What’s Going On With Silver? Precious Metal May Be on Verge of a Breakout

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

Craig: Well, greetings, once again, from Sprott Money News at sprottmoney.com. Hey, it is Friday, July the 17th, 2020, and it is time for your "Weekly Wrap-Up." As usual, I'm your host, Craig Hemke, and as usual, joining us is Eric Sprott himself. Eric, happy Friday.

Eric: Hey, Craig, happy Friday. A very interesting week here. Lots of exciting things going on in the metals and in the stock, so let's have at it.

Craig: Let's have at it. It has been an exciting week, and we've had a lot of beat downs in price it seems, but nevertheless, as we speak, we are still up, and I want to invite everybody to take a look at the sprottmoney.com home page. Besides the great deals on bullion you'll find there, you'll find all sorts of investment-related information, from the blogs that are written every day, under the Insights tab, but also, once a month, we have our "Ask the Expert" segment, with great folks in the past, including you, Eric, who I recall a few months back.

This month, it's going to be a London wholesale bullion expert, Andrew Maguire. Great opportunity for anybody out there to pose questions for Andy, and I, of course, relay them on to him, to get his answer during the "Ask the Expert" segment. So, please, if you have any questions for Andrew Maguire, please send them to us at the word submissions@sprottmoney.com, then look for that segment to be posted by late next week. My friend, we are, like I said, having maybe a little bit better week than it feels, with silver up 50 cents and the gold-silver ratio coming down. What do you make of all of this?

Eric: Yeah, it's all good. I should mention about the, Andrew Maguire, who I have the highest regard for. I went to see Andrew in London when GATA had a conference there, and, of course, GATA's been a wonderful supporter of all people invested in precious metals, and pointing out the manipulation and all that. And, of course, Andrew has been very, very important in all of that when he sent documents to the SEC and the Department of Justice pointing out exactly what was going on in silver. Of course, the DOJ found "no evidence of wrongdoing." Back then, this was probably like, well, my God, it might be 10 years ago. But, of course, they seem to be changing their view, you know. They have some traders at JPMorgan and other brokers who are being charged with spoofing at a minimum. But an interview with Andrew is very much look forward to. When I go to some websites that interview him regularly, including yours, I love to see that Andrew is on there. So, I would say to our listeners, make sure you listen in to Andrew Maguire. Okay, you want me to talk about the week?

Craig: Sure.

Eric: Let's see. Well, let's just deal with the things in the market. As you know, the COVID thing kind of moves in and moves out, and the contrast between New York having zero deaths and Florida going crazy, and these are very, very difficult things to have juxtapose with each other, because you know, obviously, if you have social distancing and you're serious, you can get the disease to control itself, and if you don't, well, then you pay the price. And it's unfortunate that in some of those states they're paying the price, and it's gonna slow things down, and as we've had various experts point out, it looks like the recovery is not going to be the V-type recovery. And one of the things I'd like to suggest that our listeners be very careful of, you know, when somebody points out there's some economic data in June that was better than May, that was better than April, well, I would hope so. I mean, we're in a depression. It better get better.

The thing you always have to do is say, "Well, what was it like year over a year?" And, for example, we just can't have these beat things. So, JPMorgan, for example, beat the estimate, but year over year, their earnings were down 50%. Wow, okay, they beat, but it was down 50%. Well, does that mean the stock should be down 50%? Well, it actually is down about 33% I think, from its high. But be very careful with statistics, because every statistic, economically, should be better, because we're coming out of the gutter here, so don't get conned.

The U.S. dollar is showing, like, some tremendous weakness here. We're right, or we're almost starting with a 95 here in terms of the DXY. I think we're at 96-point-something, 96 small or 02, or something like that, 96.12, I'm showing it right now, but it looks like it's getting weaker here. I think the other macro thing to be very... Well, of course, we got interest rates continue to go down, which is, you know, interest rates are saying we're in trouble. Stock market says everything's great. One of them is going to be wrong, okay? We have this renewed tech war, China versus the U.S. Of course, NASDAQ has come under some pressure here because of this, because there'll be no winners in that. There'll be nothing but losers on all sides. So, that's what I'd say are the things that are kind of governing the general stock market these days.

