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Weekly Wrap Up

Quarter End: Reasons To Own Gold Look Great - Weekly Wrap-Up (March 29, 2019)

Head Shot of Eric Sprott Weekly Wrap Up

March 29, 2019

It’s the end of the quarter for financial institutions today, but what effect will that have on precious metals? Eric Sprott breaks down all the week’s gold and silver news in a wide-ranging discussion you won’t want to miss.

On this edition of the Wrap-Up, you’ll hear:

Who got squeezed at the end of the quarter

Why the mining sector is struggling

Plus: The effect of the Mueller report on gold

“I think the most important feature of yesterday’s events was that we have quarter end today for the financial institutions. Let’s just focus for a second on palladium. There were about 2.5 million ounces of palladium that they were short; they had lost a lot money on that. All of a sudden, palladium is down 200 bucks, somebody is better off by 500 million? 500 million? For quarter end? Oh, how wonderful! Gee, we made it to the end of the quarter and didn’t lose that 500 million… I think quarter end had a lot to do with this.”

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

Craig: Well, hello, once again from "Sprott Money News" and, it is Friday, March the 29th end of the first quarter already of 2019. This is your "Weekly Wrap-Up". I'm your host, Craig Hemke, and joining us, as usual, is Eric Sprott himself. Eric, good morning.

Eric: Hey Greg, what a very interesting week we had this week and lots of things to talk about in the big macro.

Craig: I suppose that is true. And end of the quarter being the optional terms there, that also does place us very close to the tax deadline here in the U.S. If you're kind of holding off till the end and you're looking for additional deductions, you can always fund an IRA account. And here for our American listeners, did you know that you can add physical gold and silver to your IRA? Just open your self-directed precious metals IRA account with Sprott Money before that April 15th filing deadline. Sprott Money is associated with a company called New Direction Trust, makes it all happen. So, just simply give us a call at 888-861-0775. You can open your own self-directed IRA account with Sprott Money and own physical precious metal.

And man oh, man, you and I love our physical precious metal, but they do not love that paper derivative precious metal at this point, I guess if that's even a term. We're down about $10 on the Weekend Gold, sure feels worse than that. Silver's down about 30 cents. Like we said, it's the end of the quarter, and the April contract, which was the front month was going off the board, and the positions need to be rolled out of those into the June, and so on, and so forth. Eric, what do you make of what's transpired in the last 48 hours?

Eric: Well, you know, it's interesting. I think, the most important feature of yesterday's events, was that we get quarter end today for the financial institutions. And let's just focus for a second on palladium. There were about 2.5 million ounces of palladium, that they were short, they had lost a lot of money on that. All of a sudden, palladium is down 200 bucks. Somebody is better off by 500 million, 500 million per quarter-end. Oh, how wonderful? We made it to the quarter and we didn't lose that 500 million. That's booked out right now. So, I think the quarter-end had a lot to do with this. And I think it might've more been around palladium than it was around anything else, quite frankly. Because that's where the biggest change in dollars happened. Although silver was pretty good, too, right? I mean, we lost, you know, a good solid 50 cents in silver here. And I guess, what's the short position on silver? We're talking 500 million ounces or something?

Craig: Yeah, at least.

Eric: But that's not insignificant, either. That's another 250 million that we get to extend then pretend. And it's awful that it happened. You know, the guy just beat up in the COMEX, and the paper, and you know, the notice is that you know, you got to put up more margin on your palladium, for example. And of course, the guy doesn't have the margin and away we go. And the route begins. So, it's fortunate that today so far as the gold update, but I don't know specifically the way it's updated. It might be because the personal income number was weak in January, which would indicate more likelihood of studies. I mean, there's nothing that changed in the narrative, okay. There's nothing. I mean, the whole...the Fed 180 thing was still well in play. And here we are, Fed's gone 180, we got a lower gold price now, which is very, very hard to believe.

But you know what? It's COMEX. It's a bit of a joke. We'll all find out later, what the real supply-demand situation is. And of course, on that front, I think things look great. And of course, the reason the dollar isn't looking great, the reason to not want to own government papers to look great, even though the government paper is well on demand, I think that the banks, because their margins get compressed with these low-interest rates, have to make money somewhere else. So, they make it in the bond market, in the stock market, the commodity market, and, you know, who can we...which customer are we going to squeeze this day? And unfortunately, for us, it was the precious metal customer here at the end of this week.

