“We’re in the Money Here” — A Consequential Week for Gold and Silver - Weekly Wrap-Up (July 26, 2019)

Man: You're listening to the Weekly Wrap-Up on Sprott Money News.

Craig: Hello again from Sprott Money News and sprottmoney.com. It's Friday, July 26th. This is your Weekly Wrap-Up. I'm your host, Craig Hemke. And joining us once again is our old pal, Eric Sprott. Eric, how are you this fine Friday?

Eric: Hey, Craig, great. It's been a very, very busy week in the precious metals area, and particularly busy for me. Trying to position myself in the way I advise all of our listeners to get positioned and so we got lots to chat about.

Craig: I assume we will. And you know, I should point out too, this is now the week, we're getting to late July. It's typically the week that our friends within Sprott have the Sprott Natural Resource Symposium, which I know is something you've been at in the past. For anyone listening to us that's attending the Sprott Natural Resource Symposium coming up next week, 29th through August the 2nd, at the Fairmont Hotel in Vancouver. Sprott Money, has a booth there, number 59. And we'll be selling precious metals all throughout the conference. So please stop by and say hello. I won't be there. I'm on vacation. Eric, you won't be there either I don't think this year, will you?

Eric: No. I'm on vacation as well. But there's gonna be a lot of various companies there. I know that. And people may not know but Sprott tends to deal in the smaller companies, which where all the action is. So there should be a lot of presenters there that will have very interesting stories.

Craig: Yeah. You know, let me ask you this since there will be a Sprott Money booth there and folks can purchase precious metal at the booth. As we stand right here with clear breakouts and as even silver is participating, that kind of thing, for people looking to buy some physical gold, silver, platinum, is there a good time to do it? Do you wait for a dip to buy? Do you average in? What do you think is the best strategy at this point?

Eric: Well, I guess the way I'd answer the question, I mean, I've owned gold now for a long time, okay, since 2000. So I've owned it for 19 years. And I would have started buying it at $250. I would have bought some at $400 and $500 and whatever, $1,000. Every one of those purchases for me now is a profit because in Canadian dollars, it's basically at a record high here. But I think as we look at how the financial world is unfolding here with the great concern that the Fed, Central Bank policy, I should say, of negative interest rates of which we now have a new record high in the number of negative yielding bonds as we speak today, is starting to generate a lot of comment about in the fact that this policy.

First of all, why do we need it? We're supposed to be in a recovery, right? But we're right back at it again. And it's because the policy didn't work. And it's not going to work. And the best example of that is basically where Japan is, it started this thing like 30 years ago, still has not worked, still have no inflation. Their stock market is still way below its three-years high. But all those paths lead to the need to own some gold. And you should start as soon as today is what I would suggest. Because we've had a good run here. I get the sense from some of the technical people I follow that we might have what is being described as a bit of a parabolic move in gold, if we fire up to the 1700s here, beginning sort of mid-August.

So you gotta be prepared for that. So that's why, for example, six weeks ago, I guess the MMA were calling it, like, "Well, you know, there's this call that gold is going at 1,450 and you better not be waiting around." Because there's a lot of torque in stocks, big ones and little ones. In fact, there's even more torque in the little stocks than the big stocks. So it's been a bit of a feeding frenzy lately. There's a lot of companies raising money. I know I've been very, very active in that, on the hunt for value. And there's some pretty good opportunities and one of the things that attracts me, if you look at a stock trading at 15% of what it was, its high was in 2011, if you pick a Canadian guy, a guy in Canada, you say, "Well, you know, back in 2011, the gold price in Canada hit a record high at 1880, and its at 1880 today, and it stops with 15% of where it was in 2011. Well, how does that work?" So I think they got really heavily sold out here and that there will be many, many opportunities to take on precious metals shares and do very well.

Craig: Yeah. And Eric you told us all, I don't know, six, eight weeks ago, I thought something that was really eye opening. You said, "In the early stages of a rally in a bull market, it's the large leverage producers that really take off because their earnings basically double. If you're making $100 at, you know, $1,300 an ounce, you make $200 at $1,400 an ounce." And that was brilliant. And we've seen that now in the GDX, they've really taken off over the last six weeks and now it's going mainstream. I saw an article this week about CNBC promoting not the Fang stocks, what they call the BAAANG stocks, which is Barrick, Anglo Gold, Ashanti, Agnico Eagle, Franco-Nevada, and Gold Fields. So now all of a sudden, even these institutions are starting to pick up on it. That's not something we see at the late stages of a rally at all.

