Weekly Wrap Up

“Solid Green Candles” as Precious Metals Finish the Week Strong - Weekly Wrap Up (June 19, 2020)

Head Shot of Eric Sprott Weekly Wrap Up

June 19, 2020

It’s not how you begin the week, it’s how you end it that matters. And as we head into the weekend, gold prices are nearing their all-time highs, with silver poised for explosive gains.

On this edition of the Weekly Wrap-Up, host Craig Hemke and legendary investor Eric Sprott break down all the gold and silver news you need, including:

  • The relationship between Fed irresponsibility and gold price
  • Who’s being “hung out to dry” on the COMEX
  • Plus: what will kick silver back into overdrive

“I’d like to start with COVID, because it seems to come in and out of the markets all the time. And we have some of these states where the rate of infection is going up. My own view, and I’ve said it many times now, is it looks to me like the morbidity is nothing like we thought it was. And I really think we have to almost let it run through the system. We’ll see what happens, but life won’t be the same. Which is unfortunate.”

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Craig: Happy Friday from Sprott Money News at sprottmoney.com. Friday, June the 19th, 2020. And it's time for your "Weekly Wrap-Up." I'm your host, Craig Hemke, and here is our friend Eric Sprott. Eric, good morning.

Eric: Craig, good morning. I love it on a Friday when the price of precious metals are up. Let's hope we hold it together, because there's a lot of excitement going on in our area.

Craig: We have an old adage at TF Metals Report that is, "It's not how you begin the week, it's how you end the week that matters." And that just keeps playing out, particularly this year. I mean, we were down hard Monday, and now, here we are looking at solid green candles, and those are the ones that matter, on the weekly chart. And again, great time to be buying precious metals as well, and we've got great news for everybody. Sprott Money has recently added more products for you to choose from. We recently added some very popular Gold Maple grams, and a whole lot of new silver products. And, of course, we still have our best sellers, the Royal Canadian Mint Gold and Silver Maples, in stock. You can check them all out and purchase them directly online at sprottmoney.com, or of course, just pick up the phone, give us a call, 888-861-0775. A very busy week, Eric. All kinds of news out there from new Fed programs, all kinds of cash being created. The metals, as we said, started down, but are now finishing up strong. What do you think?

Eric: Yeah. Well, I like to start with COVID, because it seems to come in and out of the markets all the time. And, you know, we have some of these states where the rate of infectation is going up. My own view, and I said it many times now, is it looks to me like the morbidity is nothing like we thought it was. And I really think we have to almost let it run through the system. We'll see what happens, but life won't be the same, which is unfortunate. And as you look at, sort of, the expert analysis, there's a very sobering interview with Kevin Warsh, a former Fed governor, who's young, and outspoken, by the way, very outspoken, and he's sort of suggesting that life's not gonna be normal. To think of stocks being at, you know, pushing record highs here is almost imbecilic. And he says, you know, you can get fooled when you have a W recovery. At first, it looks like a V, but then you find that it wasn't a V, it goes right back down again. And that was, sort of, the suggestion he was making, that we're not gonna find our way out of this easily, and I tend to subscribe to that.

There was another sobering conversation with a gentleman named Torsten Slok, who's with Deutsche Bank, and this was this morning on Bloomberg. And he's talking about all the zombie companies, and how we've allowed zombie companies because the Fed won't allow anything to go down. And the minute there's a problem, out comes the printing press, says, "Oh, you need to borrow money here. We've got a special lending facility." And this is, allowed these companies that are way over levered, can't service their debts, to yet live on again, and we're gonna pay the price someday. So, and I think all of us who are in the precious metals, kinda realize that that day will be seen in due course here.

Craig: Isn't it interesting, Eric? I mean, it's just accepted that the Fed is doing all these things in all these various markets to keep the plates spinning. You know, whether it's intervening to keep interest rates low or whatever, and yet no one even wants to discuss the possibility that the Fed is having a hand in keeping the gold price restrained, so as not to give the impression that fiat currency is crumbling.

