Weekly Wrap Up

"Synchronized Global Decline" Good for Gold, Bad for World - Weekly Wrap-Up (July 05, 2019)

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July 05, 2019

As we roll into July, the new U.S. jobs report makes some stunning claims—but can you believe the numbers? In this edition of The Weekly Wrap-Up, Eric Sprott breaks down the latest gold and silver news, including:

  • The best indicator of a looming recession.
  • Why the economy isn’t as strong as people suggest.
  • Plus: Eric answers your listener-submitted questions.

Ask Eric a question by following us on Twitter ( www.twitter.com/SprottMoney) or Facebook (www.facebook.com/SprottMoney) and post to us using the hashtag #AskEricSprottFor more info, contact us at submissions@sprottmoney.com.

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

Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. It's Friday, July the 5th, 2019, and this is your weekly wrap-up. I'm your host Craig Hemke, and joining us on this fine Employment Report Friday is Eric Sprott himself. Eric, good morning.

Eric: Great, Craig. I thought we were going to have quite a spectacular week. We've had a jobs number that's kind of beat us up a little, but you know what? The day's not over, so I think we've got lots to look forward to.

Craig: And you're right, Eric. It has been an interesting morning already and we're certainly going to be talking about that. Before we begin, I want to point out something on the Sprott Money site. I want everybody to go check out, again, sprottmoney.com. If you go to the navigation bar, there's a tab for Insights and that's where you find all of the fantastic articles that are written through the week. Great research, great opinion pieces there. And we have one this week from our own CEO, Larisa Sprott. It's called "The Least Crowded Trade In Investing". It's a fabulous article and I encourage everybody to go to Sprott Money, check out the deals that you'll find there, check out the information on this storage programs we offer, but also look for the commentary that you'll find under Insights. And it's a great article from Larisa Sprott. Eric, obviously the apple doesn't fall very far from the tree. She's cute, and just as well as you are. What do you make of things and the action this week?

Eric: Sure. Well, you know, it's been a great week until this job number came out today. And the most stunning thing to me was, you know, we went into the week with the supposed resolution of the trade talks, which I don't think is true for one second. And they use it as a reason to beat up gold on the Monday. I think the most stunning thing was the $30 rally on Tuesday and how the commercials could possibly let that happen was just beyond me. And I think they might have increased their shorts on the Monday only to find out that it went up 30 bucks on Tuesday. Now, we have another down day today with the jobs number coming at 200,000 plus, 224,000 or something. By the way, you know, I never believe the numbers and I don't believe the numbers when they're 74,000, I don't believe when they're 224,000. In fact, how could months be that different? I mean, it just begs the question here that somebody doing the calculations did it wrong in May and they did it wrong in June, and probably averages somewhere to like 150,000 or something. Not that I use the jobs number to mean anything. For example, I was reading a data point that 45% of all U.S. workers have 2 jobs. Forty-five percent have two jobs. Like that's incredible. And of course, what it says is, yeah, well I get 28 hours at Walmart because then there's no benefits and they got to go find a job somewhere else and they count as jobs. Well, you know our jobs number, it might be way worse than we're thinking if people have to have two jobs yet they're still only working 40 hours a week. So anyway, the jobs number comes out. It's way beyond what anyone expected. Gold gets counted for 20 bucks. And what I find interesting when you think about when that happens, you just hit an air pocket. Okay. Nobody sells anything. It's just an air pocket. The real action is when it gets to $1,290 or $1,295.

Craig: $1,300.

Eric: Sorry, $1,300. What happens? Okay. And of course, it's already...having been down $20 it's now down $15. It'll be very interesting to me to see that the real action, where the real trading takes place, people come in and buy gold. And we have seen lots of reasons to think that that's happening. We see these additions to the GLD. We see significant additions to the silver ETFs. We see buying coming in of rather large proportions. We see a continual manifestation of generalist portfolio managers coming out in favor of gold, Mark Moby as being the most recent one that said, "Well, all portfolios have to have 10% gold." Okay, let's do it with 10% gold. Right now, everyone's portfolios are one-half of 1% gold, one-half of 1%. How do you get to 10%? That's just impossible. So anyway, but you know, we've had this decline so far here on the Friday. I will be so pleased if we could say over $1,400. And if we go back to $1,400, I think it'll be exciting, to say the least, because the speculators will realize they have the commercials where they want them. And most of the data... I mean, the whole zero interest rate thing in the world, that PMI is doing nothing, the economic data being cruddy, I mean, you just know that the central banks look like they're losing the war here and they're going to go to extremes to try to win it, all of which will be good for gold.

