Thinking About Buying Gold? Stop Thinking and Get in the Game - Weekly Wrap Up (June 26, 2020)

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Craig: Happy Friday from Sprott Money News at sprottmoney.com. It's Friday, June the 26th, 2020. Time for your weekly wrap up. I'm your host Craig Hemke and joining us of course, this fine Friday is Eric Sprott himself. Eric, happy Friday.

Eric: Hey, same to you, Craig. We had a pretty good week last week all things considered and lots of excitement to chat about.

Craig: That is for sure. We've got some kind of fits and starts with the economies reopening and a lot of concern about the virus perking back up around in different spots. And that is still strongly influencing supply lines for really every product including the precious metals, but at Sprott Money, we are continuing to add products for purchase at sprottmoney.com. So please be sure to check out our selection of gold and silver bullion products available on the website, again, sprottmoney.com, or you can call us at 888-861-0775.

Yeah, Eric, it's been an interesting week. It's the end of...the quarter is pending, the end of the month. We had option expiration. We've got contracts going off the board, all of this kind of jazz, but still, hey, gold and silver both up about 1%. Shares are having a great week too.

Eric: Yeah. New highs. Things have been great in the precious metal area and lots of people are predicting higher prices. Like we're getting the mainstream financial organizations recommending gold. And of course, they typically say, well, 5% or 10% of your portfolio. And as the gold stocks I think started outperforming the market which they've certainly done this year, they'll probably continue to lean to higher weightings.

And as we've mentioned many times, I mean the weighting I think of all gold stocks and gold in the financial world is maybe at most 2%. So if you think you're going to get to 5%, there's only one way that it can get to 5% and that's the stocks going up 150%. And if they get to 10%, they got to go 400%. So bear that in mind. And some of us hogged the puck in owning gold and gold shares. Some of us people who are already 90% invested in these things and you ain't getting it out of our hands. So it's gonna be very difficult for people to fully participate in this. So if you're thinking about it, I would say stop thinking about it and get in the game.

Craig: Yeah. As we approach the end of the month next week, we also have the end of the quarter next week. I mean, Eric, you've been doing this a long time, how much has that end of quarter, they call it window dressing, impact the markets in general, but specifically the precious metals?

Eric: Well, now it's a very interesting question because typically I'd say on the commodity market per se because the commercials seem to be short all the time, it puts pressure on the gold price. But we have a new phenomenon at this quarter end, and the phenomenon is that the gold stocks have done well. And so the equity players would probably want to say, I participated in the gold trade and if they haven't participated in the gold trade, they will be positioning to at least say they did something instead of just watch the stocks go up, whatever the percent is, 24% and own nothing.

So I think there'll be pressure to own the stocks going into quarter end and potentially pressure on the commodity to kind of limit the gain here because they got to mark to market and...well, actually they don't have to mark the market because the banks never have to do anything like that anymore.

Plus they don't have to have reserve requirements. I guess they can do whatever the hell they want to do. And it may not ever show up in the statements anymore. Maybe we can get another... What was that thing in Germany that blew up? Something card or...

Craig: Oh Wisecard or whatever that thing...

Eric: Wirecard...

Craig: Wirecard.

Eric: Is it Wirecard? All of a sudden, you know, the $3 billion just disappeared. Where did it go? Who knows? Anyway. And luckily the banks don't really have to have quite a reporting. I can't even imagine an audit could get in trouble with a bank audit these days because they don't have any rules anymore. So we're all covered okay. Anyway, so I would think that they'll try to limit gold and silver moving up here. And as you and I both know when we look at what's going on in gold and silver, the physical markets, we see the deliveries on the Colmex going up.

In fact, the month of June, almost every day the need for deliveries is rising. In other words, people keep buying the June contract. You're only buying the June contract because you're gonna ask for delivery because there's only like, what, two days left. And everyday this last week, the outstanding has gone down less than the deliveries. So people keep buying the contract. And I think during this last week we added 250,000 ounces to deliveries which is about 8 tons. And we must be well through 160 tons. Maybe we're at 170 tons or something for the month which is just an incredible number.

