Weekly Wrap Up

“Bizarre Things Happening In Gold And Silver.” What You Can Expect In 2019 - Weekly Wrap Up (Dec 14, 2018)

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Dec 14, 2018

Hot on the heels of last week’s positive gold news, the metal is down 1%. As we close out one year and look ahead to the next, Eric Sprott returns to tell us if we can expect the roller coaster to continue in 2019.

This week on the Wrap-Up, you’ll hear:

How gold and silver markets are being manipulated

Why a rally in mining shares could be just around the corner

Plus: is the U.S. government headed for bankruptcy?


“We have these recent rallies that we get early in the mornings, only to find that they’ve faded away. Which is typical of a bear market, right? It used to be that the market would be weak, and then along comes 2:30 in the afternoon, and from 2:30 to 4:00, things would go up. Now, from 2:30 to 4:00, things go down. Which is what you would expect in a bear market, when people are seeking liquidity.”

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

Well hello once again from "Sprott Money News" and sprottmoney.com. It's Friday, December the 14th. It's time for your weekly wrap up. I'm your host Craig Hemke and joining us, as usual, this fine December morning is Eric Sprott himself. Eric, good morning?

Eric: Craig, good morning. Not a great week for gold, silver, probably okay. Some interesting things going on in the stock, some interesting things going on economically. Lots of things to discuss.

Craig: Lots of things to discuss. We will begin to look ahead to 2019, I'm sure today and in the weeks to come. And it's just something for the folks need to know, that the folks at Sprott Money are starting to look ahead as well. We've got a very exciting offer, just in time for the holidays. All of our 2019 products are now available. So we can look ahead to 2019. You can begin to look ahead to 2019 as well. If you want to pre-order anything, just visit sprottmoney.com or call 888-861-0775. Eric, you mentioned it has been kind of a frustrating week. We went out last week on a high note, but yet gold is down now about 1%, silver is down about 0.5%. But the stock market looks like it's in a little bit of trouble as we record here on Friday morning. What do you make of all this?

Eric: It does. And, of course, it's had these recent rallies that we get early in the mornings and only to find that they've faded away, which is typical of a bear market, right? It used to be that, you know, the market would be weak. And then along comes 2:30 in the afternoon, from 2:30 to 4:00, things would go up. Now, from 2:30 to 4:00, things go down, which is what you would expect in a bear market. When people are seeking liquidity, people realize that... And I think the biggest feature is that the central banks are going to discontinue buying bonds, some are selling bonds, the Fed, but the ECB announced that at the end of December, no more bond buying. And, of course, all logic would tell you that the stock market went up because the central banks were supplying money to the system by buying bonds. Well, now we're doing the opposite. And, of course, the stock markets have reacted in an opposite fashion.

We've got many markets that are in bear markets here, stock markets around the world. Most of the emerging markets are in bear markets. And we've got, basically, no return on the U.S. stock market and sort of threatening to end up with a pretty weak year here if we don't get it together. We did discuss last week about the CTA is at certain levels where they might sell. One of the critical levels, I believe, was 25, 74 on the S&P. I think, after the opening today, we'll be within about 25 points, so that's a 1%. If it goes below that, it could unleash a lot of selling here. And I think, generally, you know, we have more and more well-known financial thinkers that really believe that with the central bank's doing what they're doing, we're heading for trouble here and the market seemed to be reacting to that.

Craig: What did you think of those comments this week by Janet Yellen? She had assured us years ago when she was the head of the Fed, that we wouldn't see another financial crisis in her lifetime. And now all of a sudden this week, she's talking about a looming financial crisis.

Eric: Yeah, including...what was the word that she used, "Giant Holes." Giant holes, that's pretty drastic kind of measures or description to use for parts of the bond market, and she was referring to the bond market. And really, probably, more correctly, the leverage loan and the high yield markets, which I think are now under pressure here because, of course, where you first feel the lack of bond buying is in the bond market. And so far, it's kind of held up because there's been weakness economically. And with economically, these people tend to buy Treasury. So the Treasury market has held up. But it looks like the leveraged loan market, high yield are vulnerable here. It looks like there's been some serious liquidation there, that people fear that that's not the place to be. And then maybe those are the giant holes that she's referring to. And I think all logic would suggest that someone who used to buy, whatever the number it was, a 500 billion a bond and now becomes a seller of 500 billion a bond, that's going to be a market that has a very tough time adjusting. So it looks like there'll be elements of the bond market that are going to face some severe stress here.

