Eric Sprott on how to protect yourself in uncertain times (Weekly Wrap-Up - May 4, 2018)

Transcript:

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

Craig: Well, happy Friday once again from Sprott Money News and sprottmoney.com. It is Friday, May the 4th. This is your Weekly Wrap Up. I'm your host, Craig Hemke, and joining us, as usual, this fine Friday morning is Eric Sprott. Eric, good morning.

Eric: Hey, Craig, happy to be here. Lots of sort of interesting things happened during the week, so let's get into it.

Craig: Well, before we get into it, just a little reminder for you, me, all the other dads and husbands out there, not this coming Sunday, but Sunday in the future, nine days away is Mother's Day, Eric. So we don't want to be messing around here. We got to get ahead of that curve. You can celebrate the mothers in your life with an exciting offer from Sprott Money. You can buy a 1-ounce gold Pamp for 17.99 over spot. That's a pretty good deal. Limited quantities available, so take advantage of this special Mother's Day promo by visiting sprottmoney.com or you can call 888-861-0775. More gold at $18 over spot will take it. Gold is down a couple of dollars on the week, but after fiddling around with its 200 day moving average, it looks like it's trying to hang in there. How do you feel about it at this point?

Eric: Well, I feel pretty good. When I look at some of the, what should be the bigger issues, I find the Argentine peso tumbling by 10% very significant. You would think people would know by now in various countries that when the currency starts going, you don't want to be long the currency, you want to be long gold and silver and things that will protect you. There's lots of weakness in, for example, the Egyptian pound, the Turkish lira, other currencies, I'm not thinking of them right now, but there's been a lot of weakness in emerging market currencies here, and people realize that there's only certain ways to protect yourself.

It's funny when I mention the Egyptian... There's an Egyptian, second wealthiest guy in Egypt, just put half a billion dollars into gold because he was worried about, of course, the economy collapsing and the market collapsing and the currency collapsing. And that's the sort of thing that I think we need in the metals market. So the fact that it's kind of playing out that way I think is very constructive.

Craig: You know, you mentioned that guy. I think we also that headline. Yeah, that's a lot of gold and a lot of protection for the guy, but you wonder what he actually bought, you know? Do you think he bought GLD?

Eric: Yeah, did he buy the GLD? Right.

Craig: Well, we'll just have to see. But that's definitely wise on his part, no doubt about it. You know, it's interesting, too, to note, that the Fed did not hike rates this week. Nobody really expected that they would in between meetings. But, you know, there's an abundance now of bond bears again, and even Bill Gross is on the record this week saying he thinks this whole idea of the bond market bubble bursting maybe is passé, and that he's thinking that loan rates are going to now be headed down with the flattening of the yield curve. Gosh, what do you make of the action in the bond market?

Eric: Well, of course, you know, I'm a bear on the economy. We had a jobs number today, which was weak. We have soft data that's weak. We have hard data that's weak. Logic says flyover, America is having a tough time. So those all would argue for lower rates. You have a Fed that, of course, could change their mind quickly if the market continues to weaken here. The only thing arguing for higher rates, of course, is just the sheer inability of the U.S. government to fund itself because of the excessive demands from a cash perspective. So from a pure economics, forget supply and demand of money, but from where the economy is, yes, I can see rates, maybe not meeting to rally here.

Craig: You mentioned that jobs report, Eric. Yeah, we should touch on that for a second, too, that the number of alleged jobs created came in below expectations, but I think even perhaps more important now, the level of average hourly earnings came in below expectations as well. They're expecting a two-tenths of 1% growth. It only went up one-tenth of 1%. That doesn't argue for a lot of inflation. That doesn't argue for higher interest rates either.

Eric: And it certainly doesn't argue for a lot of spending. You know, where am I going to spend my extra 1.2% this year? And 1.2%, I mean, we all kid ourselves about what inflation's really like, right? It's just a joke how bad it is whenever something happens, you find out what inflation's really like when you got to go to get something fixed, or you got to buy something new. So, yeah, the reports have been weak. The economic data is weak. The housing's fading here. Automobiles are fading here. Those are two big parts of the economy. So, yeah, it wasn't a good jobs report, for sure.

Craig: And so now we head into May, and we'll see where we go from here. Seasonally, it's an interesting time for the metals, that's for sure. I do want to kind of head down the path of trying to pick some good news out if we could. It was another good week for some of those Australian gold stocks that we talk about every once in a while. It was a really good week, again, for Kirkland Lake. I guess, you know, if we just can be picky, we can find some pretty good spots to be in.

