The “Elephant in the Room” for Gold and Silver Prices - Weekly Wrap Up (March 6, 2020)

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 Valentine's Day, February the 14th, 2020, and it's time for your weekly wrap-up. I'm your host Craig Hemke, and joining us today is everyone's favorite Valentine, Eric Sprott. Eric, good morning.

Eric: Hey, good morning, Craig. Yes, I've expressed my Valentine's Day wishes, and looking forward to a good Valentine's Day.

Craig: Let's do. Hey, and I've got some exciting news for everybody listening here at Sprott Money News, and if you are planning to attend the 2020 PDAC Conference in Toronto, Sprott Money will be holding a PDAC warm-up event on Saturday evening, February the 29th. That's two weeks from tomorrow, from 6:00 to 8:00 at a place called the Pravda Vodka Bar. That just sounds like a fun place, doesn't it?

Eric: That's a dangerous place to go my friend.

Craig: I would imagine. And it's Sprott Money hosted. That means you can probably get a free drink while you're there.

Eric: I'm sure.

Craig: You can add your name to the guest list by going to submissions@sprottmoney.com or sending us an email at that address. The event is going to fill up fast, you think? So, to make sure you RSVP now. Eric, speaking of PDAC, please everybody, don't forget to check out the Sprott Money booth when you're there, and you might even find Eric there. I hear you're speaking at that event, Eric.

Eric: I am speaking. I'm speaking on a Sunday morning for a very short time. I think the topic I'm talking about is just investing in the resource space, or more specifically the precious metal space, and it's just, sort of, an off the cuff thing. So, I won't hand out all my trade secrets, but I'll give people a few of them.

Craig: Maybe you and I should do, like, one of those things with a couple of chairs where they set us up. We'll do like a, you know, like a question and answer sometime. That might be fun.

Eric: Yeah. That would be very enjoyable.

Well let's have some question and answer now my friend. It has been a good week for the metals. Gold is up about $12 on the week as we speak. Silver's even up for crying out loud. If you can imagine that. What have you been watching this week? I know the virus is still on your mind.

Eric: Oh, yeah. Well, I probably spend as much time if not more on the virus now than I do looking at precious metals, which is a bit of a statement. Okay? That I think that it's the overriding concern right now. And as we watch this, well, first of all, I probably, just to put it out there, I think it was three weeks ago, we talked about it the first time. This is the fourth week, and the cases then, were 200, they're now 60,000. That is a big, big change. And in fact, I found an interesting line where somebody said, "Well, you know, Hubei only had 50 cases, let's say five or six weeks ago, 50. And now they got 60,000." And it's a statement about a pandemic. What can happen when something just starts spreading in a community. And as we watched it this week, of course, on I'm going to say Monday, Tuesday, Wednesday, it looked like things were coming under control, which I didn't honestly believe having, you know, gone out into the traffic there, and you see things where people from China are telling us about what's really going on there.

Then all of a sudden on Thursday they get the revision where instead of the 1,500 increase in Wednesday, they had 15,000 increase on Thursday. And it puts us right back on this, sort of, quickly rising number of cases. For example, I've heard that there's 300 cases in Shanghai. Well, you know what? Three hundred's a number that once you get there, that's hard to control, man. And I would say to the listeners, you have to look at situations that mathematically are telling you something. And of course, one of them was, there was this dinner in Hong Kong with his family on February 19th, sorry, Jan 19th and on Feb 7, all nine of them showed up with the coronavirus. So, that was a about 17 days later, interesting. Seventeen days later, they're all at the same dinner, and they're sharing a crockpot or something with, you know? So, they got the disease from each other.

And now, that's a very telling thing. One, that it was 17 days. That's a very important thing to think about with no signs of anything. Okay? Two, the fact that they all got it was shocking. And of course, the other one is the cruise liner that now has something like 233 odd people that seem to have picked up this disease where I'm willing to bet that a week ago was 10, 10. It got from 10 to 233. And you know, quite frankly, I don't even know how many people they've tested over there. Because I read that Japan, somebody in Japan said, "We only can do 1,000 tests a day." Which, kind of, shocked me. How can you only do a thousand tests a day? And meanwhile, there's 6,000 people on the ship. So, is it any wonder they really... I think, they really only tested the first, like, 350 or some number like that, and we got 233 cases already?

