Weekly Wrap Up

When you contemplate negative interest rates, I would rather own Gold…- Weekly Wrap-Up (May 31, 2019)

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May 31, 2019

With global equities taking the plunge, bond market turmoil, talk of negative interest rates and a bullish COT Silver Report, the future for Gold and precious metals just keeps getting brighter.

Add to that the threat of Mexican tariffs and the push for a Gold-backed currency in Malaysia and you have the makings of an exciting Weekly Wrap Up.

Eric cheers on the Raptors, chimes in on Gold and answers some of your questions this week on the Sprott Money Weekly Wrap Up.

WWU SPECIAL: Next week’s WWU is all about you! We’ve been getting a lot of questions for Eric from our Sprott Money customers recently, so next week’s WWU will be a dedicated to answering our listener’s questions.

Ask Eric a question by following us on Twitter (www.twitter.com/SprottMoney) or Facebook (www.facebook.com/SprottMoney) and post to us using the hashtag #AskEricSprott

For more info, contact us at submissions@sprottmoney.com.

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

Craig: Well, greetings once again from "Sprott Money News" and sprottmoney.com. It's Friday, May the 31st, 2019 and it's time for your weekly wrap up. I'm your host Craig Hemke and joining us, as usual, this Friday is number one Toronto Raptor Fan, Eric Sprott. Eric, good morning.

Eric: Hey, Craig. Good morning. A bit of a late night last night with the game starting at 9:00 Eastern. But obviously, to a Raptors fan, it was all very, very worth it.

Craig: Oh man, I got to tell you that took a lot of people by surprise. It's got to be exciting up there. A lot of basketball fans now.

Eric: It's crazy exciting up here. That's all I can tell you. It's very...of course, they have the whole country behind them because we only have one team.

Craig: Good point.

Eric: So it's good all over.

Craig: That's fun. All right, speaking of fun, we're going to try something fun next week. We get questions for Eric from time to time. So we're going to turn next week's Weekly Wrap Up into a kind of a Q and A session. Eric will answer all the questions that get sent in, on this, I guess we'll just call it the Audience Q and A Weekly Wrap Up. So please, if you have a question you'd like to run past Eric, we'll try to get to all of them next week. You can send them to this email address, submissions@sprottmoney.com or you can tweet it @SprottMoney on Twitter or Facebook using the #AskEricSprott and we'll get to that next Monday.

And again, while you're at sprottmoney.com, check out the Deals tab for all kinds of wonderful opportunities, things, you can pick up some [inuaudible 00:01:44] today and you want to pick up, boy, and this is a time to be adding to your stack because we are right on the edge of what's going to be a very interesting back half of 2019. And Eric, it looks like things are turned around here. Gold now, above its 50 day moving average, threatening to put a 13 on the front of its price again. How do you feel after a pretty eventful week?

Eric: Yeah, well, it was pretty interesting how it all played out. And Craig, I'm going to start off with an article that was published, I think it was on Wednesday. It was on Kitco, and it's by a gentleman named Chris Vermeulen and I've sort of read his stuff, he's a technical analyst. I've read his stuff from time to time, and my recollection is that he's not been very up on, or inclined towards owning gold in the last little while, which of course is an appropriate thing because we went from 1900 down to whatever, 1050. But he wrote an article saying that in November of last year, he predicted that gold would bottom somewhere between April 21st and 24th this year, which it did. And he said, "It's time to buy right now." It's on Wednesday now. Okay. And I'm reading this thing and then wow, that's sort of interesting that he would have nailed that thing.

And then the predictions for where the price would go, the price in his mind was going to go to 1450 in 5 to 7 weeks. Wow. What would that do to precious metal stocks if that happened? And then he did say that, he says, "We believe the next price advance will be bigger than the previous wave," and likely it was on a price target in the range above 1650. Wow. And then he goes on to say, "The next upside price move could target the 2,100 to 2,400 level," if it extends into what he called the complex advancement wave. And he says, "That would mean Wave C, which you are now in, and well above 2,100 and that Wave E, which would be down the line, would target the 5,000 level or much higher."

Now, you know, I find those numbers and targets rather interesting. Okay. And the only reason, well, the reason I say that is obviously a move even to 2,000 would provide unbelievable returns to people who are invested in shares and/or the metals for that matter over the next year. So I'm in it obviously, and I care about things like that and I'm not a technical guy. But, so I read this on Thursday morning and I'm like, "Well, okay, let's go look at the price of gold. Gold's up 8 bucks today. Wow, that's really interesting and there's no real new reason for it." And then, of course, I dial it up today and what was it doing today? Well, it's up 7 or 8 bucks today and the future is over 1,300. Whoa, maybe this guy's onto something here. Maybe we are beginning something. And of course all the reasons for it, we've explained before. Okay. And there's just more and more reasons every day. To me, the biggest reason, by the way, is when you contemplate a world with negative interest rates, which is hard for me to even get my head around negative interest rates. But you got to think, you know what, I'd much rather own gold than have to pay someone to put my money in a bank.