Craig: We're headed toward another Fed meeting as well. That's going to be week after next, that last week of July. Yeah, you mentioned interest rates still going down, and they promised us, Powell himself promised back in June that the fed funds rate is going to stay at zero through 2022. Also, at the end of this month, Eric, we'll be moving into the August gold deliveries, August being a delivery month for COMEX gold. I would imagine that will be on your plate.

Eric: Well, I watch the COMEX very carefully every day now, and there's a lot of things going on in COMEX that are very important to watch. And, of course, as you point out, the August gold contract is coming up for first notice day, Wednesday, two weeks hence, okay? And I don't know the exact number, but I think there's, like, 270,000 open contracts, which is a lot of ounces of delivery. That would be 27 million ounces, which would be incredible. We only mine 80 million ounces a year, by the way, but that number will go down, but there's nine trading days left. It's coming down grudgingly.

And one of the other interesting things about the gold contract, every day, since first notice day for this month's contract, the amount of gold standing for delivery goes up. Every day it goes up. In other words, no matter what deliveries are made in a day, the open interest does not decline by that amount, because someone is in there buying it, every day. And when I look at the gold numbers, I get things like 830 new contracts, 252, 123, 123, 634, 131, 206, 159, 159. Every day it goes up. Somebody is in there buying physical gold, theoretically physical gold, every day. Above and beyond the original notifications, which were also huge. So, the gold contract looks interesting with August coming up here very shortly, and we'll be watching that.

Of course, the other interesting thing going on on the COMEX is what's going on with silver. As we know, there were something like 6,700 contracts, if I got that right. Yeah, it was. How many ounces did we have? We got out about 67 million ounces, I think, something like that, that were nominated for on the first notice day. But even in silver, we've added 5,600 new contracts during this month. Well, normally, that never happens. So, yet again, people are in there buying these things. That's an extra 25 million ounces. Like, where do these ounces come from? And we furthermore, and we have these purchases of the ETFs, which have been about 220 million so far this year. We got roughly half a year. If we continue on the first half's pace, we'd do about 400 million of the 800 million ounces we mine. Well, there's not 400 million ounces available for the ETFs, okay? Because some of this stuff is supposed to go into industrial things. Furthermore, as I've already pointed out, the deliveries in the July silver contract are pushing, like, probably 75 million now for the month. One month. That's, that's...

Craig: Extraordinary.

Eric: ...one month's production right there, you know. Like, it's ridiculous. So, we got all those good things happening in silver. I suspect it's going to break out here. I actually made some calls yesterday to find out, well, where can you buy a significant amount of silver, and believe me, it's at a premium, significant premium to the spot prices. And, of course, the spot price has already lowered the futures price, which is kind of hokey. Like, futures price is $19.80 and the spot price is like $19.20.

Craig: Right.

Eric: But meanwhile, where you actually trade silver is probably more like $19.70 for large buyers. And I keep wondering, well, where are these guys getting their quotes? Where does KITCO, where do these other guys get their quotes from? You can't buy a coin anywhere near the spot price. You can't buy a silver bar near this spot price. What's with the quote? So, I think we have...As you look at what's going on in the markets, you realize that the situation is very, very tight on a physical basis. Silver, it's broken out on the COMEX pricing. The previous high, I think was, like, $19.60, and we hit $19.80 or maybe $19.50. Anyway, we're about that. Spot market, we need to get through $19.57 and we're not quite through it yet.

Craig: And Eric, I'm going to put in a shameless plug for my site for a second, along those lines, because back on Wednesday, a guy that I've known now for several years is Ken Lewis, who is the CEO of APMEX, okay? Which I know is a competing company with Sprott Money, but they're about the largest online bullion dealer. And I spoke with Ken for about a half-hour, and there is free audio at my tfmetalsreport.com site, with Ken Lewis, and so if anyone wants to know about the premiums and what he's paying at the wholesale level, he's paying, like, 40 cents over spot for grain. Not, wheat and soybeans, silver grain.

