Eric Sprott on the value of gold amid chaos (Weekly Wrap-up, March 23, 2018)

Transcript:

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 is Friday, March 23rd, 2018. This is your weekly wrap-up. I'm your host, Craig Hemke. Joining us, as usual, on this fine Friday is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Wow, what a week, and maybe there's a lot more coming. We haven't hit the close on Friday, but there's a lot of stuff been happening this week, so let's go for it.

Craig: Yeah, it's one of those days where, as we record this about 9:00 Eastern, it makes you wonder what the day has in store for us. But, I tell you, one thing that your friends at Sprott Money have in store for you, Eric, they are offering this week a one-ounce gold Canadian Maple Leaf coin at just 20 bucks over spot. A one-ounce gold Canadian Maple Leaf 20 bucks over spot. It's an offer for...you can get home delivery; you can store it if you live in Canada, but there are limited quantities available for this promotion, so take advantage by calling 888-861-0775, or visit sprottmoney.com for more info. Twenty bucks over spot, Eric, and that price of gold is going up as we speak. It's up about $30 on the week, maybe a few more bucks than that, and responding, once again, positively to an FOMC rate hike. What do you think of all this?

Eric: Well, of course, we love it, and it doesn't surprise us in the least. I would put the performance down to sort of the crumbling of the stock market and the incessant increase in short-term interest rates. So, for example, now that we have this Fed rate increase and the dot plot, which suggests we're going to have two more this year, and I don't know what the number is next year, but you know what? This world, this financial world we have can't take more interest rate increases. We're at $350 trillion of debt. A 100 basis point increase in interest cost is $3.5 trillion a year of extra interest cost. I don't even know that profits are $7 trillion a year. You know, you could lose half your profits with a 100 basis point increase, and we got more than a 100 basis point increase in things like LIBOR. And it's really the LIBOR that's blown out here that I think has the world very, very concerned on an interest rate front, so as much as people put it down to trade wars, I don't put it down to trade wars.

I put it down to a stupid Fed policy of raising rates after having been, you know, the biggest provider of money, low-cost or non-cost money, for as many years as they have with the quantitative easing, and now they think they can reverse that role without having some consequences in financial markets. Forget it. You're going to have consequences in financial markets, so I think that's by far the overriding consideration. Then you throw in the trade wars on top of that, the chaos in the White House on top of that...hey, let's go to Facebook.

The whole challenge of companies using the internet and using the data, basically spying on their users...oh, that's nice, isn't it? Let's just spy on our users, and everyone's going to love us. Well, you know what? People don't love people who are spying on their users, and now, I think, it's going to come back to bite them. And I think it's justifiable that Facebook has gone down as much as it has because they just allowed this stuff, get paid for it. Like, it's ridiculous. And every time we all use the internet, you know, "Please put this number in." Oh, you want to a use...look at this Twitter thing, well, "Here's our policy on cookies. Once you press this button, you know, we got you for life." Well, you know, all that stuff's weighing on the stock market here, and on the other side, we have gold going up.

Craig: Yeah, how about that? That's kind of a fun fact. Year-to-date, the S&P is now down almost 1%, but yet gold is up about 3%, maybe almost 4%, year-to-date. That's kind of fun. In fact, we're seeing gold demand continue. Now, I don't really trust the GLD as some kind of measure of physical demand, but it's up 17 metric tons in this past week. And Russia, which we would call actual true physical demand, added another 25 metric tons to their foreign reserves, if you want to call it that, just back in February. They now have 1,882 metric tons. They're number five in the world, so some people sure like physical gold out there.

Eric: They do, and the thing I found interesting about the GLD was those people that were adding tons to the GLD were adding as the price of gold was going down. In fact, I don't think they added yesterday, not that we have the...well, we have the data, but it said there was no addition yesterday with that kind of moves we had. They were actually buying it as gold was going down, and of course, you look across the spectrum of assets now, you know, bonds are in a bear market. Cryptocurrencies are in a bear market. We almost have...the market could...we'd had a correction now, over 10%, and we could be going into a bear market in stocks. We don't need too many more days like yesterday. Like, if we had three more days like yesterday, we'll be in a bear market, so it kind of leaves...and it's just amazing to me. And, of course, it's exactly what we would wish for.