Craig: You know, we're moving toward the last couple of weeks of the year, Eric, and things start to get quiet, but not next week. We still have to get through next week before we can spread some holiday cheer. There's a lot coming up next week. We've got the FOMC, where they will likely have a rate hike, but who knows for sure? Maybe a looming U.S. government shutdown coming next Friday the 21st. And we have maybe an interesting court decision coming up next week too. You wanna comment on those three?

: Yeah, sure. Well, first of all, if from the Fed... What a lot of people are looking for...what the Fed is, this one and done. In other words, a rate increase in December and language that's dovish, which suggests that, depending on incoming data, we may or may not raise rates further and that we're kind of close to the neutral rate. So I think that's kinda what the market's expecting. I think if they didn't use that language, the stock market might take a severe hit here. So they better use that language. And, of course, if they do use that dovish kind of language, it could be very interesting for gold and silver because they tapped into the rally, post these rate increases, and be even more so if we all thought that there were no more of them coming. So we have that to look forward to. We have on... Yeah, the possible shut down on December 21. I mean, President Trump has suggested he might do this if he doesn't get some cooperation from the Democrats. Those two words don't seem to work together, do they? Cooperation and Democrats, I don't see that happening. So, that could happen and, of course, that would...who knows what repercussions that would have but none of them would be good.

And, of course, on December 19th, the Department of Justice case against the J.P. Morgan trader will have its sentencing decision. And one would hope that, in that sentencing decision, maybe some of the details of exactly what was going on and who all was involved, and whether J.P. Morgan...who this gentleman worked for, should also be held accountable. And as you know, Ted Butler, who writes Butler Research, has suggested that J.P. Morgan has been manipulating the silver market for the last 10 years, at least, never loses on their Comex trades, somehow is the biggest short, yet is the biggest buyer of long physical gold, which is a bit bizarre. So, hopefully, something might come from that. And that could dramatically alter how people look at silver and perhaps gold because as, you know, most of us who've been around the precious metal area has seen these bizarre things happening in gold and silver. And most places where we've seen something bizarre happen in any financial market, it turns out that somebody was manipulating it. That's just the way it is. I mean, it's almost the business of banking is to manipulate things. So that December 19th should be very interesting for all of us to see exactly what details come from that sentencing decision.

Craig: Is tar and feathering still a sentencing option, Eric? Is that some...?

Eric: We wish, right? We'd run out of tar and feathers.

Craig: Good point. Good point. All right, so now as we move into the end of the year, we've got tax loss selling that we have to deal with, but the shares look like they're perking up. We had some... It looks like the who index, things like that, a number of the big mining shares are very close to breaking out. We're kind of at an important technical juncture. In the last five years, Eric, five years in a row, prices of gold and silver have rallied out of the mid-December timeframe and into January. Think we got a shot to make it six?

Eric: I would certainly expect a rally here. I mean, the stocks have had such a very, very difficult time this year. And there were losses incurred, of course, even though they rallied recently. So there has, undoubtedly, been a lot of pressure, and probably most of it has already been expunged. So I would think that, post the last trading day of the year and maybe a little bit before that. Typically, it happens, you know, mid-December-ish, that the gold just start elevating, it's almost like they're in a vacuum and up they go. So, I would expect the same thing really, this year. So...

Well, we can hope for that. We can hope for that. And like you said, as we go into next week, the main event will be the Fed and the FOMC. It will be interesting to see. Like you said, everybody should keep an eye on the stock market too and the bond market. It will be very curious to see how things get digested. One last note that I know you want to point out to everybody, was the latest U.S. government budget deficit numbers, which don't seem to matter to anybody anymore besides maybe you and I.

Well, you'd think it would matter to the bond buyers, okay? Somebody has to fund this thing. And the deficit for November came in at 205 billion, way up from the previous year. In fact, for the first two months, I think it's something like 305 up 50% above the year before. And the interesting thing about the November numbers is the expenditures were up 18%, and the revenues were down 1%. That's a formula for bankruptcy in any other company. Okay, if you treat it like a company, you can't have expenses go up 18%, the revenues go down 1%, particularly, when your expenses are already double your revenues anyway. So there might be a much, much bigger budget deficit coming the way of the U.S. this year. I think we've all seen a bit of a crazy spending down in Washington. And, I guess, to placate everyone, you know, to placate the Democrats, you got to go spend this over here, in order to get what you want over there, like building your wall in Mexico and whatever. But all of it just adds up to more and more spending. So, yeah, that's a big number. If I was a bond owner, I'd be very concerned with the size of that deficit.

