Nov 30, 2018
After four straight years of rallies in December, is it time to make it five in a row? Eric Sprott returns this week to break down all the gold and silver news you need to help your wallet. In this edition of the Wrap-Up, you’ll hear:
• Why there’s no logic in the COMEX
• What the latest Fed moves mean for gold
• Plus: How one bank “never loses money” trading silver
“Typically, the guys who run the COMEX—which is the Commercials—always end up that the price is at what we call ‘Max Pain.’ Max Pain is where the individual investor loses the most money. And, of course, the converse is that the commercial banks make the most money. And that’s probably about where we are right here, around 1220 on gold and 1430 on silver. I’m sure there’s not many people making any money on any puts and calls they’ve written. Because, of course, you pay a big premium, and meanwhile we’ve ended up with very little movement.”
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Man: You're listening to the Weekly Wrap-up on Sprott Money News.
Craig: Well, hello again from Sprott Money News and sprottmoney.com. It's Friday, November the 30th, 2018 and this is your weekly wrap-up. You're host, Craig Hemke and joining us as usual, once again this Friday is Eric Sprott himself. Eric, good morning.
Eric: Hey, Craig. Happy to be here. Kind of an interesting week in many respects, both for the financial markets and gold. Unfortunately, we haven't really made a lot of progress here but we haven't given a lot back either. So it's looking better.
Craig: It is looking better. You're right. And as we head into the new year, things often tend to turn upward. We've gone upward in price four years in a row now in December and into January. So it's a good time to add physical. That's what we do at Sprott Money. And the Sprott Money folks have a very exciting offer for everybody this week. This is Eric's favorite, man. It's the two-ounce Queen's Beast series. This one featuring the Black Bull of Clarence Silver Coin. It's not on clearance. It's the Black Bull of Clarence, and it's available at a special price.
It's the fifth release in the Queen's Beast series, to add this coin to the exciting ten-coin series collection by the Royal Mint. Visit SprottMoney.com. Or call 888-861-0775. We do have Clarence for a takeoff into the end of the year. We've watched out, Eric, a lot of open interest as we've gone into the contract expirations this week, with option expiration, the contracts going off the board. How do you feel as we turn the corner into December?
Eric: Well, I kind of laugh as we talk about the COMEX. And I mean, it's the same old drill, right, where you have this big, open interest going into the, typically the December contract. And all of a sudden, right near the last few days, it gets flushed out. And of course, the whole insanity of us thinking that, you know, there could be, let's say 40 tons stand for delivery, and there's 4 tons available in the COMEX, and that's what's been available for about the last half year, 4 tons. And I don't even know how many tons we trade every day but we probably trade, you know, hundreds of tons of gold every day, and we're sitting there with four tons of physical dealer inventory at the COMEX.
And then, we have to listen to how all these tons were shipped off overseas for exchange for physical. I think you did some work where it came up to, like, 8,000 tons were transferred from the COMEX to London settlement. I mean, the numbers are so non-believable. I just don't even know why we think there's any logic to what goes on at the COMEX, because it never seems to make any difference one way or the other. As you point out, we have the COMEX options expiring, and then deliveries expiring and the first notice date today will be today.
And typically, the guys who run the COMEX, which is the commercials always end up that the price is at what we call, max pain. Max pain is where the individual investor loses the most money, and of course, the converse is that the commercial banks make the most money. And that's probably about where we are right here in around 1220 on gold and 1430 on silver. I'm sure there's not many people making any money on any puts and calls they've written because of course, you pay a big premium. And meanwhile, we end up with very little movement, which is perfect for a guy writing options. That's what you want. No movement.
In fact, I always think about people who buy and sell options. If you buy an option and there's no movement, you typically lose 100% of your money, which is kind of a funny thing to invest in. I've only done it a few times. I've lost a few times and those losses have told me, "You know what, Eric? You should never do that ever again." And in fact, when I took the [inaudible 00:03:59] training program about a millennium ago, they said that something like 90% of individuals in the option market lost money. That was back then. That's before spoofing and AI and all the other little things that go on now. And what would the number be today? You know, probably 99.9% of the people in option markets lose money.