Eric: No, they're definitely commanding attention. I've said this many times. One thing I like about computers, the computers, if something's happening, they'll spot it, right? And they'll tell the institutional guys, "Oh, by the way, the best performing group is gold stocks." And like I said, "Well, we don't own gold stocks." "Well, the computers said you better get the hell in there because these things are going." And I think it's very early days. I mean, you know, going back to '16, I think stocks went 160% in like 7 months. And maybe we're up 30 now, but I think there's a pretty good road in front of us still.

Craig: Yeah, absolutely. Now, there are some cross currents going on. Obviously, this week, specifically yesterday, we had to deal with Option Expiration on the COMEX, and we know the banks like to maneuver price for their profit on that day. And that's what we saw yesterday. But we've got the front month. August contracts goes off the board next week. There's always volatility surrounding that. And that's timed with the next FOMC coming up next week, too. So there's a lot going on. Gold down a little bit this week. Silver up. What do you think by next Friday we're going to be talking about, Eric?

Eric: Well, first of all, it's pretty obvious there'll be a rate cut by the Fed. Whether or not gold rallies to that immediately, I'm not sure. One of the things that I have noticed, when Central Banks say things that are pretty optimistic for gold, sometimes they'll just smash it anyway so that there's no linkage between the central bank and the gold price going up. And that was kind of like what happened with the ECB yesterday. You know, they obviously changed their policy to being a little more dovish, and gold sort of went up for just a little while and then, boom, they whacked it. And that way, people can't draw the line say, "Oh, yeah, ECB dovish, gold should go up," because it didn't go up, it went down as it turned out. So you never know. And I think it's Wednesday they have the meeting. You know, it may not react the way we want it to, but I do believe in this big turn that's coming beyond the turn we've already had. And I do believe we will be in the 1,700s. And I think people have to think with that number in mind. What's a guy going earn at $1,700 gold and how cheap is stock? That's the important thing. So they should keep that in mind.

Craig: Yep. And we are continuing to see central bank accumulation, especially these dollar creditors, which you and I are both dollar creditors and we're switching into gold reserves. That's what these central banks are doing too. Russia this week announcing another 19 metric tons. They're now up to 2,200 metric tons over $100 billion worth. That central bank demand was almost at record levels last year and it seems to be continuing this year. That's got to help too.

Eric: That's amazing. And of course we have we also China buy 10 tons. And I'm still sort of stunned by the Polish Central Bank buying 100 tons. It's like, "Wow, where did that come from?" And every time I see these central banks buying that amount of gold, I think, "Man, what would happen if the guy instead of writing AU on the buy ticket wrote AG," which is a symbol for silver. You know, like any one of those guys in a month could double the silver price, right, because there's just not that much silver around. And speaking of silver, by the way, been some tremendous inflows into the silver ETFs. In fact, I think was Wednesday, there was a billion and a half went into the GLD, and something like half a billion went into the SLV. And I want everyone to sit and think about that's a ratio of 3:1, okay? They're buying three times as much gold as silver. And the price differential was 88:1. How long can that carry on in a commodity that the amount of money going in it is rated at 3:1 and the price is 88:1? Like, it's impossible. And we all know that in the Earth's crust, I think there's something like 15:1 silver to gold in the Earth's crust, the production is something like 10:1. And this nonsense of silver being it at 88:1 versus the price of gold is absolutely ridiculous.

So we've seen this very, very strong move in silver. I'm sure I'm imagining this parabolic thing happening, okay, but only to $50. Just get your computers out, figure out what the guy makes at $50, okay? And believe me, the upside will be so substantial. You're not going to worry about 20% downside when you're upside is like 1,000%. So that's sort of the approach I take. I've been very busy buying silver stocks, some have been announced. Others haven't been. But I bought four or five or six or seven of these things. And every day I'm on the hunt and I will even buy just deposits now. I'll buy a little great deposit, which I bought many and one of them was announced this week was Tudor and a company called Teuton that are both up in the Northern BC, low grade, huge deposit. Price of gold goes up, "Hey, we're in the money here." So I think that's a very intriguing investment opportunity. I'd go back, and I think I might have mentioned last week. I did the same thing in 2000 about Seabridge, which was a low grade, at $1 and went to $35. That's a sort of leverage I'm hoping to experience and I hope our listeners experience.

