Summer is Breaking Out—and so is Gold - Weekly Wrap-Up (June 21, 2019)

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Craig: Well, greetings again from Sprott Money News and sprottmoney.com. It's Friday, June 21st, summer solstice day, longest day of the year for all of us in the northern hemisphere. And it has been quite a week as well. This is your host Craig Hemke and I'm joined, of course, for this weekly update by Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Speaking to the longest day, I mean we've had some pretty great days this week and hopefully, this longest day will be a repeat of what's happened so far this week, which has been, of course, terribly exciting for all of us. So pretty exciting.

Craig: Make it a long day for the bankers. That's what I'm looking forward to, Eric. Well, summer is finally here and of course, at Sprott Money that can only mean one thing. Our annual Sprott super summer sale. Sprott Money has searched the vault high and low to offer a huge product selection of precious metals on sale. So be sure to visit the Deals page at sprottmoney.com after this segment to add to your reserve of physical precious metal. Of course, you can just call us as well. 888-861-0775. And man, if you've been sitting on your hands for the last six years watching gold at a trading range, I could see where maybe, you know, you're going to wait until it breaks out to do something. Well, it is breaking out my friend. We are above $1,360 for the first time in six years and looking pretty good. What do you think?

Eric: Well, you know, Craig I love going back to the call we had three weeks ago when I suggested that I read an article that I really believed in that suggested gold was going to have a very sharp rally in four or five to seven weeks. We've had three of them now. This rally started at $1,275. We're at $1,400. That gentleman, Chris Vermeulen, and I got to give him credit for being prescient, why I picked up on it, I don't know, but it just seemed so appropriate at the time. And his first target was $1,450, but he actually thought it was going to go to $1,650. And I want the listeners to think about that. $1,650, what would happen? In the three weeks that the price of gold has gone up, the yearly's gone up 30% already. And I don't even know that the market's figured out what the dynamic is to mining companies' profits with that kind of increase in the price of gold. So that's very exciting.

And I'm just going to point out one other thing that I happen to read another article that this gentleman wrote, I'm going to say a week and a half ago. I was just stunned. He was very keen on silver. And his top of range targets were $90 to $550. Now, and of course, this top of the range target and goal was $5,000, okay. And the thing I try to impress on people just think if he's right. What's in store here? What's your risk reward? Your reward is so many multiples of 10, I can hardly tell you. And your risk is what? I mean it's been three weeks and we're flat out sold out here. There was hardly any risk in them, and there's not much risk in a lot of things now.

Anyways, it's great. And of course we had this week the Fed chiming in and Draghi, I mean, I thought Draghi was worse than Jerome Powell in the sense that, that guy, he's just never going to stop having weapons to keep the economy going. And then, of course, there's not many weapons left when your interest rates are already zero, other than printing money. And I get the feeling that the listeners think we're going to zero interest rates here in the United States as well. And that they, when they get to the effect of zero ban, we'll start using weird tools to try to support the markets and those weird tools, of course, are all going to point to owning gold.

So it's not that difficult to understand why gold is going up here and where it could go. And the implications for the stocks is absolutely incredible. So try to stay the course. There's lots of stocks that haven't caught the mood yet. And so there's lots more to come, in my mind.

Craig: And it's important for people to remember. I mean, it's been a long time since we've had a sustainable market, right? And these things don't move just straight up. There are always going to be two steps forward and one step back. And you've got to recognize the general trend. And it's interesting, Eric, now that we are breaking out, I wonder how many institutional managers and pension fund managers and hedge fund managers are going to recognize a general trend and realize, "Wait a second, I don't have any exposure to gold at all." I mean, that would, I imagine, kind of start off a stampede too.

Eric: And I might mention you didn't mention maybe one of the most important ones, Algos. Algos who are looking at their computers looking at the screen saying, "By the way, gold stocks are the number one performing group." "What do you own?" We don't own any." "Well, it's the number one performing group. What's been the number one stock and IDB for the last little while? Kirkland Lake Gold. Do we own any of that stuff? No, but it's number one of all stocks, all stocks and we don't own any. What are we doing? We're asleep here." And I actually have way more confidence in the computers versus the portfolio managers and analysts because the computer's right in concept, right? The analyst is scratching his head, wondering what the hell happened here. But the computer's not wondering what happened. He's just seeing what happened. So yeah, there's a lot of, I don't know what the content of gold is in portfolios, but I suspect it's probably less than one half of 1%.

Well, you can imagine it's a computer screaming at you, gold, gold, gold, gold. And you're sitting there. You don't even have any. Imagine if the world tried to go from half a one to one. What do the stocks do? It would be crazy. What would the price of gold do? It would go crazy. So perhaps some of these targets aren't quite as extreme as people might imagine. If you turn the tide of interest and everyone tries to get through the same little door at the same time and big things are going to happen.

