“Synchronized Global Decline” Bad for World, Good for Gold - Weekly Wrap-Up (March 8, 2019)

Man: You're listening to "The Weekly Wrap-Up" on "Sprott Money News."

Craig: Well, hello again from "Sprott Money News" and sprottmoney.com. It's Friday, March 8th, 2019 and this is your "Weekly Wrap-Up." As usual, I'm your host Craig Hemke. And as usual, we're joined by Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Kind of a boring week, but boy, we're blasting today and it's all looking good. So, lots to chat about.

Craig: That is for certain. Yeah, after the week we had last week, it's nice to see things turning back higher and you would expect that, again after what we went through last week. Before we get started, always like to point out some of the special things happening at Sprott Money. And this week, we want to talk again about our metal storage program. If you open a storage account with Sprott Money, where you could store and secure your precious metals, you can store them in any one of our six global locations. All you got to do is sign up for Sprott Money International Storage and you'll also receive exclusive deals from Sprott Money. So, just go to sprottmoney.com or of course, you can call us at 888-861-0775. Eric, let's start with the news of the day, which is the U.S. unemployment report. After a couple of months that kind of surprised everybody for January and February, well, we got a surprise today. All those people on CNBC this morning were talking about 200,000 plus jobs and it came in at 20,000. And so, that's about 10 times less than what everybody was expecting. That's helping push the metal prices higher this morning. What do you think?

Eric: Well, first of all, Craig, what I think about the labor statistics is there is a bit of a joke at the best of times. I never believed the 300 when they said it was 300. And I probably don't believe the 20 when they said it was 20. I mean, it's such a convoluted calculation. But obviously, there's economic signs that things are quickly cooling down in the U.S., whether it's home sales, or car sales, or various retail indications, car loadings, truck orders, durable goods orders. I mean, there's lots of signs this way. And then, of course, the worst part is that we're sort of seeing almost a synchronized global decline here. And, we got today, for example, Chinese export orders in February down 20%. That's hard to do actually, down 20%. Their imports were down 5%. German industrial production was down 2.6%, which is a pretty drastic decline for Germany. So, there's lots of signs that the international market's cooling out. And of course, we're all subject to each other, right? I mean, the international is subject to the American economy and the American economy is subject to the international economy. So, there's lots of signs of concern out there economically.

Craig: You're making me recall, about a month ago, Janet Yellen suddenly appeared on CNBC. And after her proclaiming we would never see another financial crisis in her lifetime, you might remember seeing that. She said that if the EU were to slow down, that might lead to rate cuts here. Well, guess what? What do we hear from Draghi yesterday? The EU is slowing down and they're on the verge of restarting their QE programs.

Eric: And it's interesting. Well, of course, they've announced they're going to restart them, which was pretty quick. Right

Craig: Yeah.

Eric: I mean, they never got autumn really. And now they're restarting again. They never shrunk their balance sheet, you know, $1 or 1€. And obviously, they could foresee what was happening economically. And they just knew certainly based on the U.S. experience that the Central Bank was tightening into a weakening economy. The stock market could be subject to tremendous duress here. So, they didn't waste any time in turning chicken and said, "Well, I guess, we'll print more money." And you know what? It's worse thinking about this funny situation we have ourselves in here in the world where everyone's solution to economic weakness is printing money. The Chinese did it in January, ECB did it. Obviously, the Fed has changed their strategy here. And you know, it's something that will have unintended consequences. You just can't print money to solve problems. Yeah, you can hand a guy a bunch of money and go and buy something, but ultimately, the debt that everyone has to repay is going higher and who's going to pay it? And if your economy doesn't grow and your outstanding liabilities grow, your interest costs are rising.

And I noticed even when the U.S. announced their deficit, which was atrocious, it was atrocious. It was up by 77%, I think, for the first four months of the year, 77% higher budget deficits, that the interest charges were starting to be a very, very large factor. The funny thing about the U.S. deficit, the estimate by the Congressional Budget Office would be that the deficit would go up by 118 billion this year. In the first four months is up by 135. So, I think, you know, they're going to be wrong because they're always underestimating what's going to happen. So, yeah, we got economic weakness almost totally internationally here, and it's not good. And, we're going to see strains on the stock market.

