A Heck of a Year in Gold and Silver - Weekly Wrap Up

Male: You're listening to the weekly wrap-up on "Spot Money News".

Craig: Happy Friday from "Sprott Money News" in sprottmoney.com. It's Friday, December the 11th 2020. And it's time for your weekly wrap-up. I'm your host, Craig Hemke. And joining us this week is Eric's old friend, Bob Thompson, who is a senior vice president and portfolio manager at Raymond James in Vancouver. The good news is, Eric is planning to be back next week. But we very much appreciate Bob sitting in one last time, Bob, thank you so much for spending some time with me,

Bob: Hey, I really enjoy the time that it's been in the show here. And I'm looking forward to Eric being back to hear what he has to say.

Craig: Yes, I'm sure he'll have a lot on his mind next week, no doubt about it. And again, if you like our podcast, make sure you subscribe to whichever channel you're listening to, and maybe send us a like, as well. And if you have any questions for Eric next week, you can always send them to the email address submissions@sprottmoney.com. We won't get up to a lot of specific minors this week, but we'll try to get back on track with that with Eric next week. Bob, I know you've got a lot on your mind. As a portfolio manager, you got to keep track of all kinds of macro pictures and micro pictures and try to do the right thing for your clients. Here we are, it's been about four months of price consolidation. It has been agonizing and difficult for a lot of folks. But I mean, we still had a heck of a year in both gold and silver. How do you see it at this point? And how do you help people maintain that perspective?

Bob: Yeah. It's a great point you bring up there, Craig, because you really got to know your topic well, right? That's the thing. And they say stock market corrections or when stocks are returned to the rightful owners. So basically, people who don't have the understanding are gonna be selling out, right? And that's happened a lot. And it makes these corrections a little bit worse. So, let's go over what's happened in the last few months here, I talked about I read this little publication called the "Gold Digger", right? And I talked about it three months ago, and I said, we're in a bull market for precious metals here. And it started, you can say, started a year and a half ago, or actually, if you wanna go back to 2016, it started at that time, but it's going to continue on. But we get these pretty severe corrections along the way. And usually, these corrections happen when we have periods of excessive optimism. So, back in September, we had excessive optimism, I was getting emails from mutual fund companies telling me about their precious metals fund three times a day. And actually, at the time, I thought, oh, boy, oh boy, this is probably a short-term, top here. And sure enough, it rolled over. And we've been in a consolidation phase here. So, now we're starting to get negative, right? People are coming out and saying, oh, bitcoins it's gonna do this. And gold is not gonna go up anymore. And I like that, right? Because we're starting to get negativity into the sector. And when things are negative in a bull market that's usually pretty good time to start accumulating. But it's been a crazy time here really, right? I mean, I have a chart in front of me here that shows consumer insolvencies in Canada over the last five years. And it just went off a cliff. What I mean is that nobody is declaring bankruptcy on the consumer side here in Canada. Now, everybody has been bailed out.

Throughout 2019, consumer bankruptcies were going up, we were actually going into recession. But this recession has been so bad, that they've poured so much money into the economy that everybody's cash flows have gone up, everybody's making more money now, they have multiple income sources, you have income sources from the government, income sources from their job, income sources from other areas. So, incomes have actually gone up, you'd never know we were in recession work, we should be in a 1990 1991 sort of situation. And a lot of people don't remember that time. But that's when credit really really really was tightened up because that's what banks do in a recession. Interest rates go up, where it's harder to borrow money, right? People that are over-levered go bankrupt or can't pay their bills or have to shuffle things around to pay their bills. And that's actually a good thing. But here we are, again, consumer bankruptcies in one of the worst recessions that we've had in decades, is actually gone down dramatically, which nothing makes sense. And I've talked about that before. When I said, "It's this perverse situation, where, when bad is actually good, and good is actually bad." What I mean to say that is the worst that this COVID effects were, the more the stock market went up, the more the liquidity went up, the more people spend, the more these IPOs run in the US. And actually when things get good and we start to grow again, we might start to see some severe weakness in the economy, but then again, they could just put in another trillion or two trillion dollars.

Craig: Right. What will you be watching in the macro, Bob, as we roll into 2021? I'm reading again, all these analysts saying, oh, the bond market bubble is gonna burst. I mean, they've been saying that now for over a decade, right? You've probably seen that chart that shows that 10 year yields just declining year over year, but the economists forecast expect them to go up year after year. Do you anticipate low yields? Or I mean, gosh, even today, what we see was now Italy, and Spain, and Portugal all having negative yields on their sovereign debt. I mean, anyway, what will you be watching?