So anyway, I yes, caught the delivery, things should happen. Typically stocks run up here mid-December on. I would guess that the gold and silver would run up post the first notice date today. So I think we're in pretty good shape. And of course, we've got some economic things to talk about, and maybe I should launch into it here.
Craig: Go for it.
Eric: I mean, we had Chairman Powell talk about what we're just a little below neutral. I think that was the word, a little below neutral, which of course suggests to everyone that we didn't need a lot of rate increases. Whereupon the stock market reacted appropriately, and of course, the gold market reacted appropriately. That's the first 30 minutes. And then of course, well, we can't have that going up, you know? We got our December contract to settle here. Let's get that thing back down and under control, even though, you know, the market was taught to believe that a lessening of future rate increases would be good for gold. We haven't accomplished much since the fed announcement, even though the market has accomplished wonderful things since the Fed announcement. But that's just the nature of, you know, how the gold market acts so differently than other markets because it's controlled by people. But anyway, the fact is that, you know, post the December expiree here and with Powell suggesting we are just slightly below neutral, I think the playing field has been cleared for us here, and we should see some pretty good action.
Craig: Yeah. Historically now again, it has been four years in a row that price has bottomed right around that December FOMC meeting, middle of December, and then rallied into the new year. So we're going to shoot for five in a row, and it sure looks like the decks have been cleared for that with all of this open interest getting washed out. Eric, you mentioned the banks which obviously control just about everything these days, every market, whether it's the stock market, the commodities market, the bond markets, the Forex markets, the banks that have their dirty little fingers in all of it. On my site, we call them the evil ones or the forces of darkness. There's a couple of interesting things happening though, whether it's German authorities raiding Deutsche Bank. It began yesterday, it continues today. Whether it's the ongoing Department of Justice investigations into JP Morgan here in the States. I know that stuff's got your attention too.
Eric: Well, it has and I do credit Ted Butler as keeping this topic in front of people. And I think it is very material. I mean, this is the Department of Justice. This is a trader who's pleaded guilty. This is a trader who said he learns his techniques from his superiors, who did these trades that his superiors approved. This is an investigation that he had co-conspirators. And so, we're going to hear something about the co-conspirators, which I might suggest might be other investment banks and the whole, you know, acting together for max pain that might go on every day here.
And as Ted pointed out, he believes that JP Morgan has been covering their short position, by the way, because of their involvement in this and the guilty plea from their former employee. So I think we're going to have a, I think a sentencing, I'm not sure whether it's December 6th or 19th, something like that. And it'll be interesting to see what the judge at the time has to say, and perhaps if there's more information provided about the co-conspirators. But there's no question that markets are manipulated here. I see it every day and I just can't believe that the authorities think this is a good thing. I mean, it's not good when the average investor loses money and the 1% of investors, the major investors make money.
When I think of some of these Algo traders that never lose money, JP Morgan theoretically never loses money trading silver. I mean, how do you do that? Well, you know how you do it. You're rigging the system somehow. So yeah, I think the Department of Justice doing their thing, Deutsche Bank with their investigation, I mean, that stock's hitting new lows almost every day now. It's almost at a point where the market cap is really too small to re-energize. I mean, what price do you raise the money and how much do the existing shareholders get diluted with the stock trading at eight Euros? I mean, it's pretty significant here.
So we have those things to worry about. I mean, the world has been built up on debt here and we all know that zero interest rates and debt are not going to work in the long run. It's only a question well, when does it break. And then, we started seeing signs of that in October and November. Then we came out with the Powell announcement, and yes, we got people going the other way. But that could end very, very quickly here, as the reality of the slow down becomes apparent to people. And I think there's going to be many, many more signs of that going forward.