And I can't be the only guy thinking that. So anyway, that was a very interesting article. It's still available on Kitco go for anyone who wants to read it. And can you imagine what you and I are going to be talking about if this thing should play out as he's suggesting. And by the way, it's playing out as he was suggesting.

Craig: Yeah. Yeah. Well, you and I will be pretty popular guys every Friday, while that's happening.

Eric: We've had seven years of bad road, okay?

Craig: That's for sure. Well, and just as we've survived and everyone listening to us has survived, like you said, the mining companies that have survived are lean and mean and ready to roll if that were to happen.

Eric: Well, there's so many opportunities out there. I sort of almost salivated thinking, man, some of the things you could buy and men, by the way, you want to buy a high-cost producer when the price of gold is rocking. So, for example, if you buy a guy whose cost of production is 1,200 and the price is 1,300, he's making $100. If the price goes to 1,400, he's making 200, he doubled his profits, he doubled his profits. So there's a lot of companies that have low-grade deposit, high cost mining that would come onto the playing field of value. So that's what you...if this plays out the way that it suggested, that's where you want to be for the most action. You're getting lots of action at for example at Kirkland Lake Gold because the margins are so crazy anyway, but, you want real torque, you look for a high-cost producer.

Craig: Exactly. All right, let's kind of come back to present day here for a minute, Eric. There's a lot going on here this week. We had announced overnight that President Trump now is thinking about tariffs on Mexico. The equity markets around the world are plunging, the US S&P 500 looks like it's going to open well below its 200 day moving average today. And the bond market is just going bananas. A two-year note yield here in the US now, under 2%, which implies the Fed is at least 50 basis points behind. They got to cut Fed funds by 50 basis points just to get the yield curve to be, you know, flat again to slightly sloping. We've got a COT report that is extraordinarily bullish for silver. Can you comment on all these different things?

Well, it's a lot of things to comment on, but as you know, we've talked many times about certain signs of slowing down. Last week was the PMIs, housing, autos, intentions to spend on CapEx. Imagine running a company today in the United...based in the United States and having to make a CapEx, decision. What do you do? I mean, you got fights going on with every country in the world. Your currency is strong. Interest rates are almost nonexistent. I mean, how do you decide what to do? You don't even know what might broadside you, like the decision to, not the decision, but the suggestion. They're going to put a tariff on Mexico. I mean, it's just...I don't know how people could possibly make long-run decisions in an environment like that.

You mentioned the Comex. I mean, it was shocking and to go back to that article about maybe gold's bottom. And then I wake up also on Thursday morning, and they tell you what happened to the open interest on the Wednesday, the Wednesday. It plunged by 60...actually net ended up being 50,000 contracts, but it fell by 10% in one day. Ten percent, and I'm sure it was all the commercials covering shorts. And we're already at almost a break-even situation for the commercials in terms of ownership of precious metals, long and short. And I wouldn't be surprised when we get the Commitment of Traders today that these commercials will have gone long the two metals, which would imply wonderful things for gold and silver. So the Commitment of Traders data, the open interest, it's all been very, very favorable for gold. And, of course, the economic backdrop is so uncertain that you can certainly understand people wanting to put a little bit of gold in their portfolios.

Speaking of which, we had a couple of central banks this week announced they are going to get into the stacking gold game. And what about this announcement out of Malaysia? That probably caught your eye too.

Eric: It did for sure. Let's deal with that. The president of Malaysia said that the Asian countries should have their own currency and it should be gold backed. Wow. By the way, there's more Asians than there are anyone else in the world, okay? And collectively, I'm sure their economies are probably bigger than any other trade area, as I think last week I commented with the size of the Chinese economy, like way bigger than the U.S. in my mind. I mean, just way bigger. I don't care about the dollars. I care about steel cars or things that are food, stuff like that. So that's a big group. It would be incredible if we actually had a gold backed currency. So yeah, that was interesting. The fact that both the Philippines and Serbia Central Bank said, "Okay, we're going to buy gold too," adding to the list of all those other countries that are buying gold.

And we had a very large number of gold buying in the first quarter. I think the number was something like 145 tons that the World Bank said the central banks bought in the first quarter, which is not normally that strong a quarter, it was up I think 20% year over year. So that sort of thing. I mean, and you start adding on other banks. I mean, when is it funny that the bank who isn't doing it says, "Why am I the only guy not doing this?" You know, and you get this groundswell, now everyone's going to buy it. So maybe they'll leave and get Canada to come back in and buy a little bit of gold because we don't have any here, okay? Anyway, I'll look forward to that day.

Craig: Oh, before I get to the two questions that we have this week just to kind of kick off what we're going to do next week, can you address...I saw a headline this week about Kirkland Lake and some kind of royalty they have to pay or something like that. Can you tell everybody what that is?