And I see that we got expiry in the big July contract for silver. There's, what, 31,000 contracts still open. That's 155 million ounces. They got today and I guess Monday to try to whittle it down here, but we could get some big delivery requests there. And maybe what's been going on in gold...I mean, I get the feeling in gold that there's a group of physical buyers and they just...they're putting the squeeze to them and the open interest goes up. They can't get the open interest down and the deliveries are monstrous. And maybe the same will happen in silver here going forward. Once we get through first notice day, which is Tuesday of next week, I think we can take the lid off things and maybe end up with a pretty good close into June 30th.

Craig: And just some context on this Colmex deliveries, the average, I've been monitoring this stuff obviously for a decade now, and the average on a delivery month, and there are 6 of those during the course of the year, about maybe 6,000 to 8,000 contracts because Colmex isn't a physical market. They have this illusion of delivery to give it, I guess, some...I don't know, make it look like it's actually...it got some legitimacy, but nonetheless they do about 6,000 to 8,000.

Last June, very slow, they did about 2300 contracts were delivered. We are on pace with just a couple of days to go to do 55,000 deliveries. Eric, I mean, we were told this was just, you know, the, well, you know, the mints are closed and the refineries are closed back in April. Well, they are not closed anymore.

Eric: Yeah. Institutions are buying, you know, and it's a small market. It's just a small market. When big institutions...you know, imagine if Fidelity thinks with gee, we should own 10% in gold or 20% or something, you know, or the Canadian institutions... I think the weighting of gold stocks and the TSX now is like 11%. I will guarantee you there's hardly any institutions that have 11% in gold. So they got a lot of running to do to catch up to this freight train.

So they're coming in, we see it in the Colmex. We see it in the ETFs, which have huge demands. I mean the amount of gold going into the ETFs and being delivered on the Colmex is probably 150% of the monthly production of gold. Like it's just...it's totally out of control. We're not the only ones buying. There's other countries buying too. Okay. I mean, there's China, there's India, there's Germany. Come on. We're just looking at what's happening here. Anyway, there is a consensus and a tsunami coming into town here.

Craig: A lot of folks waking up to it, Eric. A lot of big banks are raising their price targets for gold, which we think it's got to trickle down to their clients to maybe start looking at it the first time. And I know that one of your favorite technical analysts is out with a big price raise too.

Eric: Right. Chris Vermeulen, Technical Traders put a report out. I think it was late last week with some new revised targets and the targets were, and I'm not going to get these exactly right but it's something like $2,000, $2,200, $2,400 and $2,700. There's only one of those numbers I know is exactly right. That's the $2,700. That's the one I care about the most, $2,700. Here's the best part, two words, this year. This year. There's only six months left in the year. That's $1,000. What the hell would happen to the precious metals?

Craig: Oh my gosh. Isn't that something?

Eric: It would be staggering.

Craig: You think the average cost for gold in the fourth quarter last year was like $1,480 or something like that? Can you imagine if it's $2,480 in the fourth quarter of this year? Oh gosh.

Eric: Mind-boggling. I mean, look, I'm a big investor in some companies that I talk to the management very intimately about what's going on. And I said, geez, can you imagine if this price is $2,700, you know what our cash flow is going to be like? And what are we gonna do with this money? And of course, some would tell me well, we'll pay dividends, we'll have a buyback, we'll maybe have to acquire something. Can you imagine the scramble to acquire things with the cash flows that these companies would have? It would be crazy. And this is all sort of a framework, a timing framework.

I know there was a great article by Alasdair Macleod who basically said, you know, the U.S. dollar is gonna crumble, and again, this year, and you can sort of see the two matching up. Of course, the gold price is going to go to $2,700 if the U.S. dollar crumbles. And unfortunately for the U.S. specifically, I mean, this COVID-19 is just driving everyone batty down there, I mean, with these breakouts or these cases. And the average age of the people getting it now is not 65 anymore, it's 35. So you...I mean, the young people obviously have been a little irresponsible and now they're paying the price.

And I read a funny thing today that in Australia, there's a new toilet paper buying panic that's restarted. We're all familiar with that right? Well, they've started the second one now because it's breaking out again. So here we go. Play it again, Sam. And it's like we're already in a depression. How the hell we're going to get out of the depression is anyone's guess here but it's very slow. I can't even believe that the unemployment insurance claims keep going up every week. Like when is this gonna stop? Anyway, it doesn't look very good economically.