Eric: Yeah. No, that's a very interesting comment. And as I watched this week with gold doing basically nothing and being particularly pinned down yesterday, along with silver, I had a belief that whenever the Fed does anything that is irresponsible, which they know it's irresponsible, they make a point of not letting gold run at that time, because they don't want Fed irresponsibility equals gold going up. That's the last thing they would ever want anyone to do. So, we've had gold pinned down here, notwithstanding. I mean, you go back to, you know, in March when they said, "Well, let's get rid of the reserve requirements of the banks."

Craig: Right.

Eric: Which they did. You know, it's just mind-boggling that that would happen. But more recently, you know, the announcement that they're gonna buy corporate bonds, the fact that interest rates are gonna stay low until 2022 now, okay. These are very imprudent things to be imagining, and, of course, the price of gold did nothing. And my belief is that the Fed wants to wait to let gold go up after all of whatever they've done is off the table. Now, it's some other reason that gold's going up, you know, whether it's the dollar going down or the economy's weak or something, but not the Fed. So, we've had to live with that I think over these last few weeks.

Craig: Well, there is certainly demand out there. My goodness gracious. The amount of gold that's allegedly going into the ETFs, the amount of silver that is somehow being discovered to put into the SLV, record amount. Eric, I've tracked COMEX deliveries for 10 years, and a busy month for COMEX deliveries, because it's just not a physical delivered market, used to be 10,000 contracts. I was like, "Oh my gosh. The COMEX did 10,000 contracts." This month, they've done 52,000, and it's only the 19th of the month.

Eric: Yeah. I look at the COT reports, open interest on the CME every day. And for example, yesterday, the open interest in silver went down a little, but cumulatively, we get more deliveries than we've ever get in the declining open interest. Same thing with gold. Yesterday, the open interest went up 1200, and we had deliveries between the EFPs and actual deliveries of 4,000 contracts. And the open interest still went up. So, I think these guys that are short gold and silver, I think they're being hung out to dry here. They can't get off the contracts, and I suspect that there's some forces at work that kinda know how desperate it is in silver. And, for example, the silver ETFs theoretically in the last three months have taken two-thirds of all the world's silver production.

Craig: Jeez.

Eric: You know, well, that's impossible. I mean, come on. So, I mean, as you say, the alleged deliveries into the silver ETS, I don't think it's a real delivery at all. It's probably a paper thing that someone says, "Yes, I owe you silver and you can say that you have it." So, we'll stand by on that one.

Craig: No, that is definitely interesting to look at every single day, Eric, and we're living in historic times. There were a lot of dramatic sell-offs out there too. A lot of things going on in the equity markets. What do you think there?

Eric: Yeah. Well, I think the sell-offs that I care about are the sell-offs in precious metals, when all of a sudden...like yesterday, I think between 5:30 a.m. and 6:00 a.m., gold went down like $20 or $30. And these things come out of nowhere, but I think they're very purposeful. And I think the purpose is to keep investors on edge. Don't let them think that it's just up every day. For example, they let the stock market go up every day and you can see what happens.

Craig: Yeah.

Eric: We get every retail guy in Robinhood out buying calls all the time. Well, imagine what would happen if you let gold and silver act like they should every day. So, they have these massive sell-offs over very short time periods, to keep everyone on edge. And it just, to me, a sign of the manipulation that's going on that ultimately, manipulation doesn't work. So, not that we haven't had a good time. We've had a great time so far, but I think we got better times in front of us in the precious metals.

Craig: And, you know, I mean, gold, in every other major currency, is at all-time highs. Are you in the camp thinking that it's just a matter of time before it gets there in dollar terms as well?

Eric: I have no doubt that we're gonna go to new highs and we might all be shockingly surprised how high it goes when it gets going. So, I mean, I don't think it's gonna stop at any 2,000. There'll be more than two thousands on the price going forward.