Bob: Right. Well, yeah, Alan Greenspan was asked years ago, how long the central bank could continue to control things and keep interest rates low and push the yield curve around, etc. And he said, "Well," he said, "it'll work until people lose confidence in the system." And he said, "Once people lose confidence in the fact that the central bank can manipulate things the way they're doing," he said, "then interest rates will find their proper level." And we would be a ways off from that because they seem to pull another tool out of their head all the time. But this gold sector in the last few months, right, is the market participants and you talk about this a lot on your show are always pushing things around and pushing it down to its support levels, and then ramming it through the support level just to get all the weekends out. And that's exactly what happened a few months ago, with 1800 1810 area, once it got to that level, it just pushed it right down there. And obviously, it caused people to panic. But interesting enough, there was one event that happened that a lot of people don't know about. And I had heard rumors in the market that a big institutional manager who had a large large gold position donor who was, but the portfolio manager got the dreaded tap on the shoulder from the risk manager. And what that means is money management as the risk manager said, "Hey, you have too much in gold, dump your gold position now, doesn't matter about the price." And that flush out happened a few weeks ago, and if somebody owns enough gold or big enough position, and they don't really care about price, they just wanna get out that's gonna cause some severe damage, like what happened a few weeks ago so, that was an interesting kind of data point.

Craig: Absolutely. Bob, how about next week? Are you concerned, interested? Whatever the right word is for this FOMC meeting that will conclude next Wednesday?

Bob: Yeah. I am. I mean I think we're...I don't think we're gonna get a lot of surprises out of it. I mean, as you know, it doesn't matter what they say, what matters is what the market thinks they're gonna say as compared to what they say, right? I think they're gonna continue to be pretty dovish, I think the markets expecting that I don't think anything dramatic is gonna come out of it. But I think we're gonna start to see a recovery in the gold because obviously, people are gonna come back into the area, and realize that this huge rotation that happened the last three months, I mean, this was a massive rotation from, okay, let's invest in gold because growth is gonna be slow, real yields are tied to negative, etc., into, oh, my God, the vaccine came out. So this economy is gonna grow dramatically. So copper rallied, zinc rallied, all these base metals did, and all these managers had very little exposure to that area. So, they rotated out of gold into these areas. And now, a lot of these stocks and sectors have popped dramatically now. And I think we're gonna find our balance now, money's gonna come back into the gold sector because of the very reasons why it is in a long term bull market. So, I'm not really thinking the feds gonna come out with anything that it's gonna surprise the market. But I do think Yellen at the Treasury is quite interesting now because, obviously,Yellen and the Fed are probably gonna work together a lot more than people have in the past, right?

Craig: Right. I've seen people say, oh, that's no big deal. Look at gold went sideways, while Yellen was at the Fed. But I think what folks are missing is the big picture of that now this almost like a marriage between the Treasury Department and the Fed working hand in glove that would seem to underlie maybe some concern about debt issuance in the bond market and everything else. How do you see that?

Bob: Well, no, exactly. I think they're gonna work hand in hand, maybe not say they're going to, but it'll they do one then another, policymakers always do that. So I think we're gonna see that, as I said, before this can continue on for a while, right, before the system breaks, but what's gonna happen is the dollar is gonna keep devaluing, right? The DXY last time we talked to Fexco it was 92. It's kind of at 90 right now, right? And gold when gold hit an all time high years ago, it was 72, right? So, we got ways to go for the dollar to devalue. And I think, if we get some growth in emerging markets, which is starting to happen, and that is gonna continue to put pressure on the dollar, so and that's really what the Fed wants, right? They really do want the dollar to come down because it was too high and hurting a lot of the US dollar-denominated debt in the world. But I do think that we're intact with this bull, you gotta understand that the sector, right, and you got to understand why we're in a bull market here. And if you do, the more you understand that the more you'll stick with it.

Craig: Well, let's wrap up with that line of thinking, Bob, you're famous for your mining clock. So, I want you to talk about that again. But also, just in your experience, where we are and how common it is to get pullbacks like this, I mean I get a lot of us are frustrated, if you look at kind of aggregate indices if you wanna call it that, but even though it's an ETF, but a lot of people look at the GD actually the GDXJ as kind of an aggregate of the mining shares. And you look at, I mean, they're back to levels they were at in May, before we even had any of this price run, and all the profits that all these miners have made. So, just your thoughts in general on the sector, and where you think it heads and what might be a trigger to get more excitement for the sector once the calendar flips?