Craig: Yeah. And then what that means for us is just more money printing. That money's got to come from someplace and the central banks are going to continue to provide it.

Eric: More money printing. And, you know, David Rosenberg was on, I guess it was Bloomberg. And he basically said, you know, this is a Fed market. It's all Fed market. The economy has nothing to do with the stock market. Nothing. It's just the Fed. And he basically lambasted Powell for like, man, you got the loosest policy we've ever seen of a central bank and you'll print anything for anything. And you bail out this guy, bail out that guy, you know, you're already buying all the U.S. government bonds, and then you go buy the munis, and then you go buy the states, then you buy everything in the real estate market. And now you're buying corporate bonds and high yield bonds. And man, you are the market and it ain't going to work in the final analysis. So stand by.

Craig: I keep waiting for them to announce a gold mining ETF buying program.

Eric: Yeah. Right. We won't need that, okay?

Craig: That's probably true.

Eric: We're in charge of that, okay? I should also mention, I'd like to mention that Nike came out with a loss. Surprising they had a loss. Well, what do you think happens when the stores are closed? You lose money. How do you like Carnival losing $4 billion in a quarter? Like, whoa, we're not talking littles anymore. We're talking bigs. And I don't know that the U.S. government and the Fed are big enough to handle all the problems that are staring us in the face here.

Craig: Want to thank everybody for sending in a bunch of questions again this week. We always very much appreciate you taking the time to do that. There are a lot of questions on individual companies that I ask Eric about before we get started and he just simply doesn't have an opinion. So for all of you that were asking about gosh, One Gold and Abra Plata, and I can just kind of go through the list of names here, Outcrop gold. I mean, there's a number of them people ask about, and Eric just doesn't have an opinion. So we don't want to spend a lot of time just saying, nope don't know that one. Don't know that one.

But we do have a couple and Eric, I want to start with just kind of a general question. Someone just wanted to know if you can speak in general terms for like a timeline for a new company. How much time does it take to put a drill plan in place to start getting a team out, to drill it, to look at the results, to publish the findings? I mean, can you speak in general terms to how long that generally takes?

Eric: Sure. Well, it takes a long time. I mean, and the funniest part is that from the day you conceive of drilling something, you can conceive it till the day it's a mine. Typically I think it's 10 years. In fact, we're involved in projects that the guy was drilling, what, 10 years ago. That's the drilling and the guy's not nowhere near starting a mine. Then there's many of those. Some of them we'll talk about here subsequently. So it's a long time.

And of course, you can't come to a conclusion unless the drill bit lets you come to that conclusion. In other words, you have to find the size of the orebody. Of course, you know, you have defined it when you go out a little further and there is none or you go a little deeper and there is none. Now you know how big it is. Now, you gotta put it into it a model and see exactly what you can get from it. And that's not a quick thing.

I mean, from the day you start drilling something, I would guess you're going to have at least three years of drilling before you could possibly define the size of your orebody so that you can make a proper economic conclusion. In other words, you don't want to build it too small, you don't want to build it too big. First of all, most of the guys drilling aren't going to build it anyway. You gotta go find a guy to buy it from you. So it's a bit of a process.

Craig: Yeah. Sounds like it. You mentioned last week, you gleaned a lot information from a few message boards. One of them being ceo.ca. People wanted to know if you're active on there and if people can follow you there?

Eric: What's my pseudonym. I find that mostly hilarious. And I love going there. I love going there because people post articles, people post interviews, people post news on companies that I might not catch. And as I said last week, I mean, if there's one out of a hundred of these postings, it gives me some information, I truly believe it's well worth my while to go through it.

Now my posting history, let me just start off by saying, you know, if I posted on a company that I was involved with, I'd be afraid that they might try to send me to jail and I don't want to spend time there. I don't post to CEO. I don't post to anything. Okay. The only posting I do is to Sprott Money podcast every Friday and that's basically it. And I sort of shy away from too much publicity out there in terms of interviews and things like that and giving presentations. I make the odd time if I believe the guy has done lots of good for the industry, but I don't post on those chat lines. So don't waste your time looking for what I'm posting.

Craig: Yeah. I 'll bake you a cake with a file in it though if anything happens, Eric.

Eric: Right on.