Craig: And do you think, Eric... I had a discussion this week with Ronnie Stöferle, who puts out the "In Gold We Trust" report. And you'll find that, it was our "Ask The Expert" segment at Sprott Money. You can actually go listen. It's tremendous. If you go to the Sprott Money homepage and click the "Insights" tab, you'll find a tab for "Ask The Expert," and there it will be. And Ronnie's a big proponent this year of silver. He thinks that silver is just, I mean, they don't usually talk that much about silver. He's very excited about silver. Do you think...do you have a price, let me put it this way, where you begin to get this substitution effect? Is it a price thing or is it ultimately, a physical supply-demand thing, that kinda kicks silver back into overdrive?

Eric: Well, I think the structure of the market, I mean, when I look at the amount of production of silver, it's in the ratio of something like 10 to 1 to gold. The price is 100 to 1. The production is 10 to 1. In the Earth's crust, it's something like 12 to 1. As a currency, it's 15 to 1. And when we look at the buying that goes on in the ETFs, the gold ETF versus silver ETF, believe me, it's not a ratio of 100 to 1. It could be as low as a ratio of 5 to 1. Well, how can the price be 100 to 1? It's just ludicrous that it's this low, and I think it's this low because you can use silver to kind of control gold, because it's such a small market. But now that we have this shortage thing evolving, I mean, this thing could explode, and I think I've said before, I'm not gonna be surprised to see silver go to $50 or $100. You know, it's not gonna surprise me in the least. Once we unleash this thing, stand back.

Craig: And I know you've been buying a lot of silver stocks, and we've got some questions this week about a number of the stocks. I think we'll just kinda head that direction right now because we have such a lengthy list. If you don't mind, let's start with Wallbridge. We discussed it last week about the market cap getting up there, close to $1 billion I think. And then, you know, and a lot of us had thought maybe it would go into the GDXJ this quarter and it's not. And then they had an announcement of a... what is that, like a merger? Not a merger...

Eric: A joint venture. Joint venture.

Craig: Joint venture. So, a lot of things going on with Wallbridge this week. Let's start there.

Eric: Yeah. Sure. Well, let's start with the non-inclusion in the GDXJ, which actually should have happened this afternoon at 4:00, which would have brought in 20 million of shares of buying. And the precedent to it is you get put into the Morgan Stanley Junior World Gold Index, something like that, and that didn't happen. Surprisingly, it didn't get included. Well, I'm not sure why it didn't, but it didn't, so, fine. We have to wait till the next quarter, September quarter, to most likely be included. And, of course, the stock sold off. I don't know if it got down to $1.02 or so from $1.20 because of that disappointment, because I guarantee you some people would have been buying it because they thought it would go in. People do pre-buy these things. So, some of those guys had to get off their positions.

And then on yesterday, I guess it was, Wallbridge announced that they doing a joint venture with a company called Midland Explorations, that has something like 177 square kilometers of land along the Sunday Lake Deformation Zone, which is where the Fenelon property is. And now, Wallbridge has almost all of the property all the way from Fenelon to the 75 kilometers to the west, over to Detour. They've basically got the whole belt now. So, I think it was a very, very positive move. There's been lots of teasers in terms of gold all along the belt. And I think that Wallbridge will use their geologic expertise to unravel the mystery here.

Craig: Yeah, we mentioned silver just a moment ago, and the outstanding prospects for it. I know you've been picking up quite a bit of, a few silver miners for months now in anticipation of that. One of them is SilverCrest. Any updates there?

Eric: Yeah. Well, SilverCrest was selected to go into the TSX 300, and that will happen today at 4:00. And there will be purchasing, we, it's estimated it'll be a need for about 4.3 million shares. And that happens right at 4:00, and it's called a market-on-close order. And so, we'll see whether that has any positive impact. Very often, things move up just as that last second approaches. So, we'll have to see what happens there.