Just staggering numbers. That 1,000 person testing thing from Japan is a statement. How many tests do we think the Chinese can do? When does the healthcare system finally say, "No mice? We can't deal with this." There was an article this morning saying there's 2,000 healthcare workers in China that have the disease. So, as you need to help people, you get less people just to serve them. And it was instructive to me, another number thing, it was a big deal when China said they're going to build two hospitals in Wuhan, one of 1,000 beds, and one of 1,300 beds and they did it in like two weeks. That would have taken care of less than half the cases yesterday in one day. Less than half the cases in a day. How do you get in front of this? I don't think you'd get in front of it. That's the problem.

And we have a couple of cities that are showing signs where it could spread quickly. One of them is Singapore, and one of them was Hong Kong. They're both over 50 cases. there are people living tight quarters there. So, we got to keep our eye on those things and make sure that those don't start new centers outside of China. And of course, the count keeps going up in various places. Germany's one of the more quickly drawing one strangely as it might be. Both Canada and the U.S are sort of modest. So far, England had a pretty good caseload there. A couple of other things that I think came out this week is that it looks like the virus is airborne. I.e, just particles in the air. There was an economic number at China where car sales were down 20% in January, and it's estimated they could be down 50% to 80% in February, which is not unexpected why it wouldn't be. Food inflation was 20% in China in January.

So, there's things happening both from a health perspective, which is the most important thing that we're talking about here, and an economic perspective that if things don't get under control, which they're far from being under control, will cause, well, almost economic chaos. So, this week, for the first time in years, I put a little very, very, very modest short on the market. Okay? For the first time in years. And the reason you don't want it short is you always know the Fed could stand in there, and notwithstanding that GDP is down 20 the stock market [inaudible 00:08:35] as the Fed's giving money to everyone. So, you got to be a little careful shorting here. But anyway, coronavirus is a huge problem.

Everyone should stay on it from a personal health perspective, from an economic perspective, and from a gold and silver perspective in the sense that if everyone doesn't want to buy the paper assets, they might say, "You know, what can I buy? What can hold in there? What can hang in, and keep my assets?" And I'll tell you my history. When I got in gold in 2000 I bought it because I wanted to hang in there. All I wanted to do was hang in. I could see the market was going to crash, wanted to hang in there. And lo and behold, gold went from $250 to $1,900 even though I was just trying to hang in there. And I suspect we might see something like that again where all of us the gold's a go-to thing and the price rockets

Craig: And I see a lot of, I guess, Twitter activity, Eric, people on...even on my site they'd say, "You know, this is not as bad as the flu. The flu kills thousands of people a year. And what's the big deal?" The big deal, at least to me, is you've got half of China under quarantine. And it's not coming off anytime. So, you've got Apple's primary plant, that Foxconn plant that is still shut down. I mean, the economic disruption globally is what is the big deal at the end, you know, for a lot of folks. And everybody knows we've already seen this out of People's Bank of China, they're just going to print, they're printing yuan like crazy, and flooding the economy with liquidity. You know, that's what the central banks are going to do in the last as well.

Eric: And let's not forget that when people say it's not as bad as flu, it isn't in terms of the number of deaths, yet. But people mistake the death rate, you know, they say, "Well, there's 60,000 cases, and there's 1,300 deaths, therefore, it's 2%." That's not true. There's been about 6,000 recovered, and 1,300 die. That's your death rate, 20% okay? So, don't fall to the...and the death rate of the ordinary flu is way below 1%, way below 1%. It's probably like 0.1% or something. Right? So, if it was 0.1%, and the other one was 20, it's 200 times difference. Two hundred times. That's what you got to focus on.

Craig: And to that end, I just want to lay this down in case people missed it. For five years, when gold was in a range between about 1,100 and 1,300, for five years, the Fed was trying to draw down their balance sheet, convince everybody that things were going to be normalized, and they drew down the balance sheet by $750 billion over five years. Well, now, since NotQE began in October, it's gone back up by $423 billion in five months. Eric, the solution for everything is printing money.

Eric: It looks that way. And I gather from the Pal's testimony that he said, "You know, if we're facing recession, we'll do it again. We're going to print, we're going to reduce interest rates. We will be the primary biker of any economic recession." Now, it's hard to stop. You're not going to stop an economic recession that's a result of a pandemic, you know? A pandemic's a pandemic, okay? Money can't do anything, but you might be able to hold things in there. Maybe you can, miracles can happen, and you know, everyone's earnings can disappear, but the stock stays up because there's Feds in there buying it. That could happen, but I'll guarantee you one asset will outperform all those other ones. And that'll be gold because people know it's the real deal.

