There was momentum chasing by the hedge funds and the CTAs on the Comex that helped push it higher. I mean, we know from a now very dated pot report, right, that’s a week old. Now we know that the banks were shorting the crap out of paper gold into the price rise. Well, hello there, my friends. Chris Marcus here with you for Arcadia Economics as we continue taking a look at the recent gold rally that we’ve had over the past week and a half, almost two weeks now, which has taken a little bit of a breather on Tuesday morning following slightly higher than expected CPI readings, which fortunately I know.

My guest today, Dave Kranzler of Investment research dynamics, is a big fan of the CPI numbers, the government labor numbers, and all sorts of other indicators that come out and affect the pricing of gold or silver, as Dave likes to say, paper gold and paper silver. And we will dig into all of that today in our show. And Dave, it’s great to have you back here and nice to see you in front of your panda as always.

And how are you this morning? I’m doing great, Chris. Thanks for having me back again. It’s always great to be on this podcast. Well, I appreciate having you here and going to pull up our gold and silver charts we’re recording on Tuesday morning, where again we see the price of gold down 1975, silver down $0. 29 perhaps to start with. Any of your thoughts on the recent rally, which now we’re seeing a correction, perhaps not entirely unexpected.

These things don’t normally go up in a straight line. We’ve also seen the build up of banks shorting gold and silver over the past rally. But anything that you’re taking away from what we’ve seen over these past two weeks, the problem is I’m great with it. And we broke out over that 21 80 level and I thought there’d be a chance that we would get a cycle here where we would test it, go back below it.

And I don’t know to what extent there was momentum chasing by the hedge funds and the CTAs on the comex that helped push it higher. We know from a now very dated hot report, right, that’s a week old. Now we know that the banks were shorting the crap out of paper gold into the price rise, so they were doing what they could to put a break on the rate of ascent.

And the hedge funds and the CTAs, they’re hot money, right? They’re momentum chasers. So part of how low they’ll be able to push gold this time around will depend on to what extent what the hedge funds accumulated, they plan to hold on to longer. I happened to notice, I think it was with gold yesterday. I happened to notice that on Friday. Right. Because the positioning or the open interest report would be.

As of Friday, I happen to notice that the hedge funds shifted a lot of their April gold out to, I think June is the next front month. I don’t have it in front of me. I’d have to look it up. If they have stronger hands this time instead of dumping it into the downward momentum, this sell off, this pullback will be pretty shallow. And again, there’s no way to know.

No one knows. We’ll know when we know. But that’s the factors to consider. I also think if you’ve noticed from the pricing data from the Shanghai Gold exchange, they’re buying a lot of gold over there right now. And to some extent, I think that helps put a floor under the so. And there’s one other factor. India, I’m sure has been buying gold hand over fist. My guess is in the last few weeks, because the price spiked up so quickly, it probably put a damper on the demand for gold over there.

They probably shifted to silver because that’s what their behavior pattern is. So if they push the price down too much on the Comex using paper, that’ll bring back indian demand. And again, I think the massive demand we’re seeing from the eastern hemisphere, from all areas, primarily central banks, but don’t forget the populace over there, it’s in their DNA to buy gold as much as possible. And that’s been putting a floor underneath the price.

And I think it’s also been helping push the price higher. So assuming those factors are still in place and continue, I think we’ll see higher prices in the months ahead. We’ll put a time frame on it. Well, I can understand that. And obviously, at the same time, we see silver around the 24 and a half level. Surprised that we have not seen silver move more yet. And what do you think eventually changes the environment on the silver side? My guess is we’ve all seen the silver Institute numbers showing a supply demand deficit.

I think people watching this podcast know that the GDP reports are phony here and from China, and especially with manufacturing is in contraction. That’s what all the private sector reports show. To the extent that manufacturing is in contraction, it’s going to lessen demand for silver to an extent, the industrial component of demand. So that factor could be working against the market. I don’t know. In my experience in a bull cycle.

