The Operative Word for Gold and Silver? Patience - Weekly Wrap-Up (March 22, 2019)

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Craig: Well, hello once again from Sprott Money News and sprottmoney.com. It's Friday, March the 22nd, 2019, and this is your Weekly Wrap-Up. As usual, I'm your host Craig Hemke, and as usual, joining us, is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig, good morning. You know, it's a frustrating sort of thing. We got everything kind of going our way, and everything is acting the way we might have expected it to, except for the price of gold, okay? We got the economic going our way, and we got the buyer of golds on our way. But somehow the price is going [inaudible 00:00:36] we will discuss why shortly.

Craig: I suppose we probably will. Hey, if anything, and you get this from dedicated stackers all the time. You know, it's like, hey, if they're going to keep it on sale, I'm going to keep buying some. Don't forget that the folks at Sprott Money, great deals that we set up for the spring. What you want to do is you want to go to the Sprott Money website. It's sprottmoney.com. Look for the Deals page, and you will find all kinds of great opportunity to stack some physical gold and physical silver. Just a little bit over spot, always good stuff on the Deals page. Call us, 888-861-0775 if you like to do it the old-fashioned way. Or, like I said, go to sprottmoney.com. Check it all out. Eric, interesting week. Yeah, we're up just a little bit eight dollars in gold and about eight cents in silver, but as you said, fundamentally, things are going our way with what now looks like a complete capitulation by the Fed, an inverted yield curve signaling recession. It sure looks like rate cuts are coming. I think we just had to be patient, don't you think?

Eric: Well, that seems to be the operative word, doesn't it?

Craig: Yeah.

Eric: Everyone will have to be patient. I'm quite surprised when you think of the 180 degree turn probably three months ago, and we really haven't accomplished a lot in gold yet. And the more I just think about what other people, what investors must be thinking in the world about what's happening here, and, of course, the law on buying bonds, and yields are going down. As you mentioned, the yield curve gets inverted. They're buying stocks. And quite frankly, I think they're buying gold, but, you know, we have some forces at work in the COMEX that aren't quite letting us get to where we think we should be, but I think the Fed capitulation will work for us for quite a while here. And of course, we've seen the money printing in China. We see the ECB, oh my God, printing money. Like, it's just here we go again, you know?

Craig: Right.

Eric: And where this world financially is going to be, like the degree of Ponzi we're in is so incredible that you think...and I do see more and more people buying gold, but somehow, you know, we're not getting the true manifestation of where the price should be in the reg markets.

Craig: But you know, Eric, it is interesting though. You know, the way it's determined is through the trading of these derivatives, which have no connection to the price of gold at all. It's just simply, you know, the supply of the derivatives, and the demand for the gold exposure, I'm sure that'll pick up. If you look around the world, though, I mean, you've got gold making new all-time highs, in all kinds of other currencies, like the Australian dollar very close to the Canadian dollar. And then we get the physical stories just last month. The Russians added that nice, tidy, one million ounces to their national reserves. That's 31 metric tons. The Chinese are out. They're publicly disclosing their additions again. The Indians as well. I mean, the whole story looks pretty good.

Eric: Well, that's what we were saying that most of the data tends to support a higher price of gold the price of gold. And the 31 tons is just a shocking number. I always like annualizing things like that, 360 tons a year, and it's 10% of the world's gold supply, okay ? And imagine what the Chinese might be thinking. Excuse me, Russia's buying 31 tons, and we bought, whatever, 10 last month. Maybe we should be stepping it up here. And, of course, the fact that the other countries are stepping in here and buying is certainly bolstering the case here, and it's unfortunate that the price on the COMEX has reacted that they look at things this morning as before the COMEX opens, and the minute it opens the price of gold goes down. You know, it's just everything you see in the world says to you that it should go up, but then the COMEX opens, and it goes down.