Craig: Yeah. Just to illustrate that point, and this will lead us to a top discussion of physical buying by central banks. I saw a thing this week that said China sold something like 80 billion in Treasuries in the month of April, which was nothing less than 1% of their total reserves, right? I mean, nothing really, a little blip, but 80 billion would buy almost 200 metric tons of gold if they were to go that way. And that's how many dollars there are versus how little gold there is.

Eric: Yeah. That's the world's monthly mine production outside ex China basically. And of course, they're getting competition from Russia. They're getting competition from India. India has been a big buy here. That's not the government though. That's the people, because they believe in gold and silver. And you have all these other sort of tangential and small central banks that seem to be buying gold too. I mean it's almost like a fully...why wouldn't you understand that you're printing money but the money is going to become worthless. Okay. Given time, the money becomes worthless. So just hold on.

Craig: You mentioned it's been a great week for the shares and yes, you know, you've been telling us for a couple of weeks, Eric, about how the large-cap minors are usually the first to take off in a bull market. And we've definitely seen that the [inaudible 00:07:56] up maybe 10% this week where gold's up 3 or 4 and silver's up less than that. Yeah, I know there are certain specific shares you follow and that you've been adding to. Any discussion you can give us there.

Eric: Sure. Well to me, the key thing is the following. The high-cost mines will do best. The shares of the high-cost mines will do best in this kind of environment. The $1,200 producer who was making $50 at $1,250 is now $200. That's four times as much. Four times as much. At $1,500, he'll be making 6 times as much. In $1,700, 8 times as much. Eight times, that can happen in a heartbeat.

So that's what you want to look at. By way of example, I got involved in a sort of, refinancing with a company called Jaguar that I had been involved in before. And you know, this stock was trading at 10 cents in the dollar and you know, we've already got $150 increase here and the change in their fundamentals is more than a double already. And that's what I've been looking at. I'm looking at a number, a number, quite a number of sort of orphaned situation. I was like buying the small guys, rather than the big guys. I actually did buy some tin rods yesterday just as it high-cost producer with a lot of ounces. But I'm tending my sort of specialty is look through the weeds and see if you can find something that everyone's totally ignoring. So that's what I'm looking at. And hopefully, there'll be a few more announcements of things that we've done here in the last little...we've been organizing in the last few weeks just to play this. And, you know, keeping our fingers crossed that it all comes true. And of course, the reward will be so substantive.

I mean, I look back to the '16 rally of 160% at about seven months, you know. Not that I'm ever a seller. I'm not but that's a pretty good payback, you know, for a very short time. So it looks very exciting. I think there's lots of opportunities out there. I sort of concentrated today on the producers, near producers. Maybe given the passage of time, and the continuing proven and the price of gold, then you've got to start looking at the developers and the explorers and things like that. But right now I'm just trying to grab something, some companies where the earnings can change impactfully in a very short order, which they've already done.

So it's wonderful. I fear the modern monetary theory is maybe taking hold here and all roads lead to gold and silver. And then, you know, silver is the tough one. It's hard to buy silver stock. Very, very difficult to buy. I'm looking. I haven't even found one yet. So, it may be that's a statement about how little supply there is. You can hardly find a big silver company. So more reason to believe maybe that some of those silver numbers aren't so ridiculous after all, even though they are ridiculous. Anyway, it should be lots of fun.

Craig: Absolutely. Well, Eric, it's always fun to visit with you and no, we certainly seem to be entering a very fun period of time for the precious metals as we roll through the back half of this year and into next. And again, I just encourage everybody, if you've been sitting on a stack of precious metal, now would be the time that maybe dollar cost average in. And if your cost basis is higher than price currently is or now if gosh, if you've just known that this was out there, you've been waiting to see when this was actually going to start rolling again to the upside, it might be time to get your first couple of ounces as well. Sprott Money is the place to do that. Visit us at sprottmoney.com. Of course, check the deals page as we said for the summer sale at any time you want.

Just give us a call at 888-861-0775. Eric, my friend, I think we're going to have a fun summer. Like we said, it's not going to be straight up all the time, but I think the trend certainly seems to be our friend and I look forward to talking to you again next week.

Eric: I do as well, Craig, and I might even point, you know, you've talked with dollar cost averaging. If you're in Brazil, you're not dollar cost averaging. If you're in Canada, you're not dollar cost averaging. If you're in Australia, you're not dollar cost averaging. You're at record high prices here. So we've got a big part of the world that, if they look at it in their local currency, this is starting to look pretty exciting here. So it's the U.S. price that's lagging and I think it's going to do some catching up here pretty fast.

Craig: That's an excellent point. We do tend to focus on the U.S. dollar price. It was just earlier this week, a golden Australian dollar's made a new all-time high.

Eric: Absolutely.

Craig: Well, again, thank you Eric, and thank you, everybody, for listening. Have a great weekend and we will talk to you again next Friday.