When we get a durable, sustainable bull cycle in the sector, what happens is gold will move first and then silver will play catch up and eventually overtake it. And then the mining stocks will play catch up to gold and silver and eventually overtake both in terms of rate of return. But in the recent years, what we’ve seen is like silver shoots up and the miners shoot up, especially the juniors, the micro caps.

And that’s just evidence that speculative money has piled into the sector. Well, yeah, we saw speculative money last couple of weeks pile into paper gold on the Comex, but we haven’t really seen speculative money pile into silver or the smallest of the mining stocks. Right. And so to me that’s a good sign. That tells me that we’re not even close to the frothy component of what I hope is going to and what I think is going to be a pretty powerful bull cycle move higher.

Does that make sense? Yeah, I think that’s obviously something we’re waiting for. And something else that you and I talked about a little bit offline last week is how the miners have had that correlation to silver. And even with the gold price up a bit, obviously the mining sector up a little bit over this rally, yet still a bit of a divergence. And I’m curious if you’re seeing any signs or have any expectations of when we might see the miners respond to that a bit more.

I get the feeling that there’s still a lot of people out there that are wondering, is gold going to be going back to 1900, silver back to $20, and are a little hesitant getting into the mining stocks under that environment. And you mentioned earlier today, after the Tuesday CPI report came out that it’s interesting stock markets up again while gold and silver are down. And obviously we’ve seen that trend with the gold and silver miners not following the rest of the stock market.

So, curious, anything you’re seeing on the equity side and whether you think we’re getting close to a turnaround there, I’m still scratching my head how a hot CPI report can be great for the stock market, but not gold, silver and mining stocks. It’s counterintuitive. Right. Well, I think you’re not alone in wondering that one. Well, I think we all know the answer to that. I mean, look at when the price action happened.

It happened when the Comex was open and the rest of the world was basically shut down, except the fake gold market in London. But to answer your question and to address that distasteful headline from the Financial Times, there’s a fundamental reason why the miners, and they’re not talking about the juniors. I mean, I’ve got some juniors in my portfolio that are up 50% from six months ago. So they’re talking about Newmont and Barrack.

When institutions and big investors talk about mining stocks, they’re talking about. And I mean, we know that the miners have been getting squeezed on the cost side from inflation, right, price inflation. They obviously make money on the spread between their cost and what they receive for gold or silver. And the price of gold and silver, until recently, hasn’t really adjusted in response to their rising cost structure. But that’ll happen.

And I think we’re seeing it happen now. And so I think the reason why the miners are lagging is because the last several quarters of earnings reports have not been great, right. Their margins are way down and their profitability is way down. And all the large ones are taking inventory write downs or reserve write downs, writing down the value of their reserves. And that runs non cash charges through their income statement.

And they have to do that when the cost increases faster than the price of gold and silver. But at some point, that spread is going to widen again and these miners are going to start producing wildly profitable earnings reports. We saw it yesterday with Silvercrest metals. They just annihilated expectations. And the stock at one point during the day was up 19%. And matter of fact, Silvercrest is one of the few miners on my screen that are green today.

What we saw there with Silvercrest is we saw, well, besides the operational efficiencies they’re implementing, they’re now starting to enjoy the benefits of a wider spread between what it costs them to produce an ounce of silver and what they get paid for an ounce of silver. And I think hopefully, and again, assuming that this price level in gold and silver sustains or moves higher on average over the next few months, I think that the first quarter earnings reports for a lot of these mining companies are going to be really strong, because instead of selling gold for 2000 an ounce or 1950 an ounce this month, this month of March, and I have to look at the chart, but I think almost all of February, they were selling it for over 2100 an ounce.

Right. And that’s going to improve their margins because we know that the big push in their cost structure happened between 2021 through into 2023, but that slowed down a lot. A lot of these mining companies have taken measures to make their operations even more efficient. I mean, Jorge talked about what some of the things that they do at know and know they’re producing mines in terms of cutting the costs and making them more efficient.