And perhaps one of the, you know, more interesting things as I sit here and realize that this morning, the German 10-year bond is yielding zero, and almost going negative. And I'm trying to imagine, well, what does negative mean ? How does that all work, you know? And I guess what it means that you had negative 1%, you'd buy a 10-year bond, and you'd pay something like 110 for it with the promise that after 10 years, you get a $100 back. You'd lose 1% a year. And then, I just can't imagine. Well, how many fools are out there that would do that? Like, how was that possible that an investor could consciously do that other than, you know, somebody saying, "Well, you know, at least I got the capital gain when I went from a 100 to 110, which I think there is a lot of capital gain going on here. The guys who own the existing bonds, right ?

Craig: Right.

Eric: Well, theoretically, making money, except that as the future unfolds, they're not going to make cash. They're going to be paying cash out. So, I just think in a negative interest rate environment, the value of gold should be rising dramatically here, and then I don't know what's going to tip it off. I've been reading some articles this week about, unfortunately, the flooding that's going on in the States and how the food prices are likely to move up here. Maybe we end up getting some inflation, and people start, you know, deciding they should own, particularly North America, more of an inflation hedge, which gold is, and this thing could get turned on in a hurry. We've talked about palladium before it hits 1600 this week. There's obviously a shortage there. That might ignite something, or maybe, right, we should just cut to the chase maybe when the commercials finally cover the shorts, then we can take it up again.

Craig: Maybe. You know, it is interesting though, Eric. I'd like to get your thoughts on what is going on with the central banks because, you know, I...it was just six months ago, you know, all these economists were talking about three or more rate hikes this year, and you and I thought that was bunk. But everybody's reverse now. The ECB is now loosening. The Fed is obviously going in that direction. Have they just simply capitulated? Is floating the stock market and all the liquidity it takes to do that, is that just their only goal at this point ? What do you think is driving this about face by the central banks ?

Eric: Well, I have no doubt that it's about the stock market. I mean, the reason they changed the tone was the stock market almost went into a bear market as we approached late December, and they had to find a way around it. And, of course, what better way than to say that, you know, there won't be anymore rate increases. Now, there might be rate decreases and get rates down so people can, again, buy homes and houses and whatever. I mean, I'm just, you know, getting back to the negative interest. Imagine, buying a house and some guy said, "Now we owe you interest since you bought this house." Okay. So, I'm going to buy a couple of houses then, you know.

Yeah, they capitulated. They are trying to keep it together. And it's interesting. When I look at the stock market, and I watched various companies flounder, whether it's Caterpillar, Boeing, FedEx, Biogen, and UBS, BMW Air, oh my God. Everyday there's some stock taking a hit, and yet the market, miraculously...and these are not little companies...but at the end of they day, the stocks are higher. And it has to be this passive investing where people are buying, as you say, derivatives S&P futures, which covers all the 500 stocks, and not withstanding, you know, one or two that day getting killed because they're fundamentally rotten. Everything else gets pushed up, and ultimately, even the one that gets killed gets pushed up down the line because of that universal buying. So, I mean, there's a horror story in this market everyday, and yet some...and they're bad horror stories. These are stories where stocks are going down 10, 20% in a day, big companies. So, obviously, the Fed has stepped in there and given the green light to people to, you know, carte blanche buy the stock market.

Craig: Yeah. Well, and Eric, you've talked about this on numerous occasions. I mean, the underfunding of all of the public pension plans here in the States, and let's call the private pension plans or the 401ks, nobody can afford to have another 50% correction. And it sure seems as if the central banks know that.

Eric: Well, the funny trade off in all of this is as you drive interest rates down, yes, you get a capital gain on the bond. But as a going forward thing, you don't have any interest income. You know, if rates are zero, there's no interest income on your bond portfolio, and you have to rely on capital gains. And of course, the fact that rates go lower gives you the capital gains. So, you're kind of holding your loan there. And, of course, by the same token, the interest rates going down help stocks going up. But imagine what the outlook is when all of a sudden your bond portfolio is yielding nothing. And all you have is stocks, and the bond portfolio is really telling you that there's economic weakness out there, and we see it everyday. It gets worse and worse. Today, we had European manufacturing KMI fell off the table. We see weakness in China. I mean, weakness in South Korea. I mean, you see weakness everywhere, for God's sake. So, ultimately, that's going to play out. I guess, the Fed will try their little game, you know, keeping all the balls in the air, and trying to work their magic, but you still got to have earnings in the final analysis to keep things going.

