Why a “New Game for Gold” Could be the Opportunity of a Lifetime - Weekly Wrap-Up (June 14, 2019)

Man: You are listening to "The Weekly Wrap-Up" on Sprott Money News.

Craig: Well, greetings again from Sprott Money News and sprottmoney.com. It's Friday, June the 14th. This is your weekly wrap-up. I'm your host, Craig Hemke and joining us is number one Toronto Raptors fan, Eric Sprott. Eric, good morning.

Eric: Hey, Craig. Good morning. We had a long night last night but a very wonderful night and talk about overnight. Oh, my God. Maybe even better than the Raptors win is what the price of gold's doing today. So it's all very exciting here in Toronto.

Craig: You hit the daily double up there. It's better than going out to Woodbine and hitting the daily double. You've got the Raptors winning and you've got gold very close to a breakout. It's a...you're right. It's an exciting morning.

And just...before we get started...we'll have a regular format again this week where we'll just get back to talking about the metals but we do wanna thank everybody for participating last week in our Q&A weekly wrap-up. We'll do that again soon. Promise. But for now, we're gonna get back to a regular program. A good time to do it too, Eric. Man, as you said, we are up strong again in gold today, getting all the way up to $1358 as we record here at about seven o'clock Eastern. What are your thoughts as we go through the day?

Eric: Well, it's, you know...I go back to the commentary that we had two weeks ago when I was pointing out that a gentleman named Christopher Muland had been predicting that man, gold's gonna go up very...to 1$450 in 5 to 7 weeks. We've now had two of those weeks, okay.

And we've now almost got up a 100 bucks for goodness' sake. We've certainly gone up $85 in 2 weeks. So I'm thinking his prediction, based on whatever work he's done, okay, was very credible. And then we have this week, Paul Tudor Jones coming in, being interviewed on Bloomberg and one of the world's most successful investors saying that, you know, his best trade in the next two years is being long gold because it's gonna go to $1750 and when the Fed starts to cut interest rates, gold will scream, in his words. And, you know, the impact of that happening is so stunning for the gold stocks. It's so stunning. We are looking at hundreds of percents of gains here. Hundreds. Don't miss it. This is a lifetime opportunity here to make a truly, truly outsized gain. And for very logical reasons, you know, like a $1750...imagine $1750. And the average guys making $500 an ounce of profit. Oh, my God. I mean, I just bought into a company this week that if they had a $500 profit on a $100,000 make $50 million US. The market cap was $25. Canadian. Twenty five.

Craig: Yeah.

Eric: Well, what's that thing gonna do?

Craig: Yeah.

Eric: You know, going forward here. So I would say everyone should be looking real, real hard at what they can invest in and it's going to be companies with big production, with low market caps that are kinda marginal, profitable companies today. Marginal. And all of a sudden, the price goes up and wow. You start banking it.

So the investor's gotta do a lot of work here. Don't know where to go and get positioned here if this should transpire as we expect. And of course, the reason for it to transpire. It's, you know, it's the same thing that Paul Tudor Jones talked about. It's the effect of lower bounds. How low can rates go? I mean, if Fed funds go down by a 100% to $150 how does a bank make a 2% spread when Fed funds are $150? Well, they've gotta charge you negative interest. Well, you know what? Maybe you won't like that. Maybe you won't wanna pay the bank half a percent every year and you'll go buy some gold or silver. Whatever. Something else.

Craig: Exactly.

Eric: And that's what can drive things right there.

Craig: Exactly. We've...you and I have long discussed negative interest rates were the greatest fundamental man has ever created for owning physical gold because it's...you know, the argument is always, "Well, it doesn't pay a dividend and you've got storage costs and all that kinda stuff." Well, when the bank pays a negative 2% dividend, gold doesn't look half bad, does it?

Eric: It looks spectacular and, you know, to imagine that it could go well beyond the numbers we just talked about, okay. That's the thing. Once one of these things gets under a drive here what's to stop it at 1$750? What's the magic of $1750?

Craig: Right.

Eric: Gold got to $1,900 back in 2011. We've had the most incredibly loose monetary policy since 2011 and I think they basically put a lid on gold intentionally because the policy was so ridiculous. And I suspect we're gonna break out of it here and I think we have a very good chance of going to new highs. And don't even wonder what companies would make at $1,900 gold.

Craig: Right.

Eric: I mean, my goodness. Are you kidding me? You'd be talking 500% losing the stock. So get it, get in the game there.