Craig: We'll spring you out of there. All right. And just some of the names, we had someone writing in asking about, I don't think this is on the list of ones we know much about but somebody wondering about the great run lately in Great Bear.

Eric: Yeah. Now, unfortunately, a lot of people ask about Great Bear and I'm very familiar with Great Bear now. I wasn't, let's say three months ago, but I was aware of it out there and I characterized it as it's one I missed. I missed it. They keep coming out with these stunning holes. They've even announced a new structure that they found. I think that was just announced this week. The stock is hitting all-time highs. It's a billion-dollar market cap. I mean, obviously it's a great company. I'm not in it but all I can say is it's a great company and it just seems to get bigger. So it looks good. And if I was a Great Bear holder, I'd be hanging in there.

Craig: One we've discussed quite a bit over the last year or so is Wallbridge. Questioner wrote in and just said, well, what do you think of the possibility of Wallbridge spinning stuff off like their nickel properties and some of the other things into separate companies? Is that a good way to extract value for shareholders?

Eric: Well, I think they've announced they're going to, not to put a date on it, but I know it's been out there as a topic of discussion. But my own view, you know, they have lots of nickel properties up in the Sudbury area. I've never spent much time looking at them because I don't care about the nickel properties. And some people do though. Some of the original shareholders of Wallbridge were nickel guys and all of a sudden they fell into this gold thing at Fenelon and so they've converted themselves to a gold company by nature of their success.

In terms of, we now have a billion-dollar market cap on Wallbridge, I can't imagine that the spinout would add significant value to us. In other words, is it worth $50 million? Maybe, Well, fine. That's a 5% benefit, I guess if they spun it out and we ended up with the shares. I can't imagine it's any $100 million because the market cap of this thing when they had the nickel properties was probably $10 million. So it's gotta be somewhere I think $50 million or less.

So I don't think it's gonna be that significant and I don't see them spinning out any other possible gold properties or...that they acquired from Balmoral.They're in it for the gold property. So I don't see that coming in. I know some people are talking about them spinning up Martiniere or something. I don't see that happening. They are going to focus on the gold.

Craig: Okay. One other company that we haven't spoken about for a while is Chesapeake Gold. A guy wanted to know if they've got some water issues?

Eric: Well, yeah, I mean, anybody down there that's building something that has water issues... There's only one thing I can say about Chesapeake. I'm trying to think of what the market cap is. It's like $150 million to $200 million, something like that. But in their 43-101, they have, I think it's 15.8 million ounces of gold. And I think it's 587 million ounces of silver. I like that. That's a lot. And, you know, it needs a lot of CapEx. So they are CapEx constrained. Let your mind wander to $2,700 gold, and let your mind wander to $50 silver. Ooh, baby, how profitable might that be? So I'm an owner of it. I'd like to own more. I'd like to own more of it. I've asked the company if they'd sell more stock and they don't have a use for my money right now but I do like it.

Craig: I have a use for it. I'll send in a loan application in through the usual sources. Hey, speaking of growing market caps, when you first mentioned Freegold ventures about not even two months ago, I think you mentioned it was a $50 million market cap. If that's the case, it's now about a $200 million market cap. That thing's moving like crazy.

Eric: It's been good. And it's interesting how I keep saying sometimes you got to keep re-reviewing things and I have brought up the fact that they found the first 6.5 million ounces of resources with only 37,000 meters of drilling, which is unheard of.

For example, Amex exploration says they're going to drill 200,000 meters this year, 200,000.

Craig: Wow.

Eric: These guys found 6.5 million ounces by drilling 37,000 meters. And I said, well, how did that happen? Well, we didn't miss every hole hits. And you think just well, why don't you drill another 37,000 meters then? Maybe we can double that low grade that nobody cared about because they found it in 2011, 2012, 2013 where no one gave a damn, no one was investing in gold stocks and it just disappeared off the face of the earth.

Now they come along with this drill hole, which is a high-grade drill hole. And this fellow, Brad Aelicks, who I've referred to before, who has a website called Ahead of the Herd I think it is, Ahead of the Herd, did a great article on Golden Summit, the property that Freegold Ventures has, and the first thing he said was this hole was he thought it was going to be the best hole of 2020.