Craig: Eric, twice I think in the last six weeks, you've mentioned a company called Freegold Ventures. We had a number of questions this week wanting you to elaborate, because it's been going up so strongly, elaborate, just any more you might add on it.

Eric: Sure. Well, I spent a lot of time looking at Freegold Ventures and trying to see what might evolve there. And it's funny, when you get involved in something that, maybe because of laziness or not paying attention or someone bringing something to your attention, you realize, "Okay, hold it now. That's changing the story a little here." And one of the things that hit me, but it hit me because I'm a numbers guy, that this company said, "We did 37,000 meters of drilling in a particular zone called the Dolphin Zone, and we came up with 6.5 million ounces of resources." Okay. And I'm thinking, "Hold it now. How do you get 6.5 million ounces, but only 37,000 meters of drilling? That's ridiculous." I know how much Wallbridge drilled last year. They drilled 70,000 meters. They're gonna drill 100,000 this year, maybe 120,000. Who knows? Osisko up at Windfall probably drilled 500,000 and doesn't have 6.5 million ounces yet. Which means, "Hey, this stuff must be kinda easy to find. I better get on this."

Craig: Yeah.

Eric: And it does appear that it might be easier to find than I'd imagined. It's early days. The company has said in previous publications, like, over the years, I went back and looked at old news releases, that they thought that this resource could easily be increased, but because it was low grade, they kind of ignored and went after high-grade, and that's what the drilling this year was all about. And of course, they were discovering high grade. So, now we've got high grade and we've got low grade that could get bigger. And it's a little metallurgically challenged because it's sulfide ore, refractory ore, but I do think there might be some solutions there. So, you know, anybody with 6.5 million who can, you know, add another couple of million... By the way, 37,000 meters might only cost $10 million to drill. So, you spent $10 million and you found 6 million ounces. Are you kidding me? That's crazy. That's just the drilling cost. So, it just shows how prospective, I think, the property is. So, I'm continuing to do a lot of work on it, and we'll keep it in front of people.

Craig: There was some news this week on Jaguar, which is another one you've discussed before.

Eric: Yeah. Yeah. By the way, I should mention this. I wanna mention this. People know that I read chat lines, okay? And there's a reason I read chat lines, because for every 100 opinions that are on a chat line, if you can find one that helps you increase your knowledge, it's very, very meaningful. And on the Freegold Ventures chatline, a fellow named Brad Alix [SP] did a wonderful, wonderful writeup on, sort of, the prospectivity of Freegold, and I just 100% related to it. And then I saw other people that made postings showing the chronology of how they found the gold and how many meters they drilled. I'm like, "Oh, man. This is really hot information," but, so chat lines have a purpose here. And I, of course, use CEO.CA and Stockhouse. And every now and then, you get this gem that puts you on a whole new track. So, I find it very helpful.

Jaguar yesterday announced a buyback. I hope they use the buyback, because the stock's probably trading at three times pre-tax earnings, something like that, and you don't get too many opportunities of earning 33% on your money, so I hope they do get aggressive in the buyback. It's only for 5% of the outstanding shares, but it's a sign that things are going well, okay?

Craig: Yeah. Yeah. A person wrote in this week asking about Ely Gold Royalties, which is one that we've discussed before, and I thought, "Well, we might as well get back to that one."

Eric: Yeah. I'm a big owner. They have a 2% royalty on the Fenelon property, which I've gone through the theory and how I think some of these royalties are undervalued in the stock market. They have some very, very enticing royalties in Nevada. They're a huge landowner in Nevada. I like their model. I mean, they're good geologists and businessmen, they know where things are going in Nevada and they seem to know where they're going, for example, in Fenelon. And that guy, when they bought those royals, I mean, they stole them. I mean, you can steal royalties. Like, it's shocking to me, the value of a royalty and what you can buy it for. And so, I kind of like that model. I like the stock a lot.

Craig: And we haven't discussed Kirkland Lake in a while, but there's some stuff going on there.

