Weekly Wrap Up

Eric Sprott on banks and the markets (Weekly Wrap Up (July 20, 2018)

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July 20, 2018

The “beleaguered” Eric Sprott returns this week to discuss the latest and not-so-greatest in the precious metals markets. But it’s not all bad news! In this edition of the wrap-up, you’ll hear:

• Why Eric remains calm about gold prices

• What the trade war means for markets

• How the U.S. midterm elections could affect everyone

“It’s bad enough being down to 1216 or 1217, wherever we’re trading right now. But it’s the process we’re going through. As you know, I’ve expressed many times before that whenever the commercial banks say, ‘We need volatility in markets,’ well… they’re getting it! And of course they orchestrate it, I believe. And that’s exactly what we’re going through, with not only gold and silver. We see it in the oil market, where it got up to 77 and everyone gets excited, it’s going to break out, and bang! It’s down ten bucks three weeks later… So, here we are. Who knows when we get off of it.”

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To hear Eric's full thoughts and more, listen here:


Announcer: You are listening to the weekly wrap up on Sprott Money News.

Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. This is your weekly wrap up. I'm your host, Craig Hemke, and joining us, as usual, this week is Eric Sprott himself. Eric, how you doing today?

Eric: Hey, the beleaguered Eric Sprott. Yes, he's here.

Craig: We're all beleaguered this week. Actually, we are recording during the morning on Thursday and as we sit here and watch prices fall this morning, I thought I just remind everybody what a great idea to always is to stack some metal, which you want to buy when everybody else is selling. That's about the best strategy anybody could ever have and the focus Sprott money. Having an exciting offer for you this week. This week we have something new. We have the 8 gram and 25-gram maple grams that are on sale this week. You can call eight 888- 610-775 or visit sprottmoney.com for more info. This offer is available for both Canadian and American listeners, but limited quantities are available so you better get on it. And at this price, my goodness gracious, it's looking better all the time. Eric, as we record, we're just getting the snot beat out of us. Again, Gold's down below 12.20, silver's down around 15.20. Any, I guess words of wisdom you can share with everyone?

Eric: Well, you know, I've been kind of calm about the whole thing, it must confess I'm a little, more concerned with today's kind of events in the last couple of days events, and probably when you see other things happening. So for example, you see economic things like the housing starts being weakened, the housing stocks and in a bear market, I see that lead and zinc are in bear markets that various agricultural commodities, the coppers is in a bear market. China, the Chinese stock market is in a bear market. So you're seeing a lot of things that are kind of like warning flags, economic warning flags. Now this doesn't normally play into the goal for the moment, and of course what we see going on in gold and silver is the commercials are, I'm sure we're getting long here and the hedge funds are getting short, which is exactly the Senate that we'd like to see it.

That's been playing on for quite a while here. We have a huge open interest in the August gold contract. I mean, it's like, it's still something like 220,000 contracts are with 22 million ounces of gold, world produces about 80 million a year. So in the next seven days, we got to liquidate 22 million ounces of gold contracts. And typically to do that they knock the price down to get people the short end to it. So that's sort of, these guys can cover their possessions. And so far that's been the trend for the last few weeks. It's gone way beyond what would have imagined it went beyond.

And of course, once, if and when we break 1,200 and everyone's really going to have a fit, then, it's bad enough being down to 12.16 or 12.17 wherever we're trading right now. But, it's the process we're going through. I happened to, as you know I have expressed many times before that whenever the commercial banks say we need volatility in markets, well they're getting it. And of course, they orchestrate it, I believe, then that's exactly what we're going through with, with not only gold and silver, we see it in the oil market where it got up to 77, everyone gets excited, it's going to break out and bang, it's down 10 bucks three weeks later. And I'm sure a lot of that, that's the volatility that they need to make money, Wash, rinse, repeat. So here we are, who knows when we get off of it but I would imagine that they can't be too much further because the positions are totally reversed. Now it's to the advantage of the commercials that the price goes back up.

Craig: Eric, I want to kind of go in a slightly different direction to something that probably, well, I guess most folks, if they listen to us every other week, they have an interest in the own precious metal, but I think almost everybody probably owns mutual funds, equity positions, you know, in the US, we have people with 401ks and IRAs, and everybody, at least most folks are exposed to the stock market one way or the other. It's held in there reasonably well in the past several weeks, but it's just past unchanged on the year. But Gosh, Eric, you go back to 2015? The last time we had an emerging market crisis that came from a strong dollar and the Chinese devalued the yuan about 3.5%, and eventually led to a significant 10 %, 12% drop in one week in the SMP. You pointed out what's going on. The commodities and yuan now is down 7.5% in the last 90 days. I mean, is this a time, I mean we all speculate about the stock market being overvalued, but is this a time for investors who do have equity positions to start getting a little more cautious?

Eric: Well, I would certainly think so. Even though, when you see the biggest manufacturer in the world, which is China, go into a bear market, when a trade war has just started. I mean, I don't think anybody has any idea what's likely going to play out in the long run. I mean, hopefully, they come to some conclusion that we shouldn't have this trade war, but where we are today, it's a disaster for everyone because it's going to change the whole kind of, the shipping lines, right? Instead of going, the thing is going to China, they gotta go somewhere else or things coming from China and now they got to go somewhere else. It's going to be a mess. And you, sort of see it in soybeans. I don't even know what soybeans are down by, but it's a lot. I wouldn't be surprised with like 30% or 40% because the Chinese put a tariff on soybeans and then, you know, I think with the bankers are going to do next.