Eric: Yeah, sure. The state of Victoria in Australia announced that they were going to have a 2.75% royalty on gold production, which for the most part it only affects the Fosterville mine as the biggest producer in that state. And the stock sold off because of it. That was on a Monday, New York was closed, stocks all down a couple of bucks in Canadian dollars. I would put it this way. Our margins down there are actually pushing 90%, okay, 90. So fine, they take 2.75, which bothers me deeply, but it's like 3% of our margin. So it's not a killer move for us. I wouldn't want to be the guy that's producing gold at 1,200 and selling it at 1,300 and a guy comes along and says, I'm going to take 3% off the top, which would be almost 50 bucks. That would hurt. But for [inaudible 00:12:45] with the margins that they have, it's not significant. It does bother me however that why do they pick on gold companies? You know what? You know who everybody should be picking on? Banks. They're the guys that make all the money. Are you kidding me? Banks are the guys that make all the money.

Craig: Obviously Kirkland Lake isn't aligning the pockets of the right Australian politicians the way the banks are.

Eric: Yeah, exactly. Yeah. We don't run. In fact, we were blindsided by it. We had no idea about that. So anyway, there we go.

Craig: All right. Well, like we said at the beginning of the show, we're going to collect questions all through the week. You can send them to the email address of submissions@sprottmoney.com or you can use Twitter or Facebook with the #Ask EricSprott. Let's just wrap up with a little taste of that with two quick questions this week. First one comes from a gentleman named Brian, who said he saw you in Sydney, Australia a couple of years back. And part of the topic that you discussed was Western Australia gold area, that Pilbara and Novo, but he's also interested in Artemis, which actually I'm interested in Artemis. I got some of that stuff. It's gone from like 10 cents down to 3 cents. Do you know anything about Artemis?

Eric: Well, I don't know a lot. I mean, I'm actually a shareholder of based on the Pilbara thing working out. The Pilbara thing has been very slow. It's been very choppy in the sense that when Novo came out with their first assay results, they were spectacular and then subsequently they've been much weaker. And it would appear that, you know, the permitting and the money being spent on actual exploration has slowed down dramatically. Artemis is a little complicated because they have a mill down there and I think actually will treat nickel ores and a few other things. I'm not really intimate with it, but they're tied into the whole Pilbara. And the Pilbara, unfortunately for me and many others, has a kind of cooled out because we haven't got the kind of grades that we might've anticipated when the whole thing ran. And you can have all the gold in the world, but if the grade's too low, you can't mine it. And so yes, there's lots of gold in Australia in the conglomerates. We don't know how economic it will be to mine it yet. So that's why these stocks had been under pressure.

Craig: Okay. And then just one last question. This comes from, doesn't have the guy's name on it. Anyway, he's curious about Wallbridge, which you've mentioned before quite a bit. He says, they're continuing to expand their footprint in their area 51 gold discovery and now we know why the UFOs were there. They're looking for gold. Anyway, area 51. Now this guy interpreted the press release as good news, but the market did not. Do you have any thoughts on that?

Eric: Yeah. Well, I think I've commented on that before. They had two holes that they extended that were in area 51. Well, first of all, they had to good holes in area 51 that they announced. Then they extended two previous holes into area 51 and those holes came out with I think something like 0.36 and 0.48 grams of gold, which is not really, it doesn't really excite anybody. But at the same time they extended the dimensions by two other holes on either end, one on the northwest, one on the southeast to 700 meters from 400 meters, and both of those holes had visible gold, but we don't have the assays yet, okay? So I am hoping that this is going to be very much a Detour Lake lookalike, Detour Lake I think ultimately had 23 million ounces, low grade, but just around the gram ton.

And we've had holes well above a gram and then those two holes that were less than a grand, but if you can average out of the gram, it actually is quite mineable, but [inaudible 00:16:46] it's large. So that's the hope that we will get other holes released. Hopefully, the visible gold showings will cause the grade to pop up a little. And of course, we can always revert to, if we have visible gold, it's normally in a shear zone of some sort, which could also be mined underground. Though some of us might prefer the, you know, the 20 million ounce ore body open-pit. But they do have the high grade starter operation that they're proving up as we go. And of course now they're drilling deeper and they're getting some very interesting intersection in area 51. And it's a question of whether there's the...it's going to be sort of a high-grade underground mine or a low-grade open-pit. Time will tell but I'm obviously very optimistic that we'll have the latter.

Craig: Well, there you go. And I'm obviously very optimistic that this is going to be some kind of back half of this year. We are following along just as we did in 2010, and it was in the back half of 2010 as the Fed reversed, started another program of QE and all that stuff, the gold went from 1,160 to 1,420, which is right along the lines of what you said that Chris fellow was projecting. So we should...

Eric: I'd like 1,450, maybe 1,650, maybe 2,100 to 2,400 maybe 5,000.

Craig: I think that works for all of us.

Eric: I'll take them all.

Craig: All right, Eric. Thank you for your time. I hope you have a great weekend.

Eric: Okay, great. You too, man.

Craig: And from all of us at "Sprott Money News" and sprottmoney.com, thanks for listening and have a great weekend.

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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.