Craig: Right. No doubt about it. You know, you talk about the employment report, we call it on my site the BLSBS because it's all just...it's just statistical nonsense. I'm sure today's big number was probably all the birth-death adjustment, which for people listening is just a statistical guess of how many jobs they think were added in June based on Junes in the past. It has nothing to do with what happened...the month that just concluded. They just guess, and so... But in the real world, as you mentioned now, Eric, interest rates just continue to drop. We're now north of $13 trillion of negative yielding global debt and the entire U.S. yield curve is now inverted as the 30-year long bond is less than 2.5% and then Fed funds rate are, as you know, are pegged 2.25% to 2.5%. All of this is screaming global slowdown and global recession.

Eric: Yeah, totally. And, you know, we haven't had to face that yet, but people in Japan, people in Europe have had to face negative interest on a bank account. What do you do? You know, you sit there and pay the bank to leave your money there? Or are you going to say, "Well, you know, maybe I should go buy some gold or silver, or something like that? Oh, gold's up 10% this year. Let me think now, I can lose 1% or make 10%. Gee, maybe I'd like to make 10% instead of losing 1%." So, that's an... You don't need many people to make that decision by the way. It's one half of 1% of the world's portfolios. I mean, just trying to get it to 1% of the world's portfolios, the price of gold would go crazy. So, it's all... The world economy, the PMIs are weak, that China's obviously showing a slowdown, the growth rates for the world and the U.S. are all declining all the time. So, what's the Fed going to do about it? Okay, Fed, back to you again, baby. You know, what are you going to do about it? And whatever you do about it, it's going to make people go to gold.

Craig: Yeah. In the big picture, Eric, I want to ask you about a development that came out late last week in response to, really, I think in response to Iran and the sanctions that are still in place from the U.S. and the deal that was signed that's still being, I guess, honored in a sense by Iran and the EU. And now the EU has set up something that appears to rival the SWIFT system as an alternative to simply trading in dollars. It's called INSTEX. I wonder if you've got some thoughts on that.

Eric: Well, of course, it just proves that the Union of Democratic States is kind of falling apart here. Okay. It used to be that, you know, whatever the U.S. did Europe did and Japan. The developed countries would all do the same thing. But obviously, the European countries do not want to be affected by a U.S. decision to punish corporations dealing with Iran. So, they've developed a new system where those corporations can use this system to trade with Iran. So to me, it's a statement that the coalition is falling apart. It would be very nonconstructive for the U.S. dollar. Of course, anything that's nonconstructive for the U.S. dollar tangentially is constructive for gold. So, I'm pleased to see that they've made that decision to deal with Iran and not just be, "Why is everyone guided by what the American policies are?" Particularly when the people deciding the policies are forever throwing out bombs in various directions, whether it's to the EU, or Japan or, China. I mean, it's just... Russia. It's amazing. I don't know. Their base of allies you'd think would be shrinking.

Craig: You mentioned the global physical demand. How about the news this week out of India? They're actually raising the gold import tax.

Eric: Hard to believe. I mean, you know, the comments from the industry, they were hoping for a cut in the import tax and they've now increased it from 10% to 12.5%. That was announced overnight. It's not gold constructive in the sense of seeing data, official data from India that gold imports are going up. Of course, the higher the import tax, the more that the people, the smugglers bring into the country because now they've got more to avoid. And I find it interesting, oh, just another 25% tax increase, you know? Like why did governments think that they can raise things by 25% out of nowhere? I mean, it's just mind-blowing, this sort of encroachment of government, which drives me crazy. And it's not little encroachment, it's big encroachment. So it's unfortunate that they would do that. And of course, you never get the data for smuggling so, the official data is going to look weaker. And the data we don't get, I would guarantee you, will be stronger because there's no doubt that people in India must be quite pleased with the fact that the Indian rupee, I think gold hit a new high and Canada hit a new high, Australia hit a new high. I mean we're not doing that bad, you know? For countries that theoretically have weaker currencies, the price of gold has done incredibly well. So, you know, I think the Indian people will continue to be very serious purchasers of gold and silver.

Craig: Yup. Eric, one last thing, it's been an interesting new week for the shares. They'll probably open a little lower here this morning, but it's going to be a long day, and you never know how they'll finish the week, but they are doing everything that you had said they would do here in these early stages of this breakout and what people are now recognizing is a bull market. I've got a couple of questions for you, though, as we go to wrap up, I just want to just ask, just your quick opinion from some of these questions that had been sent in to us. One person just want to know what you think of a couple of companies, Rob McEwen's McEwen Mining, and if you know anything about some of the silver miners like Pan American Silver?