Craig: I want to touch upon price for just a second because we had such a terrible week last week with prices just getting bombed backward. It appears to be just another one of those wash and rinse cycles of the speculators on the COMEX. Well, finally today, Eric, after not getting a commitment of traders report released in the usual 74 hours delayed program, we'll finally get one today for the first time since the middle of December. So, it's been almost 90 days since we've gotten up-to-date if you want to call it that current information. So, we're seeing price just do its normal, you know, three steps forward, two steps back. But then additionally, Eric, I want to ask you about this. Since Powell came out at the end of January at the most recent Fed meeting, and put all future rate hikes on hold, and started talking about every tool in the toolbox again, and all that kind of stuff, the GLD has been rated for 56 metric tons. You would think all these fundamental positive things for gold, the GLD inventory be going up, but it's going the other way. What do you make of all these current happenings in the gold market?

Eric: Well, you know, it's to be expected. I actually think there's a shortage of physical gold as, for example, you and I talked about palladium a lot. Okay. And there's a shortage of physical palladium. And I thought it might spill into the other metals, particularly silver. But when you see that happening, when you see all these financial experts say, "Yeah, we think gold's good. Yeah, we're going to buy gold. Yeah, we are buying gold." And meanwhile, the GLD has a decline of 50-odd tons. I think people are raiding the GLD to provide gold against COMEX contracts. You and I both know that the outstanding contracts are always like whatever, 100 times larger than the available supply. And of course, there was no supply at the COMEX. So, whenever a guy has to make a delivery, where did he get the gold? Because there's none in COMEX. So, the guy has to still go and buy GLD shares and redeem them and get the gold.

So, I think it's a very, very powerful sign that there is a shortage of gold. One might say, "Well, how come gold went down for six weeks?" Well, you know what? Gold was down for six weeks if they decide that gold's going down for six weeks. And I think I mentioned a few weeks back, you know, to change the narrative, "Always seeing signs of strength and dah, dah, dah, dah, dah. That'd be a good reason to ban gold." Well, now of course, now that there are no signs of strength, they've lost that excuse. But you know what? They have mission accomplished, right? And they got gold down and they covered, and shortened the way we go. So, that's where we are.

Craig: Yeah. And for everybody out there, when you mentioned some guy, that some guy works for a bank because of the only institutions that it's even possible to take gold out of the GLD are what they call the "authorized participants," which are all just the same bullion banks that operate in New York and London.

Eric: Exactly. Exactly. Yeah.

Craig: You know, you and I, not like some regular Joe, it has to be a bullion bank to be able to do it. Eric, at the same time, the Chinese seem to be on the physical bid. We got news this week that, you know, they're publicly announcing physical acquisitions, again, another 12 metric tons in February. Yeah, it's interesting that they're doing it. It's also interesting that they're publicly announcing it again. What do you make of that?

Eric: I think it's part of the strategy to sort of port the U.S., Germany, and I think like, one of the most powerful signals that we could have had, and I noticed the first time they reported, and I'm happy to see that they reported again, it's three months in a row. You know, we're averaging out maybe 140-odd tons, which of mine supplies. It would be 5% of mine supply. It's good to see them in there. First, the Russians keep buying. Lots of other central banks keep buying. Other banks are asking for...the central banks are asking for the gold back. So, it's one more positive sign in the gold market. And you know, given the end of the operation to steal money from everybody, one should honestly expect that the price of gold should go back up here because we're having a pretty hot day here today. And of course, the day is hot because what was described as almost a crash in China, where the Shanghai market was down 4.4%, Japan was down 2%, of course, the jobs number was lousy.

And all of a sudden, you know, we're going to go back to, "Oh, well, maybe there's a problem here. And maybe I don't want to own stocks and well, what can I own?" And of course, today they're definitely going to bonds here. But obviously, today they're back in stocks and I presume when we see the COT report tonight, we'll all find out that the commercials covered their short position. So, here we go again.

Craig: Yeah. Well, you know what? Another thing too, coming out of last year was a tremendous outperformance through the fourth quarter of the mining shares versus the overall market. And on a microcosm that you're going to see that again today obviously, the shares will be up with the S&P being down. The shares still ended uptrend. If you measure it, if you look at their GDX or their HUI, there are a number of shares that I know you follow. So, it looks like Centamin is good and you may have some updates on a couple of companies that you watch.