Craig: Eric, finally today, you've helped us out a lot for people who had been listening to you for the last year and a half when you occasionally get a chance to talk about Kirkland Lake, where you are chairman of the board. And I think you first started mentioning the company back in the summer of 2017, I think, during these weekly calls. And it has been by far hands down the best performing mining stock in Toronto or really anywhere. Seems like some more good news came out here either, I guess, late yesterday or today. I don't know. Just thought I'd check and see if you wanted to comment on that.
Eric: Sure. Well, I do want to talk about it and I'm talking as the chairman of Kirkland Lake Gold. I'm not recommending the stock, but I will talk about it. But before I get to Kirkland, there is just one other little company called Sokoman Iron that I've been involved with. They had some pretty good drill results, actually after a call last week. And so, I didn't get to mention it. And I did meet with the president, Tim Froude, yesterday. And that kind of looks interesting, the holes that they drilled and the visible gold so far. So that's one for people to keep their eyes on.
But let's talk about Kirkland Lake because Kirkland Lake announced that the production from Fosterville in this year, sorry, yeah, for the year, the production's been increased to 330,000 ounces from 300 to 310. So obviously, all of that is occurring in this quarter. So we have been estimating 70 to 80,000 ounces. So now, we're estimating a minimum of 100. And that's important to understand that the announcement was that we will exceed 330,000 ounces. Okay? Undefined.
Now, the more important thing, and I want to read from the press release so that people understand what's going on, we continue to see significant grade outperformance from stopes in both the Swan and Eagles zones. We've also benefitted from higher than expected grades when processing development tons taken from around the Swan zone, and have been able to add two Swan stopes to the Q4 '18 production plan based on development meter. The higher than expected grades from both development and run of mine production, along with exceptionally high grades reported from recent drilling results provide confirmation that the presence of high-grade quartz veins with visible is more prolific than estimated in the current block model.
That is a very, very crucial statement, and we don't know the answer to this yet. But I've been quoted before that sometimes when you cut things, when you cut the grade for conservative purposes, particularly when you have a high-grade system, sometimes the cut is over-aggressive. And people may recall that we think the grade is 62 grams in the Swan zone. But that's a cut grade. What's the real grade going to be? And as Tony Makuch has pointed out, we got higher grades in the stopes. We get higher grades when we're developing toward the stope.
So it's a pretty special ore body. If we do 330,000 ounces for the year, that implies a hundred in the quarter. Four quarter average, we might take it to some number next year. And we just started, just started in the Swan zone. So people should think very long and hard about how things might be going at Fosterville. Because it's been wonderful so far. The stocks obviously perked up a little here in the last few days, pre this announcement. I hope we can get back to our old highs because we're certainly doing well.
Craig: And the chart looks great. From a technical standpoint, it's come downhill its 200-day moving average a couple of times. And now, yeah, it looks like it's turning up. And it has been a great story, and you can only imagine if we have a better year next year with gold prices, which certainly looks almost assured compared to this year. If we get a better year next year, gosh, not only, you know, can this stock outperform in a down year, gosh, you only imagine what it could do next year when interest returns to the sector. So I want to thank you for keeping us all updated on this great idea because it certainly has been a lifesaver this year.
Eric: It's worked out. And whenever you compare it to other major gold plays, I mean, it's been hands down, you know, the star of the last couple years. And I hope that that trend doesn't stop.
Craig: All right, my friend. One last thing. Besides your favorite, again, that Black Bull of Clarence silver coin that's on special today, you got to go down and get some of those. Add to your stack with those things, Eric. We also have the 2017 special edition one-ounce Voyager silver coin, and it's on sale. This one is on sale. Call us, 888-861-0775 or go to sprottmoney.com for more info. Now, this one's only available for Canadian listeners, and limited quantities are available. So don't mess around, give us a call today and add to your stack before prices head back up in 2019. Eric, thank you again for your time today. I look forward to talking to you again next week but in the meantime, I hope you have a good weekend.
Eric: And you too Craig. It's been fun.
Craig: And from all of us here at Sprott Money News and sprottmoney.com, thanks for listening. You have a great weekend too and we'll talk to you next week.