Again, assuming that this rally keeps going, the move keeps going. I think when we start to see first and second quarter earnings, I think we’ll see the mining stocks start to catch up. Yeah, well, I think a lot of people are certainly hoping for that. And as we’ve seen the price of gold go up, certainly would be encouraging to see a reaction in the miners. And obviously in a couple of months we’ll find out how that first quarter looks.

Dave, one other thing I wanted to check in with you about, because I know you are a believer. The stock market quite overvalued. And one of the things I found interesting here is if you look at the M two data, you can see, I know you point out it bottomed here last April as well, but also we see the decline stop here in October, has been rising since then.

We also have the monetary base chart where you can see takes a turn up there in October, which perhaps not entirely surprisingly, matches when we’ve seen the increase in the stock markets with that bottom coming in October there on the Nasdaq, same on Dow Jones, as well as the S P. And is that one of the main things that is driving this higher, that we’ve seen the reversal in the monetary data? I think that’s a big part of.

I mean, I also think that the stock market gamblers are still flush with a lot of cash from the move that we’ve had over the last three years. The sell off that we had in 2022 didn’t deter them to buy the dip. A lot of them haven’t blown themselves up yet on margin, and that’ll happen. But yeah, there’s no question that, and the monetary base is much more powerful form of money than M two.

There’s several reasons for that, but the big reason is because that monetary base is the fed actually injecting liquidity into the system by increasing bank reserves. And then at some point that money ends up in the financial markets in the form of leverage, like leverage extended to hedge funds, for instance. And then some of it ends up in the real economy because some of those reserves are used to help fund treasury issuance, and then the treasury takes that money, that borrowed money and spends it.

Right? Yeah, that’s the reason. What you saw somewhat with M two, but particularly with the monetary base, that’s the reason why they can’t get inflation down. And we know today’s CPI report was idiotic. I mean, they claim that food prices came down a little bit in February. Well, my grocery bill didn’t go down in February. It goes up every month. Yeah. And certainly we’ve seen, as you sent me this chart earlier today, some of that money flying into bitcoin as well, which here’s my theory on why they think food prices.

The BLS sent the Census Bureau surveyors out to the dollar store, and they took their prices from the liquidation rack at the dollar store. So that’s why they think prices fell in February. Well, I hear you. And interesting, though, that in the midst of all this, we are finally seeing some mainstream coverage. Finally, we get gold on CNBC here. Could keep climbing, although I might note, analysts expect silver to steal the show before long, which certainly would be welcome.

News here also have Wall Street Journal talking about the gold rally. So, took a little while, but seeing some signs of the message get out to the mainstream. And I guess we’ll see when we get some more mainstream participation. Any thoughts on how we’ve seen the metal coming out of those ETFs which would suggest we’re not there yet? Well, I mean, clearly, if you go through the prospectus of GLD and SLV, they’re clearly set up so that the authorized participants, I.

E. The bullion banks, can have access to that gold and silver when they know the shortages of gold and silver that they can deliver into the eastern hemisphere buyers. It’s as simple as that. Well, it sure is, because as your favorite Ben Bernanke mentions, the impact on the broader economy and financial markets seems likely to be contained. So all is well, and we’ll keep an eye on the central bankers sentiment in the weeks and months ahead.

Do you want to go over that bitcoin chart before I rudely interrupted you? Yeah, well, I had it pulled up. I thought you were going to go on a classic granular rant on bitcoin, but please take it from there. Well, I mean, you were asking me earlier about the run up in bitcoin and how it was evidence of rampant speculation and gambling going on in the markets. And to me, this chart is evidence of that.

And if I took that chart further back, that tight correlation that you see up to through 2023, this is a two year chart. If you take it back five years, you see the same correlation. I mean, ups and downs. And so, to me, it’s just evidence that bitcoin is a speculation vehicle, just like tech stocks are. In fact, I’m kind of watching to see what happens with bitcoin.

