June 5, 2020

Gold and silver are down this week, thanks to a “miraculous” economic recovery. But on a street level, the outlook is much different. In this edition of the Weekly Wrap-Up, host Craig Hemke and Eric Sprott break down all the gold and silver news you need to cut through the noise, including:

• Why “nothing good is happening” despite the numbers
• The catalyst that might break price out of the current range
• Plus: Eric’s thoughts on the shares

“The riots were better than expected. The job numbers are better than expected. Interest rates have gone up, which is undoubtedly better than expected. Everything’s better than expected! So, you know, you have to buy stocks and obviously sell gold here, because things are going so well! … I’ve always said I don’t ever believe these employment numbers. Never have, at any time. And of course, now I just find it totally ridiculous to think net jobs were up in May. I’m just shaking my head at it.”

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Transcript

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

Craig: Happy Friday from Sprott Money News at sprottmoney.com. It is Friday, June the 5th of the year, 2020. And it's time for your "Weekly Wrap Up." I'm your host, Craig Hemke, and joining us today, as usual, is Eric Sprott himself. Eric, good morning.

Eric: Hey, good morning, Craig. It's going to be a very interesting morning. We've had a miraculous turnaround on the economy here in May, so I hear, this morning. So we better chat about that.

Craig: Miraculous is one sure way to put it. Hey, and just to remind everybody as apparently, things are turning around, businesses are coming back online or getting some semblance of normalcy back. Just want to remind everybody that even though shipping precious metals continues to be an insurance risk with the COVID-19 legislation, you can still purchase precious metals from Sprott Money, or you can simply call us (888) 861-0775. We'll ship your metals to you as soon as it's safe to do so. You can also store your purchase with us, in safe, secure locations throughout North America and Internationally. If you want to learn more again, sprottmoney.com, or call us at (888) 861-0775. Eric, I've been on vacation all week. When I left, last Friday, gold was pushing towards 1750, and silver was pushing toward 1850. And I looked this morning and gold's down back below 1700 and silver's back to 1750. What did I miss this week?

Eric: Well, the riots were better than expected. The job numbers are better than expected. Interest rates have gone up, which is undoubtedly better than expected. Everything's better than expected. So, you know, you got to buy stocks and obviously sell gold here, because things are going so well. So, we'll just have to watch that play out here. For those who don't know, the job numbers was theoretic. Well, it was reported as up 2.5 million jobs in May. So, you can forget each week's unemployment insurance claims that came out in May that probably added up to 15 million. Those people obviously don't count in the jobs numbers, I suppose somehow, which sort of goes back to I've always said, "I don't ever believe these employment numbers. Never have at any time." And of course, now, I just find it totally ridiculous to think that net jobs were up in May. I'm shaking my head at it, but anyway, that's what's reported. We have to live with it. And I guess unfortunate, the bond market has to live with it too as rates have shot up from probably 65 basis points beginning of the week to 90 basis points this week nothing untoward come out of that. Everything is good in the land of just keep your fingers on the buy button here and things seem to go up all the time. So, we'll have to work our way through that.

Craig: Well, it sets up an interesting next week then apparently because the Fed is going to meet again on Tuesday and Wednesday of next week. Be curious to see what they have to say about all of this.

Eric: Well, they're going to have a bit of a tough time here with rates having gone up in the 10-year, I'm talking about 10-year yields here. And of course, now that the economy is so strong and the market's so strong, perhaps there shouldn't be any QEs. Of course, what would the ultimate effect be on that to the real economy that isn't recovering? That's going to be a hard little two-step for those people to work through when everything theoretically is so great in the financial markets. But then again, that's just about, you know, the ECB, the Fed, the BOJ and everyone else spending all sorts of money buying various asset classes, and I can guarantee you at street level, nothing good is happening. So, someday we're going to have to have a meeting of minds here to decide whether things really are better or are they not better?