Yeah, you know, I remember in 2011, the last big surge in gold came with political discord, the U.S., remember the U.S. credit rating got downgraded and that was all part of it. There were government shutdowns, there were debt ceiling concerns, all that kind of stuff. I just wonder if there isn't that same kind of toxic stew being cooked up for next year with, again, all these investigations of Trump and the soaring deficits, and falling revenues, and everything else. It'll be interesting to watch.

Eric: Well, there is a lot of toxicity in the system, okay? I mean, there's a lot to be concerned about here, who's kidding who? I mean, the lack of cooperation in Washington, the whole swamp cleaning thing, I mean, the stories of, you know, misspending and so on. The 21 trillion that gets spent that doesn't even get accounted for, the unfunded obligations of 200 trillion. I mean, it's just...it's like, there's no escape here. Okay. And the thing we never know is exactly...but when does it really collapse on itself. But we know it's going to collapse. With those kinds of data numbers, I mean, you know where it's going to end up going, so it won't be good.

Craig: No, that's for sure. That's all going to be a big story next year. But, of course, here on December 14th, we got to start talking about wrapping up this year. Anybody still has any holiday shopping still to do, we've got a great offer for you and something exciting. We talked about this last week. And there's still time to take advantage of it. Sprott Money, of course, has our exciting Holiday Catalog. It's one of the most look-forward-to things we have all year long. And now we have this giveaway that goes with it. Again, we talked about this last week, but there's still time to get in on it. Anyone, anyone, can make a purchase from a Holiday Catalog and they'll be automatically entered for a chance to win five Sprott's Silver Rounds. That's a pretty good deal. That's about $100 Canadian value. All you got to do is go to sprottmoney.com, make a purchase, and you're automatically entered for a chance to win those five Rounds. That's pretty cool deal. You can go to sprottmoney.com, of course, and you can always call us too, at 888-861-0775. Eric, I tell you, it's going to be an interesting week. I think our conversation next week, we're going to have a lot of stuff to talk about.

There will be. And I should. I haven't mentioned anybody, any stocks, but I should mention Kirkland Lake Gold here only because one, I'm the chairman and two, the stock's done sort of amazingly well in the last month or so. And, of course, they've done three things. It came out and they revised their production guides up so much that I think they were suggesting we're going to do 945,000 to 1,000,000 ounces in 2021 and big numbers in the years leading up to it. We increased the dividend from 3 cents Canadian to 4 cents. And yesterday, we announced some more pretty stunning results, drilling results coming out of the swan zone down in Australia. And it looks like the kind of grades are intersecting, which are like out of this world. Ultimately, hopefully, will result in an increase in the expected reserves and the grade of those reserves at the Fosterville Mine. I should also mention, there is another little company I've spoken about a few times called Sokoman Iron, symbol is SIC in Toronto. And they announced a hole this morning that had 5 meters of 124 grams, which is pretty impressive.

That's over 4 ounces of gold, which does...not too many people have holes like that, particular, over 5 meters. So it looks good. And I've always thought that there might be a new sort of gold camp there in Newfoundland. And it looks to me like there's a bit of a gold camp developing there because a company called Marathon's found 4 million ounces and Sokoman's sort of Northeast of them has seemed to be finding such, so people should take a look at that. And, of course, if people have good results our Kirkland Lake, you can get pretty considerable performance is Kirkland Lake. About 6 weeks ago, it was trading at probably 18 U.S. I don't even know what the U.S. price is now, maybe it's like 25 or 26, something like that. And because I look at it more in Canadian dollars, but it goes something from $24 to $33 in change. So, you know, you can make money in this market if you got the right horse. So, it's always worthwhile to keep looking for those opportunities.

No doubt about it. You began mentioning Kirkland, I believe back in the summer of 2017, was about $8 U.S. And yeah, as you said, hit new all-time highs this week at about 24 and a half, almost 25. And with all that good news you're mentioning, sounds like it might have a little ways to go too. So thank you for the update.

Eric: Yep, all the best. You have a great weekend and look forward to the next Friday.

Craig: It will be a fun conversation, I'm sure of. And, again, thank you, everyone, for listening. And from all of us here at "Sprott Money News" and sprottmoney.com., can have a great weekend. We'll talk to you next week.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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