Craig: That's exactly right. And I think you absolutely nailed it. If you're going to mark all those positions here at the end of the quarter and you're short, you can make things look a lot better if you get prices down before the quarter ends. And as we discussed, the rolling over, you know, if you're short, say 7,000 April contracts, and you want to establish that same position in June, one of the things you can do, because you're a bank, and the CFTC lets you get away with it, is to put that 7,000 contracts short on in June out of the blue at say, 9:40 in the morning, back on Wednesday, let price get smashed, let the speculators then take over and liquidate. And then all of a sudden you...then you can cover your 7,000 April's maybe and save yourself 20 bucks. I mean, it's remarkable how it works, Eric. And that nobody seems to be bothered by it. And it really even to this day, it's still accepted as a legitimate way of determining the price of the physical metal. Isn't that just astonishing that people still fall for this?

Eric: It's awful and I think it's awful in a way to think of, you know...I mean, there's a lot of people employed in the mining business, and the mining business is shrinking all the time now, right? And of course, it's shrinking because the margins are getting tighter. The cost of doing business is inflating dramatically, probably goes up 5% to 7% every year. So, yeah, it's very difficult to have sustained mining business with the price going from 1,900 down to 1,300 and costs going up all the time. That's why most companies report losses.

And, one of the things that I find interesting is, I see companies reporting a six, you know, all in sustaining costs and all in sustaining cost is whatever, it's 600, or 700, or 800 bucks. And then when you get to the earnings statement, the know, the accounting principles accepted earnings statement, and there's a loss, you know. They seem to report losses in this. And, I've become a non-believer in all in sustaining cost because there's lots of costs that aren't included in that. Of course, the biggest one is depreciation, which is really the charge you got to take for the capital you've invested in these projects, which you have to repay. And depreciating, you know, cents is part of that. So, it is a legitimate charge, even though it's a non-guest charge.

But, you know, that's just your capital being returned. And if you didn't return your capital, which a lot of these big mining projects don't return the capital, you end up having to report a loss. So, it's been a tough time for the mining companies and their employees, and I was going to say the managers. Maybe not so much to the managers, right? Because they seem to have done okay in the midst of not producing very good results.

Craig: Before we get to some of the mining shares, what else did you see this week, Eric that caught your eye, that you think is significant?

Eric: Well, of course, the Mueller report coming up is significant, okay. Because there's such a bifurcation in the United States over Trump. And to think that there was no basis for some charge against Trump after whatever it is, two or three years. And of course, the [inaudible] media focusing on this thing. I mean, I can hardly believe I had to listen to it every day. Of course, I don't listen to it every day. But I have a family member who listens to it every day, who might happen to disagree with that. I think it was such a phony trumped-up charge that the Democrats were trying to find a way to explain the loss of the election that was staring at them right in the face, Hillary Clinton, and they couldn't accept it. So, I think that report coming out is probably going to change a little bit of the narrative going forward here because they have to kind of dump that thing.

I think the other thing that you got to question here is this whole China trade deal. I mean, how many times we've been told we're close to a deal, we're close to a deal? You know, it's gone on for a while now. And I'm hearing signs that, "Oh, we're not close to a deal. Oh, by the way, we have time here. We don't have to do this thing quickly." So, I'm a bit of a skeptic on this trade deal. And that's going to be a tough thing to hammer out. I mean, you're dealing with these Communist Chinese, who kind of have been eating your lunch, and you want them to roll over and play dead. Well, I'm not so sure that that's going to be an easy thing to pull off, even though they have all the right intentions. But I don't think it's going to be easy, particularly when you start dealing with you know, intellectual property, things like that. Oh, my God, not even you trying to write the document. That could get scary. So, that keeps being pushed out. Really the market hasn't done much this week.

Who knows that people will lose confidence in, well, we saw the personal income numbers, which were disappointing...the spending numbers, which were disappointing. Things like housing was weak. We're going to get to auto sales here, I guess on Monday or Tuesday. It'll be interesting to see what goes through. But I don't think they're going to be impressive. So, the economy seems to just keep slowing down here. That's why we had the Fed 180. And that's really all there is to say in the matter.

Craig: Yeah. Well, let's turn to the shares then because there was news on a whole bunch of individual companies that you and I have discussed from time to time over the know, however many months that we've been doing, it's years, I guess. Anyway, anything you'd like to add on some of that stuff you've seen this week?

Eric: Well, I'm not sure that there was anything really significant to talk about this week. Maybe you noticed something, but I certainly didn't notice anything. Okay, okay, just kidding. Just kidding. Okay. Well, let's deal with the decision by the chairman of Kirkland Lake, myself, not to stand for reelection.