Craig: That's the kind of thing we're all hoping for. No doubt about that. I'm glad to hear that you're having some success finding some silver equity play out there. I know though, you're also involved in a couple that have had some news this week, some gold socks. Anything you want to tell us about that?

Eric: Yeah. Well, just minor, minor things. They changed the CEO of RNC Minerals. Paul Huet is now the CEO and Chairman. I met Paul this week and he's a gold guy so I'm certainly expecting that the things will move along at perhaps a faster pace with RNC here. In the case of Kirkland, they announced that their earnings are coming, I think it's on July 30th. So we'll all stand by in that. When I sort of doodled to myself what I thought they might earn, it kind of like a 45 cent. So I think it'll be a little down from maybe 46, that's quarterly and 53. It'll be a little down because of the shortfall of gold production second versus first. But I think the price again will be up some so that would be a bit of a positive offset. The only other thing, well Wallbridge, I think we got to see some dual results here next week. I'm kind of hoping that really holds together because we get some big holes to come out here. So those are all little just minor items. And every day I keep watching all the drill holes that come out and see if there's gonna be some new play and they're not too difficult analyze. In fact, I think it's easier for a chartered accountant to analyze and which I am that is a geologist because I don't get into the hairy stuff that the geologists get into. I just ask, "Okay, how many dollars is that going to be?" And away we go.

Craig: Exactly. Cut to the chase on that stuff.

Eric: Yeah.

Craig: Well, Eric, we had some interesting questions come in this week. We might wrap up by let me hit you with a couple of them. I got a couple of specific names. I don't know if you know anything about these. Let's start with a company called Balmoral Resources. Do you know anything about that one?

Eric: Sure. Well, Balmoral has the property, well sold, the Fenelon property that Wallbridge is now drilling, they sold it to Wallbridge, but they have all the property around it, and they announced it that they were going to drill at the southern extreme of where the Wallbridge property is, or Fenelon, and just imagining what Wallbridge is finding extends onto their ground. And of course, I hope it does because it just indicates how significant the system is. And they might very well drill further north too, or north and/or west. And of course, if they did, it would confirm the thesis that we have a very long structure here that could be, you know, number of kilometers. And Wallbridge has already suggested it might be two and a half kilometers of straight line. So that would be a large, large deposit. And that's kind of what we're keeping our fingers crossed for. So Wallbridge is the neighbor with the most ground around and we'll see how it goes for them. But their stocks rallied pretty sharply here in the last week or so since the announced they're going to drill that area.

Craig: Have you ever heard of anything called Skeena or Greatland Gold? Have you ever heard of any, either of those?

Eric: I haven't heard of Greatland. I gather that's an Australian company. I don't think I've looked at it. Skeena, I've looked at. It's also in the Golden Triangle in BC. I think they own the old Eskay mine and are trying to find if there's other commercial law around that. I'm not an owner of it. And I'm not going to pretend to be intimate with it. I'm just sort of aware of it.

Craig: And here's a couple questions about the major producers, as we talked about earlier, these BAANG stocks which have soared and are going to continue to get attention from institutions because that's really all the farther they often go. Does it become a point, a price point or margin point where you prefer the exploration, the smaller companies versus the majors? You know what I'm trying to say?

Eric: Yeah, yeah. Sure. There's a price point. And the price point is forever. Because I've never owned a major producer, okay? I've never. Unless maybe I owned one back in 2000 when things were just starting, you know, and we're all getting our feet wet in the precious metals business. But I would never own a major company versus an intermediate and/or a junior. Because the junior company with exploration success its stock can go up 10, 20, 50 times, okay? The major stock is not going to do that. The major stocks, their performance was abysmal in the, in the gold rally from 2000 to 2011 versus other stocks, okay? And of course, their performance was not so hot after 2011 either. So that's not where I would be going. I do study them now, and I only study them to compare them with Kirkland and I know, for example, that Newmont just reported their second quarterly at 12 cents. Okay. Geco were at 12 cents. These are adjusted earnings I'm talking about it. And meanwhile Kirkland is going to earn 45 cents. Okay, well, I think Kirkland is a little better than those two in terms of a value type thing. And that's really the only reason I look at them. I admire them as companies. They're great gold companies. But, you know, for somebody who wants to move forward fast, I don't think that's where you want to place your bet. You want to place your bet on something smaller, something that you can still study, though, and understand, you know, how it's shaping up. And, you know, you can be early because they're really not a lot of people looking at these things yet. More every day but still not many. Okay? So, it's a bit of a, there's certainly lots of opportunities still.