Bob: Well, as far as the shares are concerned the market is a big auction. And the market ensures that most people actually lose money, right, [inaudible 00:11:57.105] there's only a small percentage of people who can make a lot of money in the market, right? I mean, that's just mathematical. So, sure the gains are... big gains are going to come right out of the gate, usually right at that turning point. And that's why it's great to catch the turn in these sectors, right, then all the money floods in and then you look and you say okay, well, the shares have only pulled back 25%. They're still up a lot this year. But the interesting thing is most of the volume happens at the top, right? So, a lot of people are actually down. So, you got to be there early. And this is Eric show. So, I'll tell you some stories about Eric and things that he's taught me over the years that I've used this analogy before. But Eric told me a long time ago, "He said Bob you got to be having a party in the room by yourself. And that's where you're accumulating large positions of stock." And he said, "Everybody else is partying in the other room." And he said, "It's an awful lonely place to be to be sitting in the room by yourself." But he says, "When everybody in the other room decides that it's time to party in your room, it's an awful small door to get through." And he said, "That's when stocks go up hundreds of percent." So, case in point, I think we're in a 1999 sort of situation right now you look at these tech stocks, you look at doordash and Airbnb and how much they went up yesterday on their IPOs. Very similar to 1999. Well, Eric used to write a report called "Markets at a Glance", which he wrote it every month and I read it for as many years as I could until they stopped writing it. But he wrote one on March 9th of 2000, which a lot of people will remember was one day before the tech bubble burst. And Eric was screaming in the letter, screaming in big printing do not participate in this, do not participate in this euphoric market, buy gold stocks. So, he started his hedge fund few months later, went long gold went short tech, and was up about 150% over the next two years in the hedge fund. Well, I think we're in a very similar situation here. The money is not gonna really flow into the gold stocks as much as it should, until the tech stocks roll over, right, because everybody's still looking at IPO is going up 80% in the tech sector, etc., and stocks trading at 400 times sales, and people still chasing as well. You got to get a rotation out of those. And then the money starts to come back into the cyclicals and the gold stocks. And then you see devaluation of the gold stocks just explodes on the upside, even if the gold price doesn't go up that much.

Craig: All right. Anything else on your mind, Bob, before we wrap up?

Bob: Yeah. Just one more thing, I was thinking about just in the last few days, making money in the market or in gold as I said it's hard you got to know what you're doing. And I always tell people, "There are no hot tips, right, in the stocks or in a particular sector." And the reason that I say that is because if you make $50,000 a year from your job, for example, you have to put 2000 hours of work in to make that $50,000. There's utility there, it takes time and energy to make that money. And it's exactly the same in the market. There are no easy ways to make money, you got to be there, you got to be patient, you got to sit in the room by yourself, and be a contrarian. And I think that's why I've started looking at platinum, for example, which has done nothing for five years, whereas palladium has gone up a lot, right, there's probably a lot of room for upside there. I've started looking at the uranium sector, where stocks are still down 80%. And Eric has a 20% rule, that if a commodity goes up 20% from the bottom, he really starts to look at it because this might be the start of a bull market and might be the turn. So, as far as the listeners are concerned that's what I tend to look for is that turn, and I think we're seeing the turn now in the mining sector again, after this correction, we're seeing a turn in some of the other sectors of mining other than gold too.

Craig: Great off. It looks like we're gonna have a very interesting year ahead, doesn't it?

Bob: Yeah. It certainly does. And stay the course. Make sure people are...make sure you're knowledgeable about what you're doing. And I think it'll be easier to have the conviction.

Craig: Absolutely. And Bob, you've been very generous in the past and giving out your email address and some ability to get your newsletter as well. Can you share that with everybody again?

Bob: Sure, Craig. It's bob.thompson@raymondjames.ca.

Craig: And anyone can just email you there.

Bob: Sure. That's fine.

Craig: And tell everybody too about the "Gold Digger".

Bob: The "Gold Digger" I have lots of links in there. I look at a short report because nobody reads very long reports these days anymore, but always has some really concise information about the space and a great charge every month. So, I think it's a good informational source.

Craig: Absolutely. We encourage everybody to check it out. Hey, before we go, it is almost Christmas. What is it? Only two weeks away, Bob. Doesn't feel like it with all this COVID stuff this year has been such a weird year. But if you're doing any holiday shopping, boy, what a great time to get people started your kids, your grandkids with an appreciation for sound money after the year that we've been through. Come to sprottmoney.com, you'll find all sorts of great deals there, great gift ideas there. Or of course, you can just call us 888-861-0775. Bob, thank you so much. This is the second time you've been able to help us out. We really appreciate it. No doubt about that. And I just hope you have a great holiday season and a happy new year.

Bob: That's fantastic, Craig. Always enjoy being with you.

Craig: And from all of us at "Sprott Money News" and sprottmoney.com thank you for listening. We hope to have Eric back next week.