenora, Ontario, which is just north of the Minnesota border searching for a muskie, and I'm happy to report I caught a muskie yesterday and I hope to catch one today when I get out.

Craig: That's good news. So you're on fire, all the gold and silver going up and you're actually catching muskie.

Eric: It's pretty good when everything's coming together for you, isn't it?

Craig: Yeah. What was that, "Touch all the bases or touch them all, Joe," right?

Eric: Touch them all, Joe.

Craig: All right. Well, we should be able to have some fun this week, even though you are out in the Great White North [inaudible 00:00:53] or not so white this time of year. So anyway, just in advance, folks, we're trying to do this as best we can from a Skype connection through satellites and all that kind of stuff. So hopefully we'll be able to hold this together but we apologize in advance for any audio difficulties we might run into. We're gonna remove some technical difficulties, if you've ever had technical difficulties on the internet, it's always good to upgrade your site, upgrade your servers, all that stuff to make it better. That's exactly what sprottmoney.com is in the middle of doing. We are working to make the site faster, easier to use with a brand new website that will be launching in about 10 days, it looks like. A week from Monday, August 24. We've heard our requests from our customers. We've made lots of changes to launch this new, easy to use and navigate website. Be sure to check us out, sprottmoney.com where you can always find the best deals on bullion and also great deals if you want us to store it for you as well.

Eric, it has been a crazy week. Well, geez, not crazy week, it's been a crazy 2020. We've given some back this week. We had a remarkable amount of trading volume of this plastic banana pretend derivative contract silver back on Tuesday. I'm sure you've got some thoughts on all this. So let me have them.

Eric: Okay. And that's the second rate we've had in silver actually, we had a four hour rate about three weeks ago where the price of silver went down $2.50 in four hours. Of course, we went down $4 on, I guess it was Tuesday, we went down $4 for the day. And of course, we're all worried that we're gonna have that deja vu all over again of 2011 or 2013. And of course, there was a commensurate margin rate increase on Tuesday afternoon at 5:00. And I've seen that play out before where price goes down, margin rate increases, they've really squeezed the guy who's long. And it's interesting that we've stabilized so quickly here. It's absolutely amazing and the open interest in silver didn't go down much on the raid, the open interest in gold went up on the raid. And subsequently, there have been very minor changes in open- interest. So it looks to me like it has stabilized. And of course the reasons for owning the metals does nothing good there...nothing but getting better over time here.

Craig: No, doubt about that, Eric, and it's very important to note as well, that even though silver, as defined by the COMEX derivative contracts fell $4 to $25. I mean, there wasn't anywhere, Sprott Money included, where you could find it less than about 36 if you want to actually get your hands on it.

Eric: Yeah, it's amazing the shortage of the product. And in fact, I, obviously, care very much about the analysis of silver here. And there's a whole bunch of data points, including the 2 billion ounces that traded on Tuesday, 2 billion ounces, and we mine I think it's like, 900 million ounces in a year. And you trade 2 billion ounces in a day. Now that is just ludicrous. Who are these people that are trading this stuff? And why do they need to trade so much of it? And of course, it all goes back to, in my mind, the key decision that a precious metals/silver investor has to decide on was silver manipulated for 35 years so that it got used to trade at 15 to one and it gets up to 125 to one in March? And you have to make your decision that was that an appropriate thing? Or was it just a Bizarro world when you know that it's produced at about an eight to one ratio to gold, eight ounces of silver for every ounce of gold? I looked at the Perth Mint sales, they sold 30 times more ounces of silver than gold. The U.S. Mint sells [inaudible 00:05:04] a year 30 times more silver than gold. And when you look at what's available for investment of the, let's say, 90 million ounces of gold that's produced per year, maybe 80 million is available for investment.