Eric: Yeah, yeah, yeah.

Craig: It's, anyway, really remarkable kind of inside baseball, and this guy's, like I said, CEO of APMEX. So, I'd encourage everybody, if you want to know more about what Eric was just talking about, go to my TF Metals Report site and look for that interview. It's really fascinating. Eric, the silver continues to flow into the ETFs as well. GLD has its highest stated inventory since April of 2013. Where the heck are they getting all this metal?

Eric: That's the $64 million question. I can't believe that the SLV is really getting the metal [inaudible 00:11:14]. Am I supposed to believe that you can put 5 million ounces in every day, or two and a half million ounces every day when that's all we produce every day? I don't get it. There's somebody signing some piece of paper saying that they're going to deliver it, but, you know, who knows when? Maybe it's on the never-ending plan.

I should mention one other thing that I know the listeners would care about, okay? I own Jerritt Canyon Gold Mines. We have, let's say, $5 million of surplus cash every month now, with the price being up here at $1,800. We're going to put that surplus cash into metals. And I've instructed our people, "This month, we're buying silver." And even though we're a gold mine, I think silver on the cusp of breaking out here. And, of course, I'd love all the other miners to consider that as well. As you know, First Majestic does that, Keith Neumeyer at First Majestic, holds back silver. Like, he held back almost 1 million ounces of silver in this last quarter. And I wish the other executives would get with the damn program here. Come on, guys. This thing should be going higher. You don't know that things are manipulated when you see the volatility day to day in the COMEX price of silver and gold? You've got to be kidding me. Who would want to knock something down $20 in a minute for a sale? Nobody does that. It's only some guy purposely trying to knock the price down, so I wish the industry would get on board here. So, anyway... But don't get on board till I buy it, okay?

Craig: Hey, and I want to get into the miners here, but you made an excellent point to me before we began recording about the valuation of Barrick, and if the market were to apply that same valuation to some of the stocks we're about to talk about.

Eric: Right. I looked at it because, you know, Barrick's the big daddy, and it gets a premium valuation, and I believe the valuation's around $50 billion U.S., and I noticed in the quarter just reported they had about 1.1 million ounces of gold production plus, but I just round that out to let's say 5 million a year, okay? And my recollection of Barrick is it used to produce 8 million. Now they produce 5 million, after the merger, recent merger. And, of course, if you produce 5 million ounces, and your market cap's 50 billion, you're getting a $1 billion valuation, sorry, $10 billion valuation for each million ounces, i.e. a $1 billion valuation for 100,000 ounces. Now, I can point out to you so many companies who have 100,000 ounces of production that are nowhere near $1 billion, but, to an acquirer, you know, like, somebody from, like, Barrick buys a guy producing 200,000 and he buys for let's say $650 million, but then he gets to value it at $2 billion.

Craig: Yeah.

Eric: Well, there's a nice game to play. So, I think there's lots of upside here in terms of the valuation of production. I've already commented. I think there's lots of upside on the valuation of ounces in the ground, because the value is going up exponentially. The profitability of the ounce in the ground is going up exponentially. So, for me, this suggests that $100 an ounce is a fair price. I don't think it is a fair price, to be honest with you, anymore. And I know lots of people use, you know, $25, $50, $60, things like that. I use mentally $100 an ounce in the ground, so there's lots of opportunity out there.

Craig: Yeah. That's right. No doubt about that. All right. We want to thank everybody for sending in some names again this week for Eric to consider. We've got a list here. I know, speaking of valuation, and ounces in the ground, and takeover targets and stuff like that, all of that fits into a discussion of Wallbridge, which is frustratingly not really moving much. A lot of folks wondering what your thoughts are.