Eric: Yeah, yeah. A couple of comments. First of all, I want to say a couple of things about the stock market because there had been some signs that the stock market was rolling over and those signs included the transports rolling, the Russell rolling, investment grade yields going up. There's some thoughts that the technical funds when the S&P gets below with 27, 18, it's about 27, 34 as we speak, so another 1% or 0.6 or 1%, that they got to go from a 100% long to thinking about going short again. And of course, that's why you get these dramatic changes in the market. Because of these funds, they just have no patience for it, right? It's either full on in or full on out. So, that we have to watch for.

In terms of stocks, there's, I wanted to talk about two stocks. One is Amex Exploration. It's a very small company, but they've had some pretty exciting drilling in the Abitibi region of Québec. Very, very, very high grade, like 3 to 5-ounce intersections. There are over narrow widths like a 1 to 2 meters. But they have indicated they have drilled up newer holes that also have visible gold. So, we're going to stand by and that it could be very exciting. The other company and perhaps a much safer bet because it's more advanced is Wallbridge, I'd mentioned it before. And they had a very significant announcement out on Feb 21st. And I apologize that I hadn't really read it as carefully as I should have back then. And that's because the personal like board meetings at the time and really didn't focus on it enough. But I would encourage people to look at that Feb 21st announcement and take a look at the drawings that they have there.

And it was interesting. I might've described the ore body initially as 100 meter by 100 meter. And, then they drilled down to 400 meters and out 400 meters. And now you've got something that looks like it could be 400 meters by 400 meters. And simple math is this, 400 meters by 400 meters, is 16 times bigger than 100 by 100. And that's how dramatically things can change. And if, for example, they would have pushed out beyond 400 meters or deeper than 400 meters, well, and you know, it can change quite the market again. So, for example, if it was 600 by 600, it's 36 times bigger than 100 by 100. So, things are changing. They've encountered some very high-grade gold. The latest intersection down at 400 meters, they actually had a section that was 200 meters thick that ran low-grade gold. And, you know, 200 meters, that's a pretty long intersection of low-grade gold. They had high-grade ended by the way.

But just the fact that it could get in doubt over 200 meters is rather striking. So, I've, of course, been a big investor in it. I will own, hopefully, around 25% of it. I'm not suggesting that people do it. I'm suggesting they do their due diligence, look at it. If you're sort of seasoned there or sort of not totally amateur investor, look at the free press releases and see what you think. I just imagine that this thing could get big in a hurry because that's one of the beauties of the drilling. You know, if you're down 400 to 600, you've got 50% more ore. If you got 400 meters of strike and you go to 600 and you get 50, theoretically 50% more ore. So, those are the things that I'm looking at in Wallbridge, nice high-grade ore body. So, I'm quite pleased with what's happened there.

Craig: Always full of good ideas, Eric. And I know a lot of folks listen each week just because they want to hear some of your thoughts on some of those companies. So, thank you for keeping us up-to-date. Before we begin to wrap up, I do want to point out tax season is still out there, unfortunately, especially for us here in America. And we've got about another six weeks to get everything put together. Of course, it's always a good idea to fund an IRA if you get a tax break for that. And it is possible to own physical gold and silver in an IRA. You can open a self-directed IRA with Sprott Money and buy physical gold and silver before the April 15th filing deadline. You put a couple of thousand dollars in an IRA, that'll get you to an ounce of gold and about 50 ounces of silver. That's a pretty good deal.

So, Sprott Money is associated with a company called New Direction Trust to make this happen. Give us a call and we'll help you through the process, 888-861-0775. And you can open an account, and you can fund it, and you can buy yourself some physical metal in your IRA. Eric, it has been an interesting couple of weeks, but now we're going to head off toward the FOMC meeting in about 10 days. I have a sneaky feeling that we're going to have a lot to talk about in the weeks ahead.

Eric: You know, I was going to say, well, we're getting close to 1300...back to 1300 in gold we're about, as I'm looking at it right now, dollar 20 away. So, you know, we could be back swinging again. So, it should be a lot of fun. Look forward to next week.

Craig: Should be a lot of fun. You're absolutely right. Well, I will give you the rest of the week off, my friend, and we'll just look forward to talking again next Friday. So, from all of us here at "Sprott Money News" and sprottmoney.com, thank you for listening. We'll talk to you again next week.