Craig: Yeah. Eric, let's wrap like we usually do with the discussion of few of the shares, which, in general, remain in a pretty solid bull run. Anybody can look at the chart of the HUI or maybe the GDX, and you can see a general uptrend that goes all the way back to August and September. So, we're not solid bull market there. And we had one of our listeners write in this week and say, "Hey, I know that Kirkland Lake doubled in the last 90 days, but it's given back $3, and I think that's all because Eric sold some shares." You want to address that one, my friend?

Eric: Yeah. Well, sure. Yeah, there's no doubt that I have sold some shares recently. I sold less than 10% of what I own. I purchased Kirkland at probably an average price of five or six bucks, and when I got to 48, I think, you know, I should take a little off the table. I've held this all this time and not really sold any. So, I felt somewhat justified in raising a little cash, and there are other investment opportunities around, many of which I discussed here, where you do need to raise money to invest in them. So, that's something I've done. I still have 90% of my position. I'm excitedly waiting for our first quarter production report. And, of course, the production will tell you, in essence, what the earnings should be, and I certainly hope that we do appropriately better than the last quarter, which was pretty darn good as it was. The adjusted earnings were 51 cents a share. So, I think everything is kind of on the up and up in Kirkland, so I hope people don't read too much into my having sold a little bit of it.

Craig: Any other shares out there that caught your eye this week?

Eric: Well, there's very little that I own that had news The only company that had some news was something called and it's actually a gold stock. It's selling gold in Newfoundland, and they indicated that I think it was seven of their holes had physical gold, but didn't get any assays done, so we don't know...this physical gold can vary a lot. It could be anywhere from 8 grams up to 800 grams, so we'll have to wait to see exactly how significant it was, but it looks good. The stock perked up a little. That's really the only company that put out any the news so far this week. So, well, that's hopefully, a lot of the companies will report some kind of earnings and/or not earnings, but public elements next week, and a lot more to chat about then.

Craig: Yeah. And you were sure thinking higher prices make a lot of those projects more economic, or economical, whatever the right word is. And so, higher prices for gold would certain serve to perk up a lot of those shares that we've been following, no doubt about that.

Eric: Well, you know, and in that front, I have purchased a few kind of oddball things that I typically wouldn't buy. One of them was Tudor Gold, put a little bit of money in that [inaudible 00:13:59] the golden triangle of BC, very low grade, like 0.6 to 0.8 of a gram. But, you know, if the price of gold wants to go up to some serious number, like $2,000 or $3,000, if not more. Hey, those things all come back on the table. So, that's kind of you have to have something like that in your portfolio, just in case the big one happens, even though we seem to be having trouble getting delisted in the COMEX.

Craig: Just getting a little one. So, I hear you. Well, I'll tell you what, my friend. It's going to be an interesting week next week. We've got the front month, April contract on the COMEX. The options go off the board on Tuesday, and then the contract goes off the board as well, so we always knows that brings volatility. Got a lot of U.S. inflation data next week as well. So I think it'd be interesting to check back in with you next Friday and see where we are.

Eric: Never boring.

Craig: That's for sure, my friend. And again, on your way out, everybody, please be sure to check out sprottmoney.com. Just go to that Deals pages right there in the navigation bar at the top of the page. Check out some of the great deals we have for spring. Or, of course, just call us, 888-861-0775. Eric, thank you for your time. Again, have a great weekend. I'll talk to you next Friday.

Eric: Hey, Craig. All the best.

Craig: And from all of us at Sprott Money News and sprottmoney.com, you have a great weekend, too, and we'll talk to you next week.