“The big worry when I look at the stock market in general … I would be very concerned about some of the things that are happening on a macro scale. And one of them, of course, is what happened to cryptocurrencies … It’s a wipeout!
People doing exactly the wrong thing with their money … And it just tells you about markets. Let’s go to the stock market … [Facebook, Google, Amazon…] They’re getting picked off one by one. When the big ones start going, you better head for the hills … I just think that this stock market is looking terribly vulnerable. I wouldn’t want to be in it. There are so many things that can go wrong here.”
Gold is down on the week, and so is Bitcoin. But the big news Friday morning was the US jobs report, which shows - on the surface - strong growth. But Eric Sprott says, once again, things aren't as rosy as they seem.
By far, the majority of the jobs are part-time. Who knows what part-time means? Maybe it's five hours or ten hours or whatever. The fact that the wage increase was only .1%, which by the way is 1.2% annualized, which is less than inflation, i.e. - people are going backwards here. It should be worrisome to the average person. Of course, that's what's been happening for decades here, that the workers' wages are going up slower than inflation, and everyone's essentially moving backwards in terms of total net compensation. So, yes it looked like a good report on the surface, but it wasn't particularly strong when you get into the guts of the matter.
The only investment traders can safely bet on going up is gold, said Eric Sprott, billionaire precious metals investor and founder of Sprott Inc.
“What’s going up? One thing — gold. And silver. That’s what we would expect to happen. It’s impossible to tighten monetary policy with the situation the [Fed] left us in,” Eric Sprott said during Sprott Money’s Weekly Wrap-Up on Friday.
“Everything points to gold. We are within the spitting distance of a new high here. We are very close to setting the record straight that gold’s gone up for two years and we might start launching into much higher and loftier regions as the stock market unfolds,” Sprott said.
And it’s not just about physical gold for Sprott, who noted that there is leverage in gold stocks. “A $100 increase in the price of gold would add 25%-50% to their profits. The stocks are basically at their lowest. The stocks [will] rally very quickly when they go. I’m positive,” he said.
The drivers for higher gold prices are the Federal Reserve’s unsustainable rate increases, trade war fears and a vulnerable stock market.
“If we have three more days like yesterday, we’ll be in a [stock] bear market… It’s amazing to me. And it’s exactly what we would wish for,” Sprott said. “I would put [gold’s] performance down on the crumbling stock market and the incessant increase in short-term interest rates.
Sprott added that the financial market can’t handle Fed’s planned rate hikes, pointing out that the bear market is already overpowering bonds, cryptocurrencies and stocks.
“This financial world can’t take more interest rate increases. We have $350 trillion of debt and another 100 basis point increase in interest cost [would translate to] $3.5 trillion a year of extra interest costs. You could lose half your profits with 100 basis points increase,” he said. “You are going to have consequences in financial markets. That’s by far the overriding consideration. [But, then you have to] throw in the trade wars and the chaos in the White House on top of that.”
Gold prices just finished an outstanding week, posting best weekly gains in nearly two years, up more than $30 on the week following the Fed’s decision to raise rates by 25 basis points.
As Asian markets opened early Monday, April gold futures last traded at $1,346.50 an ounce, down 0.25% on the day, while spot gold on Kitco.com was at $1,345.80 an ounce, down 0.06% on the day.
Sprott has seen broadly increasing client and institutional interest which has been lead by strong private placements. This interest is being driven by 2017 commodity performance, and now the equities show good value.
Rick feels that some of the companies like Agnico-Eagle are likely to do quite well over the next couple of years. Increasingly they are being run as real businesses instead of leveraged call options on gold. Sprott is currently focusing on exploration and discovery plays. They are assessing prospect generators companies. They are also looking for companies with decent drilling results that the market has overlooked.
Secondly companies with very competent teams of people who are serially successful. Lastly, they want companies that are already well enough funded to answer their unanswered questions. Rick feels that the exploration sector will wait until 2019 before it moves dramatically. They are getting better terms on private placements and can attract warrants that are tradeable and detachable. With trade-able warrants, they are often traded for more than their intrinsic value.
The outlook for phosphates and Ag-minerals are extremely bleak, and there is significant oversupply. As a consequence of this bleak supply and demand outlook, there may be opportunities in buying essential commodities when they are below the cost of production. He discusses the potential demand picture for uranium, copper, nickel and why the world has plenty of lithium.
Cobalt is the first commodity that Rick has seen where the industry is happy to pay more for the product so long as supply can be increased. However, cobalt, as an investment theme has issues with geography as most of it, comes from the Congo, Russia, and Cuba. These are not countries that investors particularly favor.
“It’s kind of shocking when you think that we have all this issuance going on. We have people threatening not to buy the bonds (i.e. China, Russia, whatever). And people saying that there’s this great economy, and yet yields are going down. And as you point out it’s quite a dichotomy.
Normally, bonds are telling you the economy sucks. And I’ve always been in the camp that the economy has been held together simply by low interest rates, and the minute they start going up, it’s over… It just spells doom and gloom for stocks, and profits and budget deficits.
It’s a lively discussion this Friday, as yet another chaotic week wraps up. Eric Sprott has plenty to say on President Trump’s new chief economic advisor, the ineffectiveness of the tax cuts, and what all this chaos means for gold.
“We had this tax cut and we thought two things would happen: People would spend more money (NOT!) and companies would spend more money (NOT!). We had all this theory that everyone’s going to have more money to spend, and nothing happens! … It boils down to the basic facts that you and I have discussed: The average guy is experiencing sharp inflation and no wage increase.
We keep forgetting about the changes in health care premiums—which, of course, are consuming huge amounts of everyone’s income. And even real estate taxes, and insurance bills and, oh my God, the things that are going up all the time! The amount of money we have to spend on phones that we never spent on phones 15 years ago. Incredible expenses for families. They’re having a tough time… I’m not surprised we don’t have liftoff.”