In the case of silver, if there's 900 million ounces, mined, maybe there's 200 million ounces available. So it's available in a ratio of two and a half to one, two and a half to one. People buy it at 30 to one, it trades in the market at probably 100 to one. So what's going on here? And that's why I really believe that the constant leaning into the sell side by the commercial banks because they knew they could push it down because money can do anything in the small market until, until the guy asked for delivery. And of course people are asking for delivery. We saw last night there were I think 6 million ounces went into the SLV. I think there was over 10 million ounces went into all silver ETFs overnight. We produce two and a half million ounces a day. 500 of that is available for investment 500,000. We put 10 million in the Silver Trust.

I think these guys are hung out to dry. And yes, they can do a one day raid, or they can do a four hour raid. But when it comes to the innovate, they got to cover their short, they're already losing imagine they're short a billion ounces in total on the COMEX. And it's gone up, like, 10 bucks. Somebody's lost $10 billion here in like, two weeks. So that to me is the big question that the listeners have to figure out [inaudible 00:06:51] that one silver, where it is always [inaudible 00:06:55] it's produced eight to one. I think it's going there. In fact, it could overshoot that's and I think that when I'm looking at investment opportunities, what's gonna happen to the value of this thing if it goes to 15 to one?

Craig: Hey, let me lay this on you Eric. You know, again, you and I talked about physical silver and everybody listening to you and I should be talking about physical silver, actual silver you can get your hands on. You mentioned the phony baloney derivative contracts that trade two times global mine supply in one day. You mentioned the SLV, which can't possibly be taking delivery of that much silver, that's just impossible. It's just promissory notes and delivery certificates. And then let me give you this one. One of the oldest tricks in the book is the old unallocated account, right? One of the listeners sent in something this week in our list of 60 questions. This was buried in there but this is very important, especially for our Canadian listeners. This gentleman said he has been a customer of TD Bank, which is one of your big banks up there if I understand correctly, and he has something like 13,000 ounces in silver certificates that they're charging him. Because they say they're back with physical silver. They're charging him fees every month for storage. This poor fellow walked into his branch, his local branch wanted to redeem one of them. They called Toronto and they were told, "No, sorry, you can't have any silver. All we'll give you is the Canadian dollar conversion for it." That's just another one of the scams of all this invented pretend silver.

Eric: I've heard this story over, and over, and over. I mean, it used to happen at the bank of Nova Scotia, which was the bigger physical silver and gold bank in Canada. They're going out of the business, by the way, they're going out of the business and they took a provision of 350 million as they walked out the door. How do you lose 350 million? Maybe you are short. And it's probably way bigger than that now that the price of silver has gone up. But the same thing, you take your certificate, and you say, "I'd like to get my silver," you don't get your silver. And here's the ugly part about that. This poor gentleman thinks he owns silver, let's say $25 and they say, "No way. You don't own silver, you will get it at 25 bucks." Well, you take the 25 bucks, you don't get an ounce of silver today because the premiums have gone up. And you know, you might have to pay, as you've said, something like $36 for an ounce of silver. Well, that's very, very unfortunate, but this is what the banks do. It's just like, the leverage system that they have what they say they have. Morgan Stanley got fined I think it was like $250 million for charging fees on storing gold that they never had and this is the same thing. These banks don't have the gold. They just take your money and work with it. They never did buy the gold or silver. So that's again the full unallocated Bizarro world that we're in and please make sure you have it and can get access to it.

Craig: No doubt about it. And Eric, while we're on this subject before we start getting to some of the companies, just to double back to what you've been talking about for a couple weeks, the changes to the Commitment of Traders report here in the U.S. how it appears that the banks are not... Let's put it this way, they are reticent to add to their short positions here. In fact, one of the reports I follow once a month comes out as the bank participation report which is a summary of all the bank positions not by bank but just kind of put them all together, the total net short position of the global bank. So U.S. and non-U.S. banks now the smallest it has been since May of last year before this breakout rally even began. Sure it would seem to me that they are reluctant to get in front of this like they know they have a problem.

