Why Gold Will Prove Its Mettle in This Environment - Weekly Wrap Up (February 28, 2020)

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Craig: Greetings once again from Sprott Money News and Sprottmoney.com. It's Friday February the 28th, which means it's time for your Weekly Wrap-Up. I'm your host, Craig Hemke and joining us as usual is a feeling better, thank goodness, Eric Sprott. Eric, good morning.

Eric: Hi, Craig, good to be with you. I don't know if we're up to the challenge to possibly explain what's going to happen because it's been chaos, needless to say, but we'll give it a whirl.

Craig: Give it a whirl. Hey, and here we sit on Friday, February 28. As far as I know, the PDAC Conference is still going off this weekend in Toronto. It is the largest mining conference in North America. If you plan to attend, don't forget to stop by the Sprott Money booth number IE3049 you get one of those little books, when you walk through there, you'll be able to find us. We'll be selling precious metals right there on the site. Plus, Eric, Eric that's you, will be presenting at 10 am, Toronto time on Sunday morning on how to build an investor toolkit. We hope everybody can stop by and see us. Eric, you mentioned, these are really uncharted waters. You know, it's not as if, you know, we can pull up the charts from 1918 and 1919 and go back and look and see how the markets traded through the Spanish flu. I don't know whatever historical comp there is. You, however, have a long history, lot of experience traded through 1987, 2000, 2008, I'm sure you've got some wisdom to share with everybody. I'll just let you take it from there.

Eric: Well, those certainly we're scary times as this should be a very scary time to most long investors. Of those, 2007, 2008, 2000, and 1987 of course 1987 was the worst one, because it all happened in one day and I very much can recall saying to my assistant, "You know if it stays like this, we'll be broke." Well, that was about 10:30 on Tuesday morning. It's crashed on Monday. And that's when the market started to rally. But that was I think we were down 20% in the day, something like that. So, that's hard to recover from. Although I wasn't too offended by it, because I could kind of see that NASDAQ was going to roll over might as well prepare for it. And of course, gold was bottoming then in 2000, so things kind of worked out okay there. 2007, 2008, was a little different, particularly for gold because at first they beat up gold, which seemed very counterintuitive to me for a while. And then ultimately, it's got its legs and of course went off to 1900 three years later, and I think in these kind of environments, ultimately gold is gonna be a winner. And we're seeing signs of that now with the markets down, whatever, down 10% or 12% and 15% and gold is, you know, when splitting this to the tie here and maybe it's down 2% or 3% for the average guy, from Scott coming in the last week, but it's held up very, very well relative to what we're all witnessing happening to everything else out there. So, I still believe that gold will prove its mettle in this environment.

Craig: Yeah, and that might be the best comp I guess is 2008, 2009 because a lot of us were scratching our heads, you know, you watch, what's the old pun or cliche is throwing the baby out with the bathwater, right? Everything just gets liquidated. But things eventually turned as things calmed down and Fed cash soaked in and, you know, all central banks were easing and things kind of lifted back higher. I wonder if we get to a more stable area after this first wave of virus passes, maybe things, I don't know. It's just, like I said before, Eric, it just seems like we're in uncharted waters.

Eric: Yeah. Well, there's a lot of things to think about. And of course, with the developments that are happening, it makes you think about new things. So, for example, one of the new things is well, what about the margin calls here? What about the leverage players? I mean, these stocks are going down so fast, you know, guys that are long, you know, whether business being long calls, whoa, you know, hello, that was pretty crazy. And this market. I mean, it's on a real dive here and you get to some point where, you know, plus 15% down we're gonna have forced selling. So, I wouldn't wanna be trying to step in front of this, as we've explained here for about the last four or five weeks. There can be disastrous effects from a world pandemic. And it does look like we're really, you know, set up for a world pandemic here. So, the last thing you'll wanna be doing is trying to get your falling knife in my mind, okay? Just make sure if you're margin, try to get off margin. Try to put a little cash away, make sure you own gold, things that can actually outperform the market. But I wouldn't, I don't think it's a time for bravery here. Stock market-wise.