I bet you they're already looking at their portfolios of anybody connected to commodities, and wondering, "What's next year?" Because it's been a pretty harsh correction here in a lot of that commodity. So I think it's worth being very careful here. I mean the world economies don't grow that much anyway. Like a is, you know, the US economy growth in something like two...world's levered, you know, the debt is almost $200 billion. It's a quarter of a quadrillion. No, right? It's almost 250 billion. A trillion, sorry, trillion. So you know, if the economy slowed down that's hard to surface and that creates problems everywhere.

Well, and speaking of that, as you look over the horizon, kind of compelling to see what's going on here in the US, at least we've got the short rates are spiking while long-term rates are flat. And so we're getting close to unburden the yield curve. Ben Bernanke, he, of infinite wisdom, says that's not a problem, just like the housing crisis wasn't a problem in 2007. And then we've got some serious political risks here in the US it seems as well. I mean, I know it's challenging to look too far forward, especially given the current environment, but gosh, it sure looks like the back half of this year is going to get rather unpredictable, doesn't it?

Eric: Well, I mean I'm no expert on US politics, but obviously the Democrats are sort of relishing on what happened over in the Helsinki, and getting more aggressive and the of course, blaming the loss of the election on the Russians, which I think nothing could be further from the truth. That's what I personally think. I'm mean, obviously, she was a weak candidate versus Trump and I think he won it fair and square. But, yeah, it's a mess down there. It's hard to know what's happened when you, when you get some hardcore Republicans who want to be anti-Russia and sort of pro-war, also taking a stand against him. Yeah. It could get very messy, I mean maybe, you know, a lot of people talk about impeachment, they would like impeachment and be probably half the population with impeachment. So, who knows where, where it all goes, but it creates a bit of an economic mess.

We've seen some of these surveys soften here, so why wouldn't they? I mean people, have some sense of logic even though the market might not. And I think the latest consumer sentiment pull weekends off because of the trade crisis. Well, that's what it should do. So anyway, yes, it's a concern and I think our listeners should be very cognizant that there may be some effects that should happen in the market here.

Craig: Eric, just one last question this week and it has to do with the shares and metal prices. In that, if we go back to 2015 when gold got all the way down, Gosh, below $1,100. Silver got below $1,400. There was a lot of talk about prices being below the cost of production, and how maybe that was like almost a physical floor for the paper price. Can you address that, because you're still obviously involved in the sector and you're the chairman of Kirkland Lake. How much connection do you see between, is there a limit that they can drop the paper price before it really begins to impact the physical supply?

Eric: Well Craig, you'd be surprised what companies do you want to level it would have to go for a guy to actually shut down. Because by shutting down you still incur costs, right? And let's say you're incurring costs $100, your potential, so you would produce, even if you're shut down. So, you know, if, let's say the price got to it got to $900, cost for thousand. You're even with your shut down or not producing it. You'll lose 100 producing it, then you lose 100 if you don't produce it. So there's, I don't think we're at a point where the price would affect production except in the extreme, like somebody who was already losing, you know, $100 now losing $200, that guy might shut down. But there's very few minds that I think are in that a price range. In other words, where your costs are $1,300 and the price is $1,200 and it goes to let's say $1,100you got to shut it down.

I don't think there's any impact on reduction in that. You might find it some guys start high grading in order to offset the decline in revenue. The one thing I would say about the shares it kinda hung in here, vis-a-vis what gold has done and what you might've expected, because sometimes the stocks, you know, they're going down three times what the price of gold has gone down. The price has gold has gone down 10%. That would imply 30% of the stocks and that's not what happened here. So I'd say these stocks maybe have a little patience with this decline because they know it's orchestrated, and that you know, what's the point of playing a stupid game where you sell the stock and when it's meant to go down 30% and it goes right back up 30%, and we've seen this way too often. And so I think the people who own the shares, have been through to that as I've been through it before and I'm trying to think they're holding off and these sort of gold indexes is kind of show that it's hung in pretty well.

Craig: All right then. Well, one last little special promotion before we sign off Sprott money, and we talked about the 8 gram and the 25-gram maple grams that are on sale. We're also offering one ounce of silver maple leaf monster box for just a $1.99 over spot. Get a whole mass. You want to talk about taking advantage of low prices, buy in bulk. Our Canadian listeners can take advantage of this special promotion by calling one 1888-610-775. It's for call in orders only. So you really want to a lower your cost average at this point. Here's a great way to do it with a monster box. You can take advantage of this offer now at these very depressed prices. Eric, hopefully, you and I won't be even more depressed by next week, but we'll see where we are by next Friday, and until then I'll give you the rest of the week off.

Eric: Well, great. Thank you. And you know, it's funny, I was just reflecting as we're ending this discussion of what the times that we talk to each other when everything was great, right? And now, every week it's kind of like [inaudible 00:12:15] rose here, but, you know, I'm sure a day will come and everyone can stay patient and it's a long fun game, and gold stocks have done well for the last 18 years. It's been actually stunning. Gold's been stunning for the last 18 years and hopefully, we'll get back on that trend again.

Craig: Let's do it. All righty. Well anyway, thank you, Eric, for your time and thanks everybody for listening and from all of us here at Sprott Money News and sprottmoney.com. Have a great weekend and 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.

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