Eric: Well, you know, as I said before when people say, you know, it's been a tough time in the gold shares, I sort of say, "Oh, my God, it's been one of the best times ever for me, and maybe I'm just lucky in some of the picks I've had." But we've talked about Kirkland and Novo before, and both had news this week, Kirkland with their quarterly earnings, and I'm not recommending the stock. I'm just chatting about what they reported. And they also reported that they had a new zone in Fosterville. And the comment was that we hoped, this was the company saying this, that we can find another Fosterville in Fosterville. Well, I can tell you if they find another Fosterville, they will be off to the races because there is nothing in the world like Fosterville. So that was pretty encouraging. The stock hit a new high this week.

In the case of Novo, there were a couple of interviews of Quinton Hennigh, one on Jay Taylor's radio program, the other one on the Korelin Economics Report. And I like to listen to those. Even though I'm on the board of Novo, I try not to waste too much of Quinton's time by him just updating me, so I actually use these interviews just to hear what he has to say. And I think if people carefully listened to those interviews, they will get the sense that things are quite extensive in Australia, that the whole precipitation thesis that this could be over vast areas is kind of coming together here for Novo. And of course, what's interesting for Novo is also interesting for Kirkland Lake because we're a 20% owner roughly of Novo. So, yeah, I would encourage people to listen to those interviews and draw their own conclusions and act accordingly. But everything looks pretty good.

Craig: So, Eric, as we wrap up this week and begin to look into next week, you know, it has been such a challenging, I don't know, last 10 or 15 days for the metals. The dollar has just been soaring versus basically every other currency. But as you mentioned, the economic picture in the U.S. doesn't look so sound, and the bond market appears to be rallying back with the yield curve flattening. What are the one or two key things you think that might drive price as we move into summer?

Eric: Well, of course, if there was any wavering of the Fed. And in fact, you know, I literally haven't read the Fed statement but I looked at some of the summaries, you know, and they're acting aggressive. And then they read it as dovish and symmetric, whatever, some words like that were used, and it's really hard to know where they go. But as you watch the economic data, and it doesn't suggest that there's continuing strength. And I think the whole interest rate thing would come into question. If it came into question, of course, the dollar would reverse itself here because that's one of the reasons the dollar is rallying.

The other primary reason is so many people had negative bets on the dollar, and they just unwind them. One of my theories about the whole financial shenanigans is, you know, the commercials get on one side of a trade, and of course, their customers get on the other side, and the customers always lose. And so, you know, they just keep this volatility moving around. I'm always amazed when they say, "Well, the bank earnings were strong in the first quarter because of volatility." I mean, "What volatility? Oh, that's right. Volatility. That's where I can take the other side of the trade, and it has a big move, and I make more money than I'd normally make because it's volatile."

And so that's been a big part of the whole thesis. We're having volatility. The gold price here, you know, got up to whatever it was, 1,655 or so. It looked like it was breaking out. Now we're back down here. Looks like its breaking down, and you know, all of the commercials will be buying back their short positions. When that eradicates itself, we should be back to people assessing the dollar in a more fundamental way, rather than what are the trading situation that we find ourselves in. And that's, I think, the same is true of gold that as these countries' currencies weaken off, we're going to get a lot of interest in gold is my guess. So hopefully, things can right themselves here rather quickly.

Craig: You mentioned those bank earnings, Eric. I just had to laugh because you and I are both old enough to remember when bank earnings grew because they loaned money and captured the spread, right?

Eric: Yeah.

Craig: Not anymore.

Eric: Yeah. Now they're capturing a spread, they're just creating the spread.

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Eric: Well, you know, the funny part is, we didn't even talk about the COMEX data. I mean, I just find it so crazy that we trade 500 million ounces of silver a day, which is like half the year's production, and the price does nothing. It's still such a disengagement of the real markets from the COMEX markets. That's very frustrating. I went and bought some of their Britannias last week when I listened to the pitch that you were giving from Sprott Money. So I'm a believer, and I'm pretty certain it's all gonna come together for us here.

Craig: Well, we will see where we are by next week when we talk. In the meantime, Eric, I wanna thank you for your time, and I wish you a happy weekend.

Eric: Okay, Craig. All the best to you, too.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening. Have a great weekend, and we'll talk to you next week.