Are gold and silver headed for a new five year high? (Weekly Wrap-Up, January 19, 2018)

Transcript:

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

Craig: Greetings once again from Sprott Money News and sprottmoney.com. It is Friday, January the 19th, and this is your Weekly Wrap-Up. I'm Craig Hemke and joining us, of course, is Eric Sprott. Eric, good morning.

Eric: Craig, good morning. Lots of good things going on and metals are hanging in there. They're sort of threatening to make the big break out here. So, pretty exciting.

Craig: And Eric, before we begin, just a not-so-subtle reminder. You may not know, though, this that Sprott Money now offers exclusive promotions and deals to our storage clients. This month, Sprott Money storage clients can buy a one-ounce gold Britannia coin for only thirty bucks over the spot price. If you're a storage client, you can call 888-861-0775 to take advantage of this exclusive offer. And if you're not a storage client, why not? Open an account today. All right, my friend. We're talking about storage of physical gold and silver. The paper prices of gold and silver have been kind of held in check this week, though, at least, they're not actually back down either. Just in general, what are your thoughts as we watch the price move back and forth?

Eric: Well, I think one of the interesting things is there's been some discussion of the sort of six-year downtrend line from the '11 high to today. And we're right on the verge of breaking out. I'm not sure whether the number's $1337, something like that, or $1340, but it's in that range. And, of course, it goes down every week because it's a sloping downtrend line. So, even if we hang in here, we're going to break through it. So, I find that that's quite exciting. And the same thing with silver, that, technically, they're looking so ready here. We've seen, certainly, days that would support people are taking more interest in gold and silver, you know. I think of some of the main three people, particularly Jeff Gramlich, who said, “Well, there's only one thing to buy. That's gold and silver." And we're seeing certain markets stumble. Not the stock market, but I'm talking about the bond market and bitcoin. And we should talk about those a little more, that when they stumble, people then look around and wonder, "What am I going do here?” I was reading an article, a Bloomberg article, this morning about how the gold ETFs are buying in here and would suggest that, you know, we could easily get a new five-year high in gold with the level of buying that's going on. So, generally, everything around gold and silver is pretty good, and I think there's some specific things going on in bitcoin and the bond market that might really propel things forward.

Craig: However, at the same time, my friend, just as the open interest and the commitment of trader’s structure just was flashing a buy signal back in early and mid-December, here we are playing the same old game against the banks. Eric, just since December the 26th when the price of gold moved up through an important technical indicator, the 200-day moving average, just as that date open interest at the COMEX has gone up by 135,000 new contracts that the banks have printed and sold to the speculators seeking gold exposure. A hundred and thirty-five thousand contracts, Eric. That's 420 metric tonnes of digital gold that's been created in the last couple of weeks. Are we going to win the fight this time or do you think we're just, you know, it's just the same old wash and rinse?

Eric: Well, you know, they keep trying to wack it down. I guess there was, was it two days ago, that at 3:30 in the afternoon or 3 o'clock in the afternoon somebody came out and sold 2 million ounces of gold in the market and knocked gold down 10 bucks.

Craig: Yep.

Eric: And it looks like that procedure failed, which was good to see. They were back above the levels that sale took place and I think gold's been... it looks like it's been a lot more resilient against the attacks so far, but that's not to say we've won the game. But I think there are certain things, and maybe I should talk to those, one being bitcoin. I mean, the fact that the coin retailers have announced that since bitcoin has fallen here that the demand for gold literally, physical gold, coins, and bars, has shot up because people who had made money in bitcoin, and this is only logical, what do you do when you take your profit, right? If you're going to exit the game, the bitcoin, the crypto-currency game, what do you do with your money? You hate banks. You hate fiat currencies, I mean, it's... there's pretty well only one option that is to go into gold. And so that is happening as we speak. I think the more important thing about bitcoin is that there's been some studies published. And people, if you just put in bitcoin manipulation you can go and find those studies that show, for example, it went back to 2013, and they could see where on certain days when certain bots, [inaudible 00:05:25] came in and purchased bitcoins, that bitcoin went up on average 4% that day. And over that very short time during the end of 2013, the price of bitcoin went from $150 to $1,000. And the conclusion of the study was, it's totally manipulated. And the sense I'm getting here is that all of these unregulated currency exchanges are open to massive manipulation. We see manipulation in regulated markets, Craig.

Craig: Right.