Craig: Let...I wanna back up to that too, Eric. You mentioned this to me two weeks ago and I'd never thought of it this way before and it's such a fabulous...I mean, but basic point. And so I'd ask you to remake that point for everybody listening this morning in case they missed two weeks ago. You had mentioned that in an early part of a bull market and a move, the best place you can be are in those large producers like you said, like you just described, and I want you to explain again why but also I want the listener to notice that that's really what's been cooking here, the Huey Index or the GDX last Friday. They got beaten back and now they're well higher than they were even at their highs last Friday.

So explain to folks why those large companies can really show some serious strength early on in a move.

Eric: Sure. Well, a high-cost producer probably all in, you know. Their costs are $1,200 and he's making a $100 an ounce at 1$,300. Well, you go to $1,700, he's making $400 an ounce. His earnings have quadrupled. Quadrupled. What's his stock price gonna do when the earnings quadruple? I mean, you're gonna be...you're talking hundreds of percents here.

Craig: Right.

Eric: In a short time. It's the time thing. This is supposed to happen quickly. So the returns are phenomenal. They're all exponential and I'm just using $1,700. What if it goes to $2,000 and the guy's making a profit of $700 an ounce up from a 100?

Craig: Or Eric, even if you're making a dollar at $1250 you're making $2 at $1350 and if you're an institutional money manager, hedge fund manager and you're already reading stuff from Paul Tudor Jones and you're looking at stocks or a sector where the earnings are gonna double, I mean, that's starts to make pretty good sense.

Eric: It does indeed. That's what the beauty of gold stocks is. You know, in 16...I think it went up 160% in like six months. And the move from 2000 to 2011 was a 1,700% increase in the average stock. The average. Obviously many went up multiple thousands of percents. So this is what you're staring at, okay. This kind of risk-reward where...what's your risk here? They're so beaten up. These stocks are so beaten up that your risk maybe is 20% downside and you've got, you know, 200% upside. Well, that's a good risk-reward ratio to tack on here. So it all looks quite exciting. We've had good physical data, you know. The Chinese bought 16 tons this last month. They keep stepping it up. You know, they started at 10 or 9 I think. Then they went to 10, 11. Now 16.

Craig: Yep.

Eric: You know? Does anybody wanna take a guess at how much gold the Chinese could buy? You know, maybe they don't like the US dollar, maybe they got a big trade surplus, maybe they can buy, you know, buy all the gold in here as a sort of a trade war kind of antidote.

Craig: Let me ask you, Eric. You know, it's a very interesting position we're in this Friday morning especially after, you know, the selloff reversal last Friday after the employment report, you know, and then the predictable selloff that was coming Monday after the Mexican tariff news. But now we've completely reversed. We're above last week's highs. I know I'm looking at $1360 today because we haven't had a weekly close north of $1360 since March of 2013. So it's more than six years. Even if we don't...if that doesn't happen today, are you still excited about, you know, the potential for that happening obviously and what else will you be watching?

Eric: Sure. Well, I do believe in this, the fact that there's a new game in gold here. When you look at what the Fed's doing, when you look at what was discussed at the Chicago Fed meeting, the effective lower bound, what are we gonna do about the effective lower bound i.e. zero interest rates? Do we have a policy? How do we deal with this? Do we go and buy equities? Do we buy bonds? What do we do here? Because, you know, we gotta make sure the market doesn't go down. And of course their fiscal...sorry, their monetary looseness is gonna take everybody towards gold particularly if you're not American, because you're sitting there watching what's going on, okay. And whether you're Russian or Chinese or, you know, Turkish or Iranian or whatever, you're looking at gold as an antidote to monetary looseness in the United States as the reserve currency. And of course, in a lot of currencies gold is at a record high.

Craig: Right.

Eric: It might be at a record high in Canadian dollars, in Australian dollars, in Brazilian real. I mean, people have done well in those countries owning gold versus their junky currencies.

So people aren't stupid. They catch on after a while. Now it hasn't happened for a US viewer, but I think it's about to happen. So you better make sure you're getting on board.

Craig: Eric, before we wrap up this week though I'd be remiss if we didn't talk about silver. A lot of folks are noticing...I mean, what are we now? Greater than 90 to 1 on the gold, silver ratio which is probably...that's probably a topic for another day but what's going on there? But nonetheless, silver got up slightly above its 200 day moving average which would be a kind of a critical high-frequency trading or spec fund indicator last Friday then reversed, went all the way back down to $1463 on Tuesday and now we're back up to $1504. We know about the CoT report. All of the specs that are short. What's it gonna take for silver to finally kinda start playing some catch up here?