Eric: Sure. Well, in the case of McEwen Mining, I mean, I've looked, I've studied it, but I've never owned it. And, I mean, I really admire Rob McEwen and how he stands in for gold and precious metals. I was very happy to read, you probably would know this, but there was a death in his mine and those are always very devastating for mine owners. As it turned out, it was from natural causes, thank God, because you don't want to have to wear that. And his stock had a tough, tough time here. But the stocks that are down the most are the ones that are probably likely to rebound the most. I don't know what it's done in the last month, but it's probably actually rallied pretty well here. But I haven't been an owner of it. And the funny reason I've never been an owner of it is Rob is such a good CEO, that his stock always appeared to me to be overvalued from other things around. And that's a compliment to him actually. Okay? That he's been so good, that people admire him, as they should. He's a guy who takes no salary as the CEO, nothing. So his heart is in doing the best thing for shareholders. So, I respect him for that. In the case of the silver producers, Pan American and others, I'm really a student of that because it's big. I've always kind of tinkered around things that are little, that are going to become big, and I'm aggressively looking to buy leverage silver plays, leveraged in the sense that there's a lot of silver per share [inaudible 00:12:51]. They're hard to find. I mean, I've got a list given to me yesterday, literally in our office of the various companies you could look at. And man, there's not many with big silver deposits. It's just it's something that's hard to find. If you have a big silver deposit, it's typically low grade. You know, you get a 30 or 60-gram deposit and it's only worth $15 or 30 bucks a ton. That's hard to mine and make money of that. But as you know, I have mentioned previously that Christopher Mulan [SP] sort of has a long-term target on silver at 90 to 500. And I'm kind of going with that. You know, I'm looking for things that might work extremely well in that kind of priced thing. I'm doing the same in gold. I'm looking for low-grade deposits that will come on to the playing field. I spend a little time looking at Seabridge this week. As you know, I'm involved in something called Tudor, which is north of Seabridge and has a very big exploration opportunity there. And if the price of gold goes to some of these targets, like 2000, then there is going to be such an opportunity for guys with low-grade deposits that they'll, you know, be able to develop and the stocks will appreciate somewhat massively. So the hunt is on. I like them all and I'm, of course, I'm willing to take that gamble because there's not much risk here, right? A lot of these stocks are already trading at 10 cents on the dollar from where they were in 2011. And when I look at a Canadian company, in 2011 the price of gold was $18.80, here we are in 2019 the price of gold is $18.80 and the stocks trading at 10 cents on the dollar. There's got to be some opportunity there. So, it's been fun doing the hunt. And I will talk about some of those things in due podcast as we find them.

Craig: And Eric, just one quick question then we'll wrap up. News broke this week that you've had to diversify a little bit out of some Kirkland Lake. I mean, when you first started telling us about it, a couple of years ago about right now it was 8 USD and then it went to 18 USD. And now it's 40-something USD. Is there any way... If you could just kind of comment on your thoughts there?

Eric: Obviously, it became an inordinately large part of my financial holdings, okay? Like inordinately. And I think it's kind of interesting that I waited this long to do something about it. I still love the company. I keep hearkening back to their May 2nd press release when they announced the new drilling up at Macassa, which was spectacular and better than Fosterville Lake. I just couldn't believe it. So, I'm a great believer that the stocks, well, it's basically advertised now anyway, but that it'll keep going higher. But for me, and I said this to their CEO, Tony Makuch, I said, "Tony, you're not going to be the number one performing stock this year, okay?" Something else that's levered to gold, that is a high-cost producer, it's going to outperform Kirkland Lake. So, as much as I love Kirkland Lake, I think it's got a huge upside this year. I have been moving around to smaller, lesser-known companies where, you know, maybe the guy's cost of production is $1,200 and at $1,300 he's making $100, and at $1,400 he's making $200, he just doubled his earnings. So, you know, I bought shares with Jaguar, I have a personal investment in Jerritt Canyon, which is a high-cost mine in Nevada. I've announced a couple of other deals that I've gotten involved with and that... And as I say, I'm looking hard at lower grade opportunities that would hit it out of the park if the gold price keeps going up here.

Craig: Hey, I've had the same issue with Kirkland Lake, and I've had to diversify sub two for the exact same reasons, but I just don't have to file it with the SEC when I do.

Eric: Yeah. Well, that's fine. I wasn't even aware that I had to file with the SEC. In fact, I don't have to file with the TSX anymore. It turned out because I'm over 5%, I have to file with the SEC. So that's why we put that filing in.

Craig: There you go.

Eric: So, people will be able to monitor what I'm doing in Kirkland Lake. Okay?

Craig: Fair enough. Or they could just listen to us every week and we'll tell them.

Eric: Or listen to us, yeah, absolutely.

Craig: All right. Hey, one last thing before we go, again, no better time like the present than to add to your stack of physical precious metal. You can open a storage account with Sprott Money to store and secure your precious metals. And you can store your metal in any one of our six global locations. You simply sign up at Sprott Money International Storage, and you'll also receive exclusive deals from us too. You can call (888) 861-0775. Of course, just visit sprottmoney.com for more details. Eric, thank you. It's been an interesting week. It's going to be an interesting week next too, so hang in there and have a good weekend.

Eric: You have a good one too. All the best, Craig.

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