Craig: You know, there are other things to worry about too. No question about that. Whether it's geopolitics, I'm sure you've noticed the situation that's going on in the Middle East as well. We got a lot on our plates these days. And again, as you mentioned, this is a time maybe to sit back and watch rather than try to actively be trading. I'm sure you observed what happened to the mining shares yesterday as well. It seems as if fundamentals don't matter in situations like this either.

Eric: Well, they are stocks unfortunately, first and foremost, and when you're in liquidation mode, of course not that, most stocks are winners so they're all easy to sell. But gold stocks seem to be a favorite. One thing that we should talk about, I really wanna update everybody on some of my thoughts on this coronavirus and the ineptitude of our governing authorities. I mean, I'm shocked at what's going on in the United States here in terms of, you know, you had that first local community infection. And I think the person went to a hospital on the 19th of February, four days later, they sent a test to the CDC and four days later they get the results. So for eight days, they didn't even know and I guess they didn't know there's a coronavirus going on and maybe we should check this, you know.

And then to find out that most states don't even have testing facilities, and then to find that the CDC tests are ineffective, and yet the powers that be tell us we're ready. I don't think we're ready. And even the stories we're reading about the people that came back from Wuhan, and the people that were treating them or marshalling them around weren't properly protected. And the people from that Diamond Princess. Like they're all horror stories, which are likely to lead to this pandemic that is going on. And of course, where it's going on, particularly South Korea is just totally out of control. Iran, obviously, was not reporting there are cases, when they should have been reporting. I mean, how many countries have had their first case that has come from Iran? There's about 10 countries just this week, where somebody from Iran went to the country and had the virus, including Canada, and that wasn't our first case. But, nonetheless, somebody from Iran did make it over here well after things had started, so it's kind of out of control.

Craig: Well, and that's obviously the issue. It is out of control. It seems to be growing out of control and no one really can measure the economic impact of what is going to happen. You know, you mentioned the kind of inept response in the U.S. I wonder if, Eric, what steps do you think the central planners will attempt to take in the days ahead? I mean, do you expect just the liquidity floodgates to open?

Eric: Well, that's an interesting question, one I've thought about. And of course, the question is, can actions in the financial arena or the fiscal arena affect the psyche during a pandemic? And I would kind of question that. I don't think that's the answer we're looking for, okay. What we wanna know is we're gonna be safe. We don't wanna keep learning that the odds of some kind of economic meltdown are going up by the day. So, I'm not so sure that, you know, if we found out that, you know, China was cutting rates or Japan was cutting rates that, you know, we're all gonna rush in and buy stocks. As this epidemic is not under control. So I'm a little skeptical that that's the answer to this particular situation here. And when it comes to the economy, one of the things that people should be aware of, do your own calculation of what GDP should decline by, if, as an example, in China, half a million people aren't working, the car sales are down 92%. And when some guy says, you know, "China's GDP is gonna go from six to four." I mean, you got to call them out on it, okay? We're not talking six to four here, we're talking six to minus 20 is what we're talking. That's what we're dealing with here. And of course, it could all get jammed up because of the whole interrelationship of logistics and supply chains and all those things. That one thing causes another thing to not function properly. So the economic consequences are very, very unknown. But when you look at the worst case situation, it could be incredibly dramatic to the downside.

Craig: Unfortunately, it certainly is trending that way. We know the stock market looks like it's gonna sell off again today here in the U.S. really one of the worst weeks, I think, on a percentage basis perhaps we've had since 1929.

Eric: Look I'm not trying to start a panic, but I think even the CDC came out and said, you know, "It's time to start preparing." Which means having the health care products that you'll need, having food supplies, water supplies, whatever, have a plan. I think all of those things are important to do. And it was very interesting when on Zero Hedge today they showed a picture of what was going on in Hawaii. The stores were getting wiped out of goods, you know, like it can happen so fast. So, don't be the last guy in the line here, the last guy to figure it out. And try to take some measure of responsibility towards a very strange and devastating event, you gotta take a little bit of precaution. And, yes, you know, when I think of the fact that maybe we should be talking about stocks well, man, the elephant in the room is the coronavirus, okay? And, you know, could we care less so, you know, the MacDonald Mines, a great earnings reporter that in a way the curtain might go down or any of those things. They just seem so trivial when you have a market collapsing, the stock market, I'm talking about the stock market now. That can be seen as health aspects and the economic aspects of this market going down. Everybody has to deal with that in some way. So make sure you're prepared financially and make sure you're prepared on a personal level.