And I don't know how anyone can conclude that they're better. I don't think they're better for one second. And I've said this many, many times, I hate this word, we beat this, and we beat that. And you know, we're going to obviously, get better economic data. It can't get any worse. We're like down 40% in GDP, probably. So if you're down 38%, it's better. If you're down 36% it's better, but it's not exactly a V recovery. So, there's lots to be concerned about. The China thing just seems to get worse by the day. The U.S. dollar is almost tanking here, although maybe data that the U.S. dollar will strengthen, you know, let me just look and see what's going on. It's up eight basis points, but it's in the 96s now. You were away for a week, you weren't watching, and probably, when you left, it was in the 98s, and now it's at the 96s. So, there's been some weakness there.

Craig: Doesn't seem to help though. That's for sure. What did I miss this week on COMEX, and with ETFs?

Eric: Well, there's been lots of excitement in the precious metals area and certainly on the COMEX. We've had huge deliveries of gold contracts and continual buying of the June contract. So, we're going to have even more deliveries than when you left. We're going to have, I think we're already in the forties of thousands of contracts delivered, which is well north of 120 tons here. And the open interest is not even going down by the same amount as the deliveries, excluding the EFPs. So, in both silver and gold, between the deliveries and the exchange for physicals, the open interest does not go down. I still believe that the guys that are short are hung here. They can't get off the contracts, and I monitor it every day, and I'm not disappointed whatsoever.

I think there was actually one day when the silver open interest was down, but you know, you get deliveries, you get the EFPs. I mean, it should be going down because the contracts are leaving the COMEX and going over to the LBMA, but they're not going down at the same rate. So, I think everything looks pretty good on that front. The ETFs had a record month in May. The gold ETF, I think added 154 tons of gold. There's only 200 produced a month. And between that and 120 tons that the COMEX theoretically is delivering this month, I mean, of course, we have that account for well over, you know, 150% of the monthly production right there. So, I think there's a distinct tightness, and it's a matter of the fight that goes and in the pits to see whether the commercials can extricate themselves from the shorts. And so far, they haven't been winning, but the price has gone down, which they can always do. They should be able to knock the price down almost at will. But did you cover your short? No, you did not. You had to use some ammunition to knock the price down.

Craig: You know, that's a good segue into one of the questions that came in this week, Eric, about this current range that we're in, you know, we got all the way to 1789, 1790 back in the middle part of April, which is now almost two months ago. And we've been kind of in a range ever since between about, oh, let's call it 1680 up to 1760, but the year is young. I mean, it's still only the first week of June. The question I want to know, I mean, what do you think could be a catalyst later this summer, this fall, to kind of break price upward out of this range?

Eric: Sure. Well, I think there's two catalysts and they might be somewhat interdependent. But I honestly believe, you know, I've always been a believer that stock value should be a function of return on investments. You know, you're looking for some company to have a return on investment. And I suspect when we see these profit numbers and the outlooks for these corporations and realize how shallow, if any return on investment is available there, that I think stocks ultimately will succumb. And of course, the other thing that would play out, and a separate thing, but also interdependent is all those physical situation where people are diversifying out of stocks, maybe they'll start diversifying out of bonds. But these huge sell-off in bonds here, and where do you go? I mean, stocks are, essentially, at all-time highs. And as you know, there's been a great trend by many advising, including JP Morgan came out last [inaudible 00:08:58] gold be over-weighted. I don't know when the last time was that that was done, but so, there is this recommendation to get into the gold. I think it's obviously, the place to be with all the worries that we should have is watch the physical tightness and just the non-V-type recovery that this market's obviously hoping for.

Craig: All right. I noticed that the shares moved a little bit this week, but with higher, I'm sorry lower metal prices. The share has been under pressure. I'm sure there've been some that have caught your eye as we've gone through the week. Anything you want to point out?

Eric: Well, really there's not a lot new. And so, there hasn't been many real drill results that have come out. So, there's not much I can comment on there, but I will say that I just want to explain one of the things that I do and I'm sure the listeners would appreciate, I'm kind of playing with the house's money here, but I am looking for things that can far outperform what the general precious metals equities will do. And that's kind of where I've been focused recently. Things that I've been sort of reinitiating my involvement with. Bought some Tudor and Teuton, the two companies that are involved in the Treaty Creek up in the Golden Triangle. The drilling sounds to me like it's going to be pretty successful up there. And of course, we're hoping for very big things, again, the tens of millions of ounces. So, I still have a big interest there.