Eric: There's no doubt about it. The one week that is the most striking was two weeks ago when they actually bought back some shorts at losses now. And that's the most important at losses, these guys never lost in silver. And to think that the price of silver has gone up $10 an ounce, let's say from 18 to 28, and they didn't short it. That's their game, man. Their game was to short it and then to whack it right back down again. But they know that people look at the SLV, look at the nominations for deliveries on the COMEX, look at that coin sales. I mean, there's every indication in the world that the silver is not there. So they can't stand in front of it anymore. They're already losing something like $15 billion in the short metal position. So and that's the stuff that we know about on COMEX. What about the over the counter stuff they might be short as well. So yeah, the game is over. I think that's the key thing, the game being over. And where are we gonna go from here? And I think I mentioned two weeks ago that Tactical Traders, Christopher Mulan has suggested that silver could get to $30 to $35, within what was then five to six weeks is now obviously three to four weeks. So that's very likely to happen here. We have a few testy days here to see if we can get that $4 back, we got about a buck and a half of it back so far. And I think we'll get it back. And boy, it could be explosive, when this thing blows through 30. I mean, I think it should go to 50 very, very quick. It has never spent much time between 30 and 50 by the way, I mean, it's like, maybe three months in the history of silver it spent between 30 and 50. So it could go fast.

Craig: The fundamental certainly continue to improve, inflation is picking up really headed towards stagflation here in the U.S. and globally. It's very interesting with the FOMC, next FOMC coming up in about a month. Those are the things that I'm watching anything else you're watching, Eric, before we get to some of the specifics here?

Eric: I don't really think so. I mean, I love focusing on COT, COT's gonna be... The Commitment of Traders report this afternoon is gonna be very, very interesting to see what happened during the reign. Did they really reduce their short interest significantly or not? And even if they did reduce it, they still reduced that at losses, they took losses. This is not supposed to be part of the game. So we'll be looking forward to seeing what that is at 3:30 today.

Craig: All right, well, again, I wanna thank everybody for sending in their names. And again, we go through every single one before we start recording all 60 of them this week, all the different questions and specific company questions. If we don't get to yours, it's mainly because Eric just doesn't have an opinion, and he doesn't want to, as we've always said in the past, just kind of start talking out of turn about stuff that he doesn't know intimately or feel comfortable talking about. So we look at them all though. And one of them on the list this week, I guess we'll start with, Eric, is a company called Fosterville South. Can you add some comments there?

Eric: Sure. Yeah, well, it's interesting. This company have picked up the land south of the Fosterville mine in Australia. They've had some great initial drilling results. It's expected and I think it's reasonable to expect, because this is a very famous area for mining. It's where the Bendigo and Ballarat mines were back in the early 1900s. Of course, Fosterville was an unbelievable mine in terms of the grade and number of ounces. And Kirkland, of course, is trying to expand that and find another Fosterville on their properties down there. But Fosterville itself has done very well. The area's claimed up to go.

Craig: Okay. Another question Eric has to do with a company I think you mentioned last week, Chesapeake. And it's interesting in that it kind of combines another question because somebody just in general, wanted you to discuss again, about how do you value measured and indicated ounces in the ground and Chesapeake kind of falls into that category in that not only from today's value. But what would be the proper value if someone were to come in and make a bid for a company based off measured and indicated ounces?

Eric: Well, that's a very complex question because the grade is very important. I mean, a low grade, you're not gonna get as much for an MNI ounces as you are for a high grade because the margin on the high grade ounce is so much higher than the low grade ounce. In the case of Chesapeake, they have something like 500 and I think it's 23 million ounces silver, or something like that, and 18 million ounces of gold, and that would be in resources not measured and indicated. And I think the market caps around 400 million, something like that. So obviously you're not even paying a buck for the silver here and obviously nothing for the gold because the market cap doesn't begin to relate to the inventory of resources there. And of course the reason I like it is I'm assuming that these prices at today's levels they're gonna hold and go higher. And those sort of low grade ounces will come onto the playing field here and will get higher and higher values over time.