Craig: And I want to transition to a couple of things about the shares, but before I do, anything else on your mind, you want to make sure you point out to folks this week?

Eric: Well you know what, I'm very disappointed in the World Health Organization, and the Center for Disease Control. I mean, how are these agencies that are supposed to be looking after our health keep downplaying the possible severity of things makes me sick. That should be their primary job, to warn us that it could be bad. You know, you could at least put it in some language where you're telling us it could be bad, and you know, start thinking about preparing for it. And you know, in terms of our listeners, if people think it could get bad, you know what, for all of about a hundred bucks, you can go out and buy some medical things that would help you fight the coronavirus, you know? Natural supplements, and things like that. A hundred dollars, come on, get prepared here. And anyone can go read up what those things should be. So anyway, I think there should have been a little more forewarning by the health authorities.

Craig: Yeah. No, I agree. All right. So, as we sit here on Friday morning, like I said, gold is up, I don't know, $11, $12 in the week, Silver's up a little bit. The shares look to have another good day today if that continues. I think a lot of folks are wondering, especially as we see the earnings reports coming out, Eric. We're all waiting for a moment when money globally starts to flow into the sector. And once it begins to flow, things are going to move fast because it's such a small sector. But what will be the trigger? I mean, I want to ask myself, do we need to get, you know, the HUI index or the GDX to be...get them above their 2016 highs? What do you think global asset managers, what would spark their interest in the sector? What we'll get it rolling?

Eric: Sure. Well, I've always been a huge believer, all my investment life and earnings. And of course, we've had some good earnings now just announced in this fourth quarter. By far, the best value are things like Kinross and will be Kirkland Lake gold versus Agnico and Barrick that those things seem to trade at very, very high multiples. I think Barrack's at 35 and Agnico's at 50, whereas both the Kinross and Kirkland, I think will be at, like, the 10 to 15 times earnings. So, I think those earnings on a relevant basis, particularly knowing we've now seen, one company showed us our average price of gold in the fourth quarter was $1,483. Well, you know what? We're $1,583 today. That's 100 bucks extra, man. That's all pure gravy.

So, those earnings numbers that we saw in the fourth quarter will be beaten if things stay the way they are this quarter. So, I'm a great believer that earnings will turn things around here. Of course, a technical breakout of any of those index, whether it's the HUI index, or the GDX, I think people are watching the gold stocks these days. There's way more people interested in them, and I don't think it's going to take much to really cause a big move here, particularly with some of them are so cheap going in on a fundamental basis.

Craig: Well we'll wait for that and it has been a great earning season so far. No question about that. You mentioned Kirkland there about week after next, is that right?

Eric: They're the 19th. So, next week.

Craig: Oh, next week? All right.

Eric: Yeah.

Craig: We'll certainly be talking about that in next week's show, that's for sure. For the rest of the time this week, of course, we had a list of names people have sent us this week. As I always try to tell everybody we can't get to all of them. So, I always ask Eric before we begin, if he's got an opinion, we look at every single one. If you don't hear your suggestion mentioned it's because Eric didn't have an opinion. But he'd have an opinion on a couple. One, a number of folks wrote in wanting to know if you had an opinion on the insider selling that's been posted at Walbridge. People read the message boards as I know you do. And that's being used as a club to beat Walbridge down. You know that somehow people are getting out of it. What do you think?

Eric: Well, let me start off with it. They're really not beating it down much. Okay? The stocks hung in there pretty damn well, okay? And I look at the selling, and first of all, having been with it for a while, hey, I've seen selling at $30, $35, $40, dead wrong. And you knew what at the time. I see selling up here in that above $90. And I don't want to say it's wrong in a sense that, you know, if a director sells 20% of his holding after he's made 1000% on his money, I don't have a problem with it. And actually, it creates an opportunity for a new shareholder to get involved.

And I would say the stock held up very, very well here. I would not say that the selling has been outsized for the kind of gain that Walbridge has experienced. I mean, this used to be a five-cent stock about 18 months ago. So, it's up almost 200%. So, I don't blame some people for selling some. I've been on the other side of some of those trades buying it. I'd never bought his name. You know, you want to sell, fine, I'll take it. Thank you very much. Opportunity to the buyer. And that's what I believe will happen with this stock as well.