I've mentioned Freegold Ventures before. I think they'll probably get back into the field, hopefully, before the end of next week. There could be some very fast results there because both the holes that they ended up with, ended up in gold. So, they're going to go right back into them. And I think they'll know very quickly whether they have significant results in silver. I still like Discovery because of it's billion and a half silver equivalent ounces. And of course, there's hope that the price of silver will surprise very, very much on the upside. And of course, Walbridge, we should be getting some results somewhere along the line from old drilling that they've done and maybe we'll even get some results from some of the new drilling, but the ore body continues to shape up, and I just think that it's larger.

So, I'm kind of focusing on those because I think that's where the gain will be the largest. There's other things one can buy. So, for example, you know, Jaguars is going to be good as a producer. Pure Gold Mining should be very interesting as they're getting close to production. But those are not [inaudible 00:11:47.500] that are going to go up by 5 and 10, and who knows multiples of that times if these other fellows hit big where they're drilling. So, that's kind of where I'm focusing and looking for the large gold ring, not the small gold ring.

Craig: And Eric, you mentioned Walbridge late last week, it might've even been Friday last week, suddenly it spiked in price and then a couple of people were wondering what that was, and I'm just reminded of it now, can you...?

Eric: Yeah. Well, it was put into the Morgan Stanley small-cap index. And it was kind of bizarre on the Friday because I think it technically closed at a $1.23-$1.24, something like that. And then, it reopened at $4.10 and ended up closing... And what happens, when you go in an index, there's what they call a market on close. And they announce it like 15 minutes at a time that there's an imbalance of the market on close. And I forget what the imbalance was, something like 7, they needed 7 or 10 million shares, and people lined up to sell it based at 4:00 at the close, and when they first closed it, they didn't get enough shares. So, they had to reopen it and it went to a higher price. So, it's because it went in that index.

Now, my understanding is it has a very good chance of going into the GDXJ index, which will be announced very soon. And my understanding is that that might cause a need for people to buy 20 million shares of Walbridge. So, that'll be interesting to see exactly how that plays out, but these index changes, of course, they work both ways. Novo went out to one of those indexes and sort of got crushed on the Friday. It's back up again. So the ones that go in go up, and the ones that go down kind of get hammered. So, at least when you're sort of in an uptrend here, typically, the odds are you're going to get included into, you know, more and more significant indexes as your market cap rises.

Craig: And as funds come into the sector, people continue to get excited about owning precious metals, kind of that rising tide lifts all boats and those ETFs as well. Eric, it should be an interesting week next that's for sure. I don't know where we'll finish up today, but obviously, it's going to be probably red all the way through the close. But we'll get that Fed meeting next week, and it'll be curious to see what they have to say. I look forward to talking to you next Friday as well. Between now and then anything else that'll be on your mind?

Eric: It's sort of, you know, I presume the insanity will prevail because I can't believe the number. I can't believe in any of the jobs numbers. I can't believe that anyone intellectually would discuss how good the jobs number was. Okay? I mean, we get a report every week of the jobless claims including last week when we had claims of, I think it was 1.8 million or something. Who in their right mind would think that we had net jobs added in May? I mean, that is such a farce and it's, unfortunately, something that we all have to deal with. Right?

Craig: Yeah.

Eric: And those of us in the gold and silver space, precious metals, always seem to be at the back end of that, the losing end of it. But ultimately, you know, sanity will prevail someday. So, fingers crossed we'll look forward to a better week next week.

Craig: Yes, we will. And again, on your way out, just remind you to stop by sprottmoney.com. That is your number one online bullion source for not only metal but also precious metal storage. Always can find great insights there and also some deals. Again sprottmoney.com, or just call us (888) 861-0775. Eric, thank you so much for your time. Maybe by next Friday, we'll have more fun things to talk about rather than what we had to deal with today.

Eric: Sure. Well, welcome back and get to work, Craig.

Craig: Yeah, I'll see what... I think that's what the problem was. I wasn't watching this stuff all week, Eric. I've got to have my finger on the button too.

Eric: See you then.

Craig: All right. Thank you, Eric. And thank you everyone for listening. Have a great weekend and we will talk to you again next Friday.