The one click off the Chesapeake is it's gonna be a very expensive Capex and Opex subject to some new way of extracting the gold from the ore. And I know it's been worked on and people, I think, they found ways to significantly improve it. But we haven't had the hard evidence yet. So we have to stand by on that and just see whether they're gonna be successful or not, but you're gonna merge with that kind of metals inventory. That's a large metals inventory. That's something like, equivalent to 40 million ounces of gold with that much... So, I'll stand by I think prices are gonna go a lot higher here. And that will be a very financiable operation over time.

Craig: And you've mentioned in the past Eric that people need to start evaluating these companies off of how much silver they have in the ground too if the gold/silver ratio comes down like you think.

Eric: Well, that's an interesting thing when I'm looking at drill results now and I would maybe suggest that other people look at it this way. Like, I always converted drill results to dollars okay, that's what you got to do. What is this ore worth? And/or just get in grams because if you're a low grade, and you got one gram and it's big. It's an open pitiable it's probably gonna be a commercial mine. Now imagine if the guy also has 15 grams of silver, which we've all ignored before. But what if you go to 15 to one on silver to gold, well, then that 15 grams can be equivalent to one gram of gold. And now instead of having the one gram deposit, you got a two grams deposit. Now we're not there for sure. Keep it in the back of your mind, because sometimes you'll find a guy's got like, three grams of gold, and he's got 100 grams of silver, and 100 grams of silver could become six grams of gold. So it's an interesting way of turning it around and looking at the silver differently. And I do that with lots of companies these days.

Craig: All right, moving on. Just a couple left. How about any update on Walbridge this week? A lot of folks asking about Walbridge because it's been kind of a I mean, it took off earlier this year. And last year now. It's been kind of lagging in the last couple months.

Eric: Yeah, well, they had two drill results this week. I wasn't even aware of the second one because it came out yesterday and, of course, I was fishing. But I tried to catch up this morning. But the more interesting one to me was they had a 24 grammer over 50 meters in what's called the Cayenne zone, which is separate from Tabasco and north of Tabasco, whole new structure with large gold intersects the deepest intersection on the ore body so far. And these things can go a long way down and they got a lot of strike, both Tabasco and Cayenne. So that I think really opens up. I mean, maybe Cayenne could double up the Tabasco zone and Tabasco zone, I believe, is well over 2 million ounces. Then yesterday, they announced the Area 51 result. And they sort of look at it a little differently it would seem that they have something like, 28 mineralized structures on the Area 51. These are East West kind of structures, and they're reasonably thick with good grades and they could be mined underground. Also, you have an Area 51 up near the surface. What could be mined is an open pit. So you got the open pit, the underground Area 51 you got to Tabasco you got to Cayenne, and as I sit and look at it, I go, "Okay, this whole 10 million ounces could be coming into shape here." They actually mentioned that the Area 51 on these veins could be equal in to size Tabasco. So that's something that I've never computed into it yet. But that's gonna change the endowment here very quickly. So it looks pretty good for the Walbridge.
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Craig: You mentioned last week Jaguar and their earnings and how that relates to their price per share. And then the earnings came out this week. So a lot of folks wanted an update.

Eric: Well, they announced three cents, U.S. of earnings, four cents Canadian. As I mentioned, they're probably, in this quarter with the price of gold being higher, earning at the rate of roughly 20 cents based on the current share price of 70. So it's three and a half times earnings. I think equal to 10 times earnings. That's another 200 cents from here that trades at 10 times earnings. And they have announced a dividend now of 0.8 cents per present share price per quarter I hope. They're gonna sort of announce a consolidation ten for one. So that will be eight cents on the new consolidated shares, which were traded $7. But you get 32 cents in dividends. So you almost got a 5% yield, and four times earnings. So I think that has every chance of going higher. I spent a little time talking with management this week, they are going to do some serious exploration on their very, very large property in Brazil, and between North [inaudible 00:21:27.390] and other places where they think there could be significant world class endowment. I think there could be a lot of excitement coming out of Jag as we go through these next 12 months.