Eric: Imagine what happens in an unregulated market where you can do whatever you want to do. And I think that it seems quite obvious when we look back at the kind of move we had. I mean, this... I don't know how it compares to tulip mania, but tulip mania, probably, was the most ridiculous thing the world has ever seen in the financial market. But I got to believe that this is probably way beyond the tulip mania, particularly when we got up to $20,000 late last year. And if we all find out that it was just a bunch of guys taking money from people, God forbid. We're what everyone's going to conclude from the whole system, and, of course, put that together with the derivatives then beginning to trade in December and the banks getting involved, and let's say they really knew it was manipulated, but they're manipulators too. They just end up manipulating it down. So, I think that we have to watch bitcoin here because I think now that the studies have come out, people are going to be on very, very uncertain ground, who've purchased these currencies. And I was even reading about the Mt. Gox that went down. You know, that it stated that there was 650,000 coins lost. Well, you know what, there are only 17 million coins so far. 650 were lost? Oh, my God. And now I read that there's 853 crypto-currencies. I mean it's just, it's screaming at you that there's something crazy going on here. So, I think that would all be very constructive for gold, what's happened for bitcoin already and, you know, what's likely to happen to bitcoin. That's kind of my two bits worth on it.

Craig: No pun intended. Eric, I...

Eric: No pun intended.

Craig: You know, and that's the thing. At some point whether the price keeps rising or if it falls, I mean, there has to be some diversification involved. And you would sure think, like you said, that people, that they don't trust the banks, they don't want to go back into, you know, just plain old paper dollars, but that bleeds over into physical gold and silver, and that's what was, I think, the most compelling part of the news this week, was the massive surge and interest in sales as soon as bitcoin started to roll over.

Eric: And the other thing that I kind of look at that's sort of a macroeconomics thing is this whole bond market with the 10-year now at, you know, got over...

Craig: 2.6.

Eric: ...2.63 which was Jeff Gramlich's, you know, red line, where if we're over that, then the stock market starts to feel it. And, of course, I'm looking at a stock market that's kind of acting ridiculous too and if all of a sudden its starts falling apart, now you've got the stock people looking for an exit as well. Plus the bond people, you know, when bond yields go up the bond owners are losing money here. So, there's some loses going on in the bond market and some of those people might want to believe that it's over. And how are you going to redeploy your money if you're going to take it out of the bond market? And when I think of a 10-year US bond and, you know, you read that China wants to lighten up on their treasury, you see that Japan was a seller of treasuries. Theoretically, the Fed's supposed to be a seller of treasuries, I mean, and then the DESA goes up because of the tax cuts. I mean, what could possibly be the pauses in the yield going forward? I mean, it just seems like everything's going to work against of the owner of the 10-year bond here. So, I guess we shouldn't be too surprised to see rates moving the way they are with those huge underpinnings kind of weakening here.

Craig: You know, and Eric, I guess for the final question, the main story in the news today is this looming government shutdown here in the US, at which, you know, whether they resolve that or not, I don't think it's that important in the long-term, but it is certainly emblematic of the political discord here. And you mentioned interest rates. The US, I remember we discussed at the end of last year, is set to issue net issuance of $1.3 trillion worth of treasuries in 2018. It's the highest number since 2010. You've got bond rates then going up, but at the same time, the dollar is falling. It's set to close this week at the lowest levels since December of 2014. So there's this kind of crosscurrent there. Can you tie any of that together? Does any of it make sense?

Eric: Yeah. There's no doubt that they're all inter-related here, I mean, this whole insanity that's going on in Washington, the whole need to raise more money. Theoretically, the US will have to say to the rest of the world, "Well, we need you to buy the treasuries again." And the world is kind of turning their back a little towards that thought, particularly due to the political uncertainty. So, yeah. The dollar weakening and the dollar could plunge here. I mean, it's hitting serious new lows here that are breaking all the technical barriers that you'd expect it to break and to see it fall too. The dxy is at 90 cents on the dollar, could fall to 80 cents a dollar. So, that would be a huge tail win for gold here. There might be a 12.5% decline. So, you know, do the reverse and add on gold and you got your next 150 bucks on gold there. And if gold ever went up that extra 150 bucks it would technically have broken out and everyone... it would just go crazy. I mean, we'd have quite the party. And I think there's lots of other things that we've just discussed that suggest the money's going to have to find a place to satisfy itself that it's not going to lose money. And whether it's bitcoin or the bond market, and then ultimately the stock market, they all start weakening, there aren't too many places to go. And we know where the best one is. So, we'll keep our fingers crossed on all of that.

Craig: That sounds like a deal. I think we will keep our fingers crossed, though it does seem like things are...forces are aligning in the right direction here in 2018. It's a very exciting time to be in the metals, and again a very exciting time to have an account at Sprott Money where we encourage you to check out our site, sprottmoney.com, today. Eric, it is always a pleasure to visit with you. I'm looking forward to seeing what the next week brings, but for now, I'll let you go, and we'll talk again next Friday.

Eric: Sure thing. All the best, Craig.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thanks for listening. We'll talk to you next Friday.