Craig: And let's close with this question, Eric, because this is kind of in the same general area. You know, we talk about earnings exploding. We mentioned it again earlier in this call, you know, as price rallies, you're earning, you know, what you make per ounce can grow rather dramatically. This final question was, "Is there a general time frame that you would expect a rising price to be reflected in a company's earnings? Does it take a quarter? Does it take several quarters?" I mean, can you answer that one?

Eric: Sure. Well, obviously, the same day the price goes up, the earnings go higher, right? Not the reported earnings because you got to wait for time. So, for example, even this last quarter, with the price going from $1,275 to $1,300 at a quarter, the average price for the quarter was I think around $1,307, $1,309, something like that. And the previous quarter was $1,305. So we're not going to see much action there in the earnings. But of course, this quarter, the quarter starting July, when you walk into what at $1,400, you're going to see and this these reports, these next reports a good effect on earnings.

But believe me, the stock market is not waiting around for the guy to report, okay? We can all multiply the number of ounces times the change in the price and figure out what the effect on earnings is. We don't need the guy to report for us to know what they're going to earn. So anybody can do that analysis, right? Number of ounces times the change in the price, tags and at whatever 25% divided by the shares outstanding, you know exactly what the earnings are going to go up by. So anybody can do that in your spare time. So it's immediate. It's immediate and the stocks don't wait around. Nobody is buying these stocks that have now got 30% based on the second quarter earnings, which were lackluster already, okay? They're not good. But the stocks don't wait around for that.

Craig: Yeah. So speaking of not waiting around, before we go, I want everybody to understand that the Sprott Money super summer sale is almost to put. We only run this through the end of July. It's been extraordinarily busy month and last couple of weeks at Sprott Money. Not only because price is rallying and people are interested in the metals again, but this Sprott super summer sale is always full of great deals. Like I said, only a couple days left. If you're looking for I don't know just an idea, check out the best seller of the sale, which is a Canadian Maple monster box. Have you ever had a monster box, Eric? You probably got a few of those babies laying around I would imagine.

Eric: I got a few monster boxes. But monster boxes are kind of expensive, you know? Because it's like 500 ounces of gold. Like that's a lot of moolah, baby.

Craig: Silver.

Eric: That's almost...yeah, silver is...yeah. Well, I probably own quite a few silver ounces, okay?

Craig: Yeah. Well, those monster boxes are on the deals page at Sprott Money. I mean, it's a great thing for anybody but if you're a Sprott storage customer, it's an even better deal. So check out the idea of storing your metal with Sprott Money too. Anyway, go to sprottmoney.com. Check it out. Or, of course, you can always call us at 888-861-0775. Eric, we've gone a little longer than usual this week. So I very much appreciate your time. And I really look forward to talking to you next Friday. Man, we're going to have a busy consequential week ahead.

Eric: Oh, yeah. The pot is stirring for me I can tell you. I got things I'm doing and we'll be able to start chatting about them. And hopefully we get some interesting results in some of the companies and, of course, the excitement going on in the silver and gold markets. Oh, I never mentioned that the Shanghai futures exchange. The amount of silver they're trading per day over there is like 500 million announces a day. Like it's crazy. Yeah. So maybe we have the Chinese to thank for, you know, putting a bit under the New York market. I wouldn't be surprised if that's exactly what's happened that as those people are buying these commodities on the open market over there, the guys might come in to be bidding on the COMEX to put some of the delivery. So, yeah, the world is kind of moving our way.

Craig: It certainly seems that way. Man, the way gold shot higher from $1,350 to $1,450. Once it broke through $1,350, you can only imagine what silver would they once it gets through $1,700 or maybe $1,800.

Eric: At least past.

Craig: Yeah. Well, thank you for your time, Eric. I hope you have a great weekend.

Eric: Okay. You too, Craig.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening. Be sure to check out the Sprott super summer sale at sprottmoney.com, and then come back next Friday for another edition of the Weekly Wrap-Up.