Eric: Well, they declared their dividend, a quarterly dividend, 12.5 cents, so they're paying 50 cents a year. They announced a buyback, reintroduction of their buyback, which they'd suspended because of COVID-19. So I guess those are both signs that things are okay. I don't have any inside information at all. I'm not on the board anymore. And of course, I don't know what production is gonna be like, because you do have to change things around with COVID around. So, whether or not they're gonna be able to produce close to their normal production, I have no idea. We'll have to wait and see on that, but I still own the stock, and it's been a great investment and I'm sure it will continue to perform well. The Detour acquisition, obviously, with $1,700 gold, was incredible acquisition.

Craig: Yeah. Like, you know, and one last question on the shares in general, Eric. Had a number of people this week asking about the idea of reverse splits. So many of these small and exploration companies trade below a dollar. And is there any logic to them doing a 10 to 1 reverse split, and why don't more companies do that sort of thing?

Eric: Yeah. Well, the history of reverse splits has been that typically, when companies do it, it's because their shares are not eligible, and they want them to get above $2 or $3, so they do a reverse split and the price goes up. Thirty cent stock becomes a $3 stock, which makes it marginable. But the market, kind of, would see through that, that it's not really, you know, it's a weak stock. That's why the guy's doing the reverse split. So there's this feeling that reverse splits are a sign of weakness.

So, for example, I would have suggested to the Wallbridge management, you know, you should probably do a reverse split, because, you know, you're a billion-dollar company. You don't have to trade at a dollar a share. So if you really got the goods, I think a reverse split is a good thing. If you don't have the goods, well, if you reverse split, some people just use it as a liquidity opportunity and short your shares on you, so it depends on the strength of what you have going for you. So, for example, would I think that Jaguar could do a reverse split? Yes, because the earnings are there. I think Wallbridge could do a reverse split. Maybe I might even think that Freegold Ventures could do a reverse split if the numbers come through like we think they're gonna come through, because it does make it marginable. As a guy who owns a lot of these things that are not marginable, it cuts down on your ability to lever yourself. Maybe that's a good thing, but it does cut down on that.

Craig: Well, here we are at the end of another week, hoping to finish it up strong. Why don't we finish up this podcast strong? Anything else on your mind?

Eric: Not really much. We've had a couple of good winners in Tudor and Teuton. I just am a great believer that they could have a significant discovery there. And I don't know if I've said this before, but I'm aware, even though I love Tudor and they're the operator of the Treaty Creek property, Teuton, in my mind, has always been the better stock, because it has the Net Smelter Royalty on Treaty Creek and the 20% interest, and I think it's the best of the three, and so far this year has way outperformed Tudor and American Creek, even though they've done superbly and I love them both, but I think Teuton should ultimately be the biggest winner of the whole thing. And they got lots of other projects besides Treaty Creek, so sort of a special kudos to them.

Craig: Yeah. Well, it should be an interesting week ahead. We'll be drawing into the end of the second quarter already of U.S. GDP estimates, you know, here at the end of the quarter are something like negative 45%. My goodness gracious. And then, by two weeks from now, we'll have another jobs report to talk about, Eric. So, it may feel like the doldrums, but we're not really there yet. But one last thing about Sprott Money. Please do not forget that we have a tremendous storage program. If you don't wanna hold your metal yourself, Sprott Money is a tremendous perfect option. If you want to store your metal somewhere, call us up, ask our team about our competitive rates. Our allocated segregated storage account might just be the thing you need. You can call us. 888-861-0775. Eric, hope you have a great weekend, and I sure look forward to talking to you next week.

Eric: Yeah. You know what? It's fun in the precious metal business these days, because if you can find opportunity, you get rewarded fairly quickly these days, so we're always on the hunt and hopefully, lots of good things will happen going forward.

Craig: Let's do it. From all of us at Sprott Money News and sprottmoney.com, thank you for listening. We'll talk to you again 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.