Craig: Yeah, that guy.

Eric: That guy who happened to be 74-years-old, would be in the 75th year as this was unfolding. And he was not much of an administrative-type guy anyway. And you know, these things take a lot of time, these board meetings, and particularly when you're chairman, you got to read every document, and cross the T's and dot the I's and all that stuff. And anyway, I think I'd had enough of the board life. I think we accomplished at Kirkland what we needed to accomplish, and still will accomplish a lot more. I'm a very major shareholder. I'm not the largest shareholder [inaudible]. I still hope to have some input there. I spent a lot of time as you know, studying the gold market and the CEO, Tony Makuch and myself will certainly be staying in touch on what things are going on that look interesting.

And I think it was almost better for me to be separated from the company because I'm in a way a bit of a competitor of the Kirkland because I'm looking for things just as they are. Being an individual, I can actually react faster than a company can. Although as I'd pointed out to the company, the one beauty of being the company, you know, you can go in, and sign the CAA, and get all the inside information, and then act. Well, you know what? I can't. I don't get the inside information. I'd be sent to jail.

Anyway, we'll have a harmonious relationship between us. The company should have a very good quarter. Of course, they're going to have a great year. Everything's in place. I guess the one thing we haven't quite accomplished yet is to find that second swan zone down in Fosterville. But that is a great ore body. And I do hope that the price of gold gives us a big break this year, which would be great for lots of things that the company's involved with. Because even we have some marginal operations that we may bring back into production with the right price of gold. So, anyway, that's my comments on Kirkland.

We had a drilling release from the Amex Exploration. It was good. It was a step out whole. We need more. It was really suggested that there's...We'll have a commercial mine there. RNX reported their annual results and their MBNA was out. And they announced that they want to make a takeover of a milling operation on Australia. I found that disappointing myself because that means they get to spend $50 million in cash and stock to buy that mill, when quite frankly, we're not even sure they have a mine. So, I would not have done that.

Craig: Maybe they are.

Eric: The stocks...Yeah. Well, I mean, obviously, they should have competence in the ore body. But there's not enough information out there for us to have the amount of confidence that they might have because it hasn't been well explained in my mind. So we'll have to standby on that one. One more comment on Wallbridge Mining, I was reflecting a lot on one news release, which I probably read about 10 times. That's the one that came out on March 22. And I want to quote from this. And because they had a core that was 275 meters, I'll just quote because I want to learn to read these news releases. And it said, "The visible gold-bearing shear zones and other abundant mineralized veins over an approximate 275-meter core length in FA-19-05 increase our competence and the potential of this discovery."

Well, we had six visible gold showings and a number of abundant mineralized veins over 275 meters. I'm thinking, "Oh my God, that is a very, very, very wide intersect." That's not a long strike. That's a width thing. So, this could evolve into something quite significant. But we couldn't say that yet, because it's very preliminary. But, boy, if they ever had to dig in a hole like that, 50 or 100 meters away, it would really set this company up for exciting things. So, a good one to stay mindful of.

Craig: Well, that's a lot of information for an old retired guy. Do you just kind of keep all that stuff piled up next to your rocking, chair?

Eric: Well, I got people helping me. Believe me, I get touted on all the stocks out there. Okay. And I kind of enjoy it. But there's only so many winners every year. Because, you know, we don't create that many new minds as you know. But when I do find them, I kind of want to be a little bit ahead of the curve.

Craig: Well, now that you have a little more time on your hands, I look forward to having you be my research guy because that's great information. And clearly, just one of the reasons why people should listen to these "Weekly Wrap-Ups" every week because you get it straight from one of the biggest names and smartest guys in the business. One last reminder, again, it's March the 29th. That means you've got a little over two weeks if you're an American citizen to get your taxes done. You need that last deduction. And I think everybody needs as many deductions as they can get. Look into opening an IRA account, fund it with Sprott Money. And of course, you can add and own physical precious metal in your IRA. Just call us at 888-861-0775 for more details. Eric, the quarter is over, let's start quarter two. And we'll see where we head as we get deeper on into 2019.

Eric: Well, let's hope that we can get some kind of recovery going here with the, after this decline that we had yesterday. And I'm pretty convinced that everything is together. So, we'll all stand by and let's hope we have a good close here today.

Craig: Let's do it. Have a great weekend, my friend.

Eric: Okay. Thanks, Craig.

Craig: And from all of us at "Sprott Money News" and Thank you for listening. We'll talk to you again 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, 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.