What's going up? One thing is going up. That's gold and silver, and of course, that's what we'd expect to happen as this Fed policy, which...the fallacy of the policy was from 2007, '08 to today, and now we're paying for it by their suggestion that they're going to tighten again, which is just impossible with the situation they've left us in. And, of course, you even have all this deficit spending, the 2,000-page budget that was approved yesterday in congress. And, of course, how many people would've read 2,000 pages? None. And so we probably don't even know what's in there in all these huge new expenses.

So everything kind of points to gold, and I would point out to our listeners, and they must sense it as well that, you know, within spitting distance of a new high here. I think we got to get to, what, 1,367, something like that. We're at 1,342 or 1,345 as we chat here. So we are very close to setting the record straight that gold's gone up for two years, and we might start launching into much higher and loftier regions as the stock market unfolds.

Craig: That absolutely appears correct, Eric. We've been talking, too, this year about breaking out and how the chart looks. If it gets above 1,400 and it starts to be recognized by investors globally and money starts to pour in, perhaps some of that money will finally pour into the mining sector, Eric. Boy, I tell you, a lot of folks out there just scratching their heads. It seems as if every single sector of the stock market is overvalued and just keeps getting more and more money while the miners are just the most unloved thing in the world. Do you have any words of wisdom for anyone out there?

Eric: Yeah. Well, of course, you know, as we talked about many times, the leverage is in the gold stocks, okay, because $100 increase in the price of gold, for probably most companies today, would add 50% to their profits, or somewhere around, you know, 25% to 50% of the profits, and the stocks are basically at their lows. So, if we could get a bit of a move going on here, of course the stocks can rally. They rally very, very quickly when they go. I mean, we're talking 25%, 50%, 100% moves in very, very short times, has been the history, the recent history of gold stocks.

So I'm certainly positive. I own lots of stocks that are, you know, near their lows, and I've got other ones that are doing very well, but I try not to lose any sleep over it. I kind of know where gold and silver have to go here and where the markets have to go and where the economy's not going, if you will. So I feel sort of comfortable that we can all, you know, just take it easy and let things play out the way that we all might've imagined them playing out.

Craig: Well, I tell you what, Eric, it is going to be a very interesting week next. We have a three-day weekend ahead of us here in the States as we approach Easter weekend for next week. But, gosh, if we can just get through today, what will you be watching today? Are you watching the stock market the closest today? Will you be watching gold as we go through the day? What's on your plate?

Eric: Well, of course, I always watch gold during the day. I spend a lot of my life watching gold. I think the critical thing is these LIBOR rates. I mean, they've gone up 32 days in a row, LIBOR. So that's a trend that...I mean, the cost to governments, the cost to corporations, the cost to individuals of a LIBOR going up is massive. And the other thing that we should be wary of here...for example, the Nikkei was down 5% on a Friday. Okay, their Friday. It's over. Can you imagine the margin calls going out? I mean, 5% in a day? Come on. Anybody who's a little bit levered, I mean, my God, they'll be pulling the plugs out on Monday morning.

And we've had some pretty good corrections here in North America as well, you know, groups that have really fallen on hard times, and anybody who's levered and on margin, like look out because you're going to get the margin. Plus, the cost of margin's gone up, but the interest rate's going up, so there's a lot of things to be concerned about. Of course, I love what gold and silver are doing today. We've had a great week so far, and I think this market, the stock market's looking very vulnerable here, which is going to be great for the thesis that we've always believed in, so we have all of that to look forward to.

Craig: And as you mentioned, very close to a breakout on the chart, and it could get to turn into a very fun, virtuous cycle of higher highs and more money flowing into the sector if we can just move a little bit farther. Eric, it sure is an interesting time to be alive, my friend, and I look forward to speaking with you next week and seeing what the world has in store for us between now and then.

Eric: Well, it should be fun. You imagine if we get a week next week like this week? We will be at new highs. Where will the gold stocks be then?

Craig: That's right.

Eric: It'll be fun. Thanks, Craig.

Craig: All right. And thank you, everybody, for listening. Again, from all of us at Sprott Money News and sprottmoney.com, have a great weekend.