Eric: Yeah. Well, it hasn't moved with the, I'm going to call it the junior golds, but it's not a junior gold anymore, okay? When you have a $1 billion market cap, you're not a junior gold, and I think that $1 billion is the Canadian number, by the way. And, you know, I've mentioned this before on the show. It's very difficult to move a $1 billion market cap significantly without very significant developments. And yes, they came out with some drill results, which were great, but not enough, in my mind, to move the needle. There was one grade intersection down in the Lower Tabasco that showed continuity, but the big thing that we're all waiting for is when they drill the Balmoral properties, and when they get to drill lower down in Tabasco, which, in the summer, I don't think they can do it, because the ground is not as firm as you need it to be. You almost need the ground to be frozen to be able to drill as deep as they want to drill. And they don't have that right now. So we've kind of got, COVID-19 has kind of delayed getting some of these deeper drilling going on, but I'm a great believer in the whole, the Balmoral, the Fenelon, the acquisition of other properties from Midland Exploration. I think these guys have a camp, and we're going to find out in due course that it's a camp, and much as I might have said they could have tens of millions of ounces at Fenelon in the camp, wow, it could be a lot bigger than that.

Craig: Yeah. A lot of folks are asking this week about further commentary on Freegold Ventures.

Eric: Sure. Freegold Ventures. Well, first of all, I've got to, again, compliment Brad Aelicks on his article that he wrote on Golden Summit, and I spent time reading it again, because I'm quite excited by Freegold Ventures, and basically, with a couple of key drill holes, I mean, this thing could blow out here. If this company's second drill hole works, and then they drill one another 150 meters to the east and it hits, oh, boy, we could be adding some high-grade ounces, millions of high-grade ounces fast, fast, fast, fast. As Brad suggested, the first 200 meters, if the second hole hits, would add 2.87 million ounces. Well, we have another 400 meters to go. Well, that's 9 million ounces, roughly, if they could hit the one further hole going east.

Plus, the more I study this company, the more I realize that finding the low grades was very easy. It was easy. They only drilled 37,000 meters. They found 6.5 million ounces. Unheard of. And it's because they're, on this property, there were 20 former lode mines, that's underground mines, way back, like, 100 years ago. But where there's a lode mine, there's probably an oxide cap, which is your lower-grade ore, so I think they're going to have a field day finding some of this lower-grade ore, which, three years ago, you didn't want to find any more lower-grade ore. It wasn't de rigueur. It's de rigueur today. So I think they have a very good chance of finding lots of lower-grade ore and lots of high-grade ore, so I'm very excited by it.

There's some comment on some of the chat and it's like concern for refractory ore, which they have refractory ore. It's sulfide. One of the reasons I'm intrigued by it, I own a roaster down in Nevada, which treats refractory ore. We've actually suggested, "Well, maybe you should concentrate your ore, and we'll ship it down to Jerritt Canyon. We'll roast it for you, might be cheaper than putting in your own BIOX plant." We'll see. And that, furthermore, I've heard that there's potentially some new methodologies for extracting gold out of these refractory ores, that's going to be way cheaper than the existing bioleaches or POX or roasters, things like that. So, I'm not worried that we'll find a way of getting the gold out for Freegold Ventures.

Craig: Isn't de rigueur or something like that the new name for RNC? What, I can't [inaudible 00:19:23]?

Eric: No, you're confusing that with Karora. Karora. Not corona. Karora.

Craig: Karora.

Eric: The new Karora. And I, of course, stepped up my position in Karora by buying a big block of stock from Metallica Minerals, or Royalties, I guess it is. And the reason I did that is I could kind of see that the Beta Hunt high-grade zones still offer all sorts of opportunity. That was a story two years ago, or back in '18, when they drilled the Father's Day Vein and found 30,000 ounces in a very, very small little area. So it's high grade. They've found subsequently smaller parts of that, but this thing, this vein, strikes of, they got totaled at 16 kilometers of veins, and this pyritic sediment where the gold kind of pukes out is in all of it, so I'm kind of hoping that things will happen there in terms of exploration.