Craig: When's that reverse split, Eric? Because I know I'm gonna get people on my site, and then we're gonna get emails, "Oh, my God, it's at seven."

Eric: Well, the reverse split's, if you've got the goods going for you, you don't have to worry about a reverse split. I've always said that okay. So and I can't tell you the date because it's subject to regulatory approval. But I think they mentioned something like maybe August [inaudible 00:22:04] something like that. I don't know if that's official yet or not. But sometime later this month and don't worry about the consolidation believe me, I don't think this stocks going down because of consolidation will be okay.

Craig: All right, just one more and then you got to go get a line in the water. Silvercrest, what do you know about that one this week?

Eric: Well, you know, there was a very, very interesting drill result here right?. They have a new vein. I don't even remember the name of it. But they had a 1.7 meter intersection with, get this, 635 grams of gold and 26,000 grams of silver, which worked out to 74,000 grams of silver per tonne equivalent, which is almost 2500 ounces of silver, which is worth $65,000 per ton. I mean, a good gold mine would have about $400, like, 0.2 of an ounce or six grams. And this is 65, imagine the margin on this. I mean, if that oil was worth 65,000, the profit might be $64,500.

Craig: What?

Eric: Just to get back to grade here, okay. So I think it's a very major discovery, they suggest that the strike of this might be as much as two kilometres, the depth is of [inaudible 00:23:27] meters. The average width is 0.8 when I do my little calculation, maybe they could come to 100 million ounces here. And if they could drill the whole thing up and maintain those grades, and of course, those would be incredibly profitable ounces like, so incredible. And so we're so much more than one gram material okay, this is where the difference in valuing ounces goes. So this could be a very significant addition to what they have already. And I think it could be early in the mining cycle, and the mining cycle I think starts hopefully, towards the end of next year. So you start mining things like that, and then you're gonna come up with a gigantic earnings numbers. So it looks pretty exciting.

Craig: I like it. Well, obviously Eric's excited about silver. I think he figured that out over the last couple of weeks. And to that end, our monthly Ask The Experts segment is gonna be recorded next week. And the guest we decided to bring in was David Morgan, a man who's devoted his entire life to silver. So if you have any silver specific questions, this is your time to ask them of David Morgan. Send them to us at the email address submissions, just that word, submissions@sprottmoney.com and we'll try to work those in for David when he and I record that thing next Wednesday. Eric, you caught one muskie yesterday. If we're gonna go along with the progression you should catch two today.

Eric: Well, I'll give it my best you know that. And as I sit here I see that the gold is rallying now. It came out with some retail sales numbers which the headline and [inaudible 00:25:01] "Retail sales disappoint gold knocked down." Excuse me. Gold supposed to go up when retail sales disappoint okay, they can't even figure it out. So anyways it was down nine bucks at one time now it's up two bucks here. Hopefully silver will turn around and go red for us here today that would be very, very exciting. COT report this afternoon, lots to talk about next week. I look forward to it.

Craig: I will look forward to it as well, my friend, I can't wait to hear the rest of your fishermen stories about the ones that got away too. We'll get back together next Friday. But for now and then just go see if you can catch some.

Eric: I'll do probably a couple today. You know, I think you're on the mark there.

Craig: Well, you might be able to catch maybe a cold beer by later this afternoon too perhaps.

Eric: Absolutely.

Craig: Yeah, absolutely, me too my friend. All right. Well, thank you everybody for listening. Please be sure to stop by sprottmoney.com and acquire some physical silver and then we'll get back together next Friday. Everybody have a great weekend and I will talk to you again next week.