Because if bitcoin starts selling off on a consistent basis, that means these tech stocks like Nvidia are going to sell. And that’s what I’m waiting for. I’m saving a lot of cash to jump into the short side of the stock market. But one of the things I watch is what goes on in bitcoin, because that tells me how much rampant speculation is still going on. Yeah, well, certainly has been quite a stunning move for both the Nasdaq and bitcoin over these past couple of months.

And another one we’ll keep an eye on as we go forward. But I think you could well be right that we could see quite a correction with both of those. And obviously a lot happening. BTFP expiring on Monday of this week, and we’ll see how now they’re one year loans that these banks have to pay back. That’ll be interesting to watch. Yeah. Any expectations on what you think we’ll be seeing there? Oh, I would guess that the Fed has something up their sleeve to replace it.

And unless they want to watch the whole system collapse, they’re going to have to start printing money again. Right, creating reserves. I mean, the commercial real estate, I still can’t believe that it’s not being discussed even more widely and more. That’s. That’s a black swan right in front of us that no one wants to see or they think it’ll be contained to the regional. Oh, so what, let the regional banks blow up and let Morgan buy them? All right.

Well, no, because we don’t know exactly what the derivatives exposure is of the banks to commercial real estate and we know it’s there. These bankers would sell their mother for a nickel if they could to make money. So you know that they’ve been hawking OTC derivatives on commercial real estate for quite some time. The way the accounting rules were changed in 2010, the propaganda was that they made bank reporting more visible to investors.

But in fact, they let them move their derivatives exposure largely off balance sheet. So who knows how ugly the off balance sheet side is for these banks. But you know that they’ve got massive exposure to commercial real estate and counterparty risk exposure, despite the fact that their commercial real estate loans are a small percentage of their assets relative to the regional banks. Well, as I said before, that’s all likely to be contained, so nothing to worry about there.

And Dave, perhaps in wrapping up, just like to mention one of the sponsors to our show for tuna silver that we talked with for their earnings last week. Well, they did also have some news out yesterday about a new prospect at the Seguela mine. Also some exploration results at Diambasud and just wanted to give you a chance to comment on your thoughts on what we saw from Fortuna yesterday.

The more I see with what they’re doing with their assets in West Africa, the more I see how brilliant that acquisition mean. With Fortuna, they found another high grade near surface mineralized zone that there’s no telling how much gold is actually underneath the ground at Segela. But wherever they stick drill holes, they seem to find a lot of it. I mean, those grades that you see on the screen there, now, that doesn’t mean there’s for sure a deposit there, but that means that there’s a lot of mineralization that needs infill drilling and it has potential to be another deposit.

So that would be what their 6th mean. Segala is just the gift that keeps on giving, and it’s going to get bigger and bigger. And Diamba sued. They bought an existing resource, but what they did is they went in and retested the deposits, the existing deposits. And most of what those drill results are from yesterday’s release were exploration holes. So again, like with the Kingfisher prospect, those drill results don’t necessarily mean that there’s deposits there, but there’s a good chance.

And I guarantee you. Well, Jorge already told us, I think their drilling budget for Diamondbasud is like $14 million or something. For 2024, they’re going to drill 45,000 meters. I mean, they’re going to go very aggressively at developing this thing, and hopefully they’ll be able to convert it into a mine by early 2027. Everything goes well. Yeah, certainly an encouraging start to what they found there. And that was something else that he talked about.

And in fact, at the end of this episode, I’ll link to that call so people who would like more information on Fortuna and their latest results can find that out. And Dave, in wrapping up, I’d just like to thank you for joining me here today and let people know they can find your great research at Investment research dynamics, where you have the mining stock journal, where obviously you dig into a lot of the miners, as well as the short sellers journal, where you talk about your thoughts on some of the equities.

So appreciate you making some time to join me and thank you for the update. Hopefully we’ll have some more good news ahead and maybe a continuation of the rally, but least pointing out some things to keep an eye on and watch as we go forward and see how it all unfolds. Always good time, Chris, thanks for having me on again. .

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