And then he went on to say in the 35 years...in my 35 years of analyzing, I guess I've never seen such a perfect setup for value creation. Now that's a bit of a statement. It makes you whoa, okay. Now here's what's interesting about this, I laterally have been focusing on the low-grade thinking, man, they can just blow this size of this low grade wide open.

Brad who did this analysis using a 200 meters strike, 150 meters width, 500 meters depth comes up with 2.87 million ounces in that little, wee confined area that could be as much as I think, 800 meters of strike. And it could go down 3 kilometers and you can imagine, oh my God, don't put those numbers in front of me. We'll find another 10 million ounces there. Well, now you're going to have something really serious. And maybe this is what explains well, how did you know the alluvials coming out of the creek surrounding this property generated 6.5 million ounces, 6.5 million out of the creeks? Where did that come from I wonder?

Craig: Yeah. Geez.

Eric: Maybe there is a big deposit up there guys. Anyway, I'm quite keen on it. I've had the funniest, I got to tell our listeners, I had the funniest situation where now that I'm over 20%, I'm allowed 5 transactions in the stock market, but I found out there's a new rule. And the new rule is when you're over 20%, you can't pay more than 15% above the 20 day moving average of the price of the stock.

And it's going up so fast that my moving average never lets me be in the market. So for example, I think my moving average of the 20-day moving average is maybe 75 cents today. And so maybe I can pay 85 cents except the stocks $1.12. So even though there might be some large sellers who would like to sell me a block of stock, I still can't buy it.

Craig: Well, I'm not selling you mine. Sorry.

Eric: Yeah. No. I would change my ownership interest by a lot, I'm sure of that.

Craig: Exactly. Well, you know, and maybe what we'll do, Eric, you talk about the creeks we'll just go up there with our picks and our pans and we'll be in business. Hey, you're being very generous...

Eric: And by the way, and by the way, I should remind people again, you can drive to this mine. There's a road that goes there. It's in Alaska. Where was the last time that some guy finds that kind of orebody and you can drive to the damn thing and it's like 5 minutes outside of Fairbanks? Wow.

Craig: Goodness. Goodness. You're being very generous with your time, Eric. Just as we wrap up, you'd mentioned there might be a couple other shares you just want to discuss quickly.

Eric: Well, Amex of course. They did a financing. I was a small participant in it. They came up with some pretty good drill results. They're drilling deeper into their orebody and of course, the grade seems to be improving. So that looks good.

I participated in the issue for Galway Metals. They have a property in New Brunswick. They've had some very good drilling. It looks hopeful. What else do I want? Oh, I think, you know, if you can...imagine the price of gold going up, which we discussed earlier, you have to start thinking about low grade, large tonnage operations, and what could happen to them in this pricing environment. And that's why, for example, I like the Chesapeake, I like Tudor, I like the [inaudible 00:25:22] creek thing which is low grade but, hey, something above $2,000 gold, these things are all coming on the economic playing field so that's where I'm scouring around looking for things.

Craig: Eric that's great stuff. Again, thank everybody. We really appreciate all the questions this week. We appreciate all of Eric's insights. Of course, if you're looking for more insight in the precious metals industry, thoughts on where prices are headed, sprottmoney.com is the place to look. You go to the homepage, you look for the Insights tab and that's where you'll find the weekly wrap up, the ask-the-expert segments and all the weekly posts from our team of Sprott Money writers including yours truly.

So if you're trying to understand what drives the price of gold and silver, be sure to always check out sprottmoney.com. That Insights tab you'll find all sorts of great information there even that latest report from Chris Vermeulen that Eric mentioned earlier. Eric, thank you so much for your time. It's going to be an interesting third quarter and it's all going to get started next week.

Eric: It's been fun these six months, hasn't it?

Craig: It has. We were talking at my site yesterday, how much gold has gone up in the last 90 days, actually, since QE to infinity, it's gone up something like 17%, 18%. Can you imagine if it puts on another 18% in the next 90 days?

Eric: And I can certainly imagine that.

Craig: Yeah, you can. Well, thank you, my friend. I hope you have a great weekend.

Eric: Okay. You too, Craig. All the best.

Craig: And from all of us at Sprott Money News at sprottmoney.com, thank you for listening. Have a great weekend and we'll talk to you next Thursday, I guess. Next Friday is a market holiday so we'll talk to you next Thursday. Thanks again for listening, everyone.