They announced their production, which was 24,000 ounces, so there's your 100,000-ounce producer that might be worth $1 billion U.S., which is trading at, I don't know what the market cap is today, but it's probably $400 million Canadian, something like that. And lots of exploration upside, money moving into the bank, they've cut the royalties, they got rid of their hedges, they got the price increases happening in gold. One of the Canadian brokers, Red Cloud, put out a price target of $1.30. It's trading at $0.70. So I think there's plenty of upside there.

Craig: All right. Just a couple mor. Sticking with Canadian gold, how about Amex Exploration?

Eric: Yeah. Amex had some phenomenal hole. I think it was 44 grams over, I'm going to say 10 meters, it might have been 12. Like, that's a stunning, stunning hole, and they continue to improve the strike length. They continue to improve the vertical depth of this thing. These ore bodies in the Abitibi can go a long way down. This is shaping up as a very interesting discovery. So, I happen to be a lucky owner of, when I bought it, whenever, a year and a half ago, and I participated in the recent financing, and the stock's done well, and I think the future looks pretty bright there.

Craig: And then one more. Something called Spanish Mountain, which apparently is not just a golf course in Vegas.

Eric: No. Well, I've had a very small investment, Spanish Mountain. The only reason I thought I should mention it is it's a low-grade deposit in B.C. Back about 10 years ago, when they did their first resource, they said they had 10 million ounces of somewhat low-grade gold. I think it might have been, like, 0.4 grams, something like that. They were trying to experiment with ways of reducing the CapEx on that, but as I said earlier, these ounces in the ground are becoming more and more valuable all the time, so when I bought it last week, I was paying... If I assume they have 10 million ounces there, I was paying $2 an ounce, okay? Now, I admit that I only paid $1 an ounce when I bought Freegold Ventures, and I upped it to $2 an ounce when I bought Spanish Mountain.

But, you know, when the gold's trading at $1800, $2 is probably not bad a price. And even at today's market cap, it's gone up, paying $5 for an ounce of gold in the ground, I think it's a good deal. So, I mentioned that. I should also mention the whole Treaty Creek thing. You know, Tudor's drilling up there in Treaty Creek. I suggested, I think last week that they had other zones that might be as big as the Goldstorm. And the Goldstorm already, you know, you do the multiplication, you can come up with 20 or 30 million ounces. And if these step-outs hits, that thing is going to increase real fast, and it might be early days in the size. There's been some great discussion on Stockhouse about, you know, how we should interpret the geology, and, of course, it just seems to get bigger and bigger and bigger. So I encourage people to take a look at that. And most of that commentary, by the way, is on the American Creek bullboard on Stockhouse. So, that's a guy named something like Wango Jango or something. Very interesting comments on the geology up there.

Craig: I like it.

Eric: So, I think that about does it.

Craig: Maybe oughta get Wango Jango in for an "Ask the Expert." I just like saying that. That's a great name. Wango Jango. All right, my friend, anything else on your mind before we wrap up?

Eric: I don't think so. I think we've covered off a lot and, you know, looks like we have some excitement in the market here this morning in terms of gold and silver.

Craig: Let's go.

Eric: Silver is so close to breaking out in the spot market. I mean, it's within an ace here, so everything is looking pretty good.

Craig: Yeah. We'll see if, it'll get some headlines when it trades with a two for the first number, and it might be later today or Monday.

Eric: Yeah. That should be today.

Craig: And as we discussed, silver, still really interesting physical dynamics in silver right now. So, we have some, though, at sprottmoney.com. If you want to get some physical silver, we'll even store it for you if you don't want to take delivery. All sorts of great deals at sprottmoney.com, or, of course, you can call us at (888) 861-0775. Eric, have a great weekend, and thank you for all your time this morning.

Eric: Hey Craig, I enjoyed it. Should be fun.

Craig: From all of us at Sprott Money News at sprottmoney.com, thank you for listening, and we'll talk to you again next Friday.