Craig: Yes. And we did have a lengthy list of names for this week. Some of them we've covered as recently as last week, like Jaguar, if you wanna go back and listen to that. You mentioned MacDonald Mines apparently had fantastic drill results and that's, you know, worth noting. I guess, rather than try to go through some of these, because like you said the elephant in this room is, I mean, the fundamentals don't really matter in a liquidation based on these kind of unprecedented events. Does someone...we'll just leave it at this, if you have your favorites, is it worthwhile to kind of pick on a low number and think, "Okay, I'll put in a limit or a way down below things and see if there's..." Is it really, in your experience, better just to let things sort themselves out and then act, you know, once some stability has come back?

Eric: I mean, if somebody is a good trader, you could try to pick something off, okay? I know for myself, I won't be in there, I won't be the guy who's necessarily gonna stand in there and have bids in on all of my favorite stocks. It's highly unlikely because, you know, everyone's taking a bit of a beating here. You don't wanna step in there and make a mistake on top of the current mistake. And then now you're really gotta do some fast moving. So, and I'm not a trader, I'm a long term holder, I'm not gonna be selling anything. Although I, maybe I would if I saw a bid for something and I knew that I could switch from one to the other I might do something like that. But generally, I'm not gonna walk in there and choose to sell something, as I said, two weeks ago, I established some short positions on the S&P futures that have worked out very well. And I still think there's a lot of vulnerability for that market. So, and most people don't feel comfortable putting on shorts, but I've done that many times in my life and I don't feel uncomfortable doing so. It's just a tough time. And unfortunately, it would appear that the leaders of most countries are bumbling fools. They're just bumbling fools, whether it was China initially or Iran. Somehow something explodes in South Korea, don't ask me why, now we got Italy, Germany almost doubled their cases overnight. Like, what's happening here?

Craig: Yeah. Well...

Eric: There's no control.

Craig: And, Eric, you think of the trend last year, and actually for the past decade of kind of civil unrest and people from Hong Kong, right? France, you go around the globe. Bungled response to all of this might only exacerbate that in the weeks to come too.

Eric: I'm not hopeful, I don't wanna give anybody a suggestion. You got race in here and grab some value, it could get a lot worse before it gets better.

Craig: Right. And as we close, it is now, New York Stock Exchange is gonna open in about 20 minutes, the S&P futures are down 57 points, Eric.

Eric: Wow.

Craig: Gold's about $10 off its low, silver apparently is desperately trying to catch down to copper, down another 60 at some odd cents. Look, it's going to be a very interesting time. There's not, and again, I almost hesitate to turn this into a commercial for precious metal, but, they don't go away. And they retain their value, not only as investments but as money for millennia. And so, we'll wrap as we always do by pointing out that Sprott Money is where you wanna go to add to your stack, what are now heavily discounted prices from even earlier this week. We've had our signature sale going on this entire month, it is about to end as the month is almost about to end. But there are 25 products currently on sale on the Sprott Money deals page, but, really, only for the end of the month. So don't miss out on the final days, or even just today of the Sprott signature sale. Visit the deals page at sprottmoney.com. Find some great products, including RCM 100 ounce silver bars. Of course you can store metal with Sprott Money as well. This is the time to be preparing for what is really the great unknown.

Eric, didn't I just say the S&P futures are down 57, now they're down 64. We should probably wrap this up and get this posted. I wish you the best, I hope your speaking engagement at PDAC comes off just fine and stay healthy my friend.

Eric: Yeah, and I wish all the listeners the best too in both markets and in life.

Craig: And in life. Hopefully we'll meet again next Friday and see where we are then. For now, though, Eric, I think we'll wrap up. I hope you're able to have a great weekend. Use your time wisely. Obviously prepare for all of this unpredictable stuff, and we'll talk again next Friday.

Eric: Absolutely. Okay, great. All the best to you. Bye for now.

Craig: And from all of us at Sprott Money News and sprottmoney.com. Thank you for listening. Have a great weekend.