Craig: And you just never know. I mean, you get people that it has grown so much, you've got to sell some just because your asset allocation gets out of whack, or maybe an individual has some cash needs, you know, they've got to put kids through college. You never know what the rationale is. It all varies.

Eric: Of course, of course.

Craig: Just a couple of the names that have come in, Eric, as we begin to wrap-up. Somebody asked about the royalty companies, and specifically one called Metalla?

Eric: Yeah. Metalla. I don't own the Metalla, but I rather enjoy the discussion that the CEO is a young guy, discussing the royalty opportunities, and of course, one of the great royalty opportunities is whenever you buy a royalty, you basically buy it based on the 43-101. And the 43-101 is always understated. And lots of mines, you know, they say, "Well, we've got a 10-year life, and the guy buying a royalty buys it on the 10-year basis," and then, the mine goes for 20 years. And the price of gold goes from $1,000 to $2,000. And his return is four times higher than he originally thought. So, some of these royalty companies, Franco-Nevada in particular, have so far outperformed things that it's just crazy. The guy who actually speaks on behalf of the company, he's name is E.B. Tucker, and he's given a number of interviews to Kitco.

And you know, I think that royalty model looks interesting. It's intrigued me to get involved in Ely Royalties, which has the royalty on Fenelon, the 2% royalty. And again, I explained last week how valuable these royalties can be. Like, they're the best thing to have. This comes off the top with revenues. And they come off of that revenue line, not the profit line. So, they're very, very powerful instruments, and these royalty companies by far outperformed the mining company. So, I certainly think Metalla will be a great investment as will many other royalty companies.

Craig: Yep. All right. And then, the list, we've gotten a number of names, London Gold, Auryn Resources, Group Ten Metals. All those, Eric looked at and didn't know much about those in particular, but the other one that we had left on the list was Great Thunder Gold Corp. Can you speak to that one?

Eric: Yeah, only because I'm aware of the individual who kind of put it together, and they bought the property north and a little bit to the west of the Fenelon property. And of course, there's some suggestion that the Jeremy Pluton, which is on the Fenelon property, extends onto that property. Time will tell. I mean, I've actually been a believer that the property does extend off of the Walbridge property onto Balmoral's land, probably onto Great Thunder's land. I mean, time will tell. We know there's signs of it in Balmoral. There's been no drilling in the Great Thunder, so we don't know yet, but it's a wonderful area. I think that the endowment of Fenelon just keeps getting better. The understanding of the geology gets better. And my own guess is that it goes off. It goes right through the whole property, and off the property into other properties surrounding it. So, that would create an opportunity for Great Thunder, and Balmoral for that matter.

Craig: All right. Anything else on your mind before we wrap-up, my friend?

Eric: Only one thing I saw that wages went up all of 0.6% last year, and inflation was 2.5%. I don't know, does that set you back a little? I guess it does, doesn't it? And I see that there's delinquencies and orders have gone way up, and God forbid that we have shutdowns of companies in the United States, and all of a sudden you don't get the paycheck. As we find out that... What's the number? Thirty-two percent of people live paycheck to paycheck and still don't have enough money. Or whatever happened if the paycheck stopped. And we may get into a situation which we're almost in China where the government just says, "To hell with it. We're going to support everybody. I.e, print the money." And if it ever went worldwide, then I guess that's what happens. So, tells you a lot about thinking about making sure you keep your gold position.

Craig: It sure does. And it gives you, you know, maybe some rationale to add to that position. And so, before we go, want to remind everyone that the Sprott signature sale is currently up and running. That's one of our biggest sales of the year. And there are more than a dozen products on sale right now to take advantage of these great prices, check the deals page at sprottmoney.com, or heck, just pick up the phone and give us a call at 888-861-0775 to get more information and to make your purchase. Add to that stack while you can. Eric, thank you for your time, and I hope I will visit with you and with maybe some better news next week, but we'll see.

Eric: Well, I think we'll have better news in our precious metals situation. For the world, I'm not so sure we're likely to have better news. You know, when a trend is in place, it's hard to reverse it. So, I mean, I'd love for someone to come up with a solution, or find out that the death rate is low, or something positive, but nothing is suggesting that to date.

Craig: Yep. All right, my friend, have a great weekend.

Eric: Okay. All the best, Craig.

Craig: And from all of us, Sprott Money News, at sprottmoney.com. Thank you for listening. We'll talk to you again next Friday.