Eric: Yeah. Well, there are some...been some stunning data out of India. The amount of silver imported into that country has gone crazy. In fact, Steve San Angelo, who follows silver very closely, wrote a report saying that the exports from the United States to India have gone from 2 tons to 580 tons which is almost impossible to believe. How do you do that, right? How do you all of a sudden supply 580 tons to a country that you were supplying 2 tons to? So there's lots of compelling data in silver, in terms of the physical demand, and there was even commentary that a lot of people are now buying silver jewelry in lieu of gold jewelry. That might be because of the price factor I suppose but, you know, from a silver perspective, that's wonderful news.

So I think silver, when it goes here, it will outperform gold. I have just no doubt about it. So yeah. That's a...I haven't really focused much on silver stocks because silver stocks are hard to buy because there aren't many, unfortunately. But silver...I think silver looks great here.

Craig: You know, you mentioned...and we talk about the CoT report and all that kinda stuff and JP Morgan's big position on the COMEX and everything else but that...you know, it's the same substitution effect that we talk about, you know, that even the government statisticians talk about, you know, that instead of buying steak you'll buy hamburger. At some point, if gold does go to $1700, $1800, $1900, silver has to play catch up just simply from that substitution effect, people looking to buy something less expensive.

Eric: It would take so little money. I mean, we talk about maybe there's a billion ounces of silver. That's $15 billion. Do you know how small $15 billion is in the world of things these days? You know, what if the Chinese decided they wanted to buy some silver along with their gold? You know, that would just...like last month they spent what? I think they spent $500 million on gold. Well, what if they started spending that on silver? In fact, there was some commentary that silver demand in China was quite strong. I don't have any...there is no official data but there was that indication. There was an indication that the premiums on silver in India doubled this week versus last week and the funny thing about that is, you know, we keep hearing, "Well, the Indians are never buying unless the price is going down." Which I think is baloney because I think the Indians like everyone else...well, first of all, they're thinkers, okay. And the fact that the silver premiums doubled this last week is an indication of just how smart they are in terms of, you know, you gotta buy because we're not buying this for what's gonna happen in a week or two here. We're buying it for what could happen in the next two and three years and that could be one huge outsize return in silver and in gold for that matter.

Craig: Yeah. Lastly, as we wrap up, Eric there's a lot of US economic data. Later this morning we'll have the retail sales report which'll probably be out by the time folks listen to this. We'll see how that goes. But also then we have the Federal Reserve Open Market Committee meeting next week, Tuesday, wrapping up Wednesday with another Powell press conference. Just any lingering thoughts you have for listeners for things to watch out for and then we'll see how it goes by the time we talk next Friday?

Eric: Sure. Well, it's kinda shocking how it would appear to me, and many others, by the way, that the Fed is really watching the stock market, okay. It's not inflation and economic growth. It's the stock market and the bursting of the bubble which of course they created this incredible bubble that we are all quite familiar with. And so, you know, if the market, for example, is weakened to the Wednesday meeting hey, maybe they cut next week. If it just stays right here, they probably don't cut but I'm sure cut's coming. We see so much economic data that's really punky, particularly in the physicalness whether it's the freight indexes or, you know, rail shipments or things like the real, real economy. It's slowing down significantly and the Fed, I think, thinks their mandate is to keep the stock market up. So if the stock market starts following the economic data, which is weak, then we're gonna get rate cuts way sooner than people might've imagined.

Craig: Yeah, yeah. All right, my friend. I think it's probably time to wrap this up but I do wanna remind everybody, obviously it's gonna be a very interesting back half of this year and 2020. No better time to either begin a portfolio of physical precious metal or add to your portfolio. And you can actually do that with your registered investments to your RRSP account in Canada, your IRA accounts in the US. You can diversify those with physical gold and silver from Sprott Money. Just go to sprottmoney.com to check that out or, of course, as always, give us a call at 888-861-0775. Eric, have a great fun weekend. Try to stay out of trouble with the big victory parade that you know is coming. And then we'll look forward to getting back together next Friday.

Eric: Well, I hope we have a week next week like we have this week because it's all kinda coming together here. So it's been fun times again. So I look forward to next week.

Craig: Let's do it. And from all of us here at Sprott Money News and sprottmoney.com, thanks for listening and have a great weekend.