Jeff Clark: The Real Crash and How to Hedge with Triple-Digit Silver

welcome back to palisade radio i'm your host tom baudrovics and joining me today is a new guest to the show jeff clark he's senior analyst for goldsilver.com how are you today jeff i'm doing great tom thanks for having me uh it's a pleasure to have you i thought we could start um why don't you share with us a little bit about how you got into the gold industry yes so my family my father owned mining claims actually all over california arizona nevada he retired early moved to california and got bit by the prospecting bug so he became that became his full-time job and he really got into it he got pretty good at it he actually won some gold panning contests uh yes there are such things and he got so good at it he was part of this group that when you bought a new metal detector they would guarantee that you would find some gold with it when they took you out to show you how to use it so he got kind of good at the game right you know as a prospector you know nothing on a big scale like you'd find with a junior minor or something like that this is more just personal prospecting with him and his team but i picked up a lot from him obviously i didn't quite get into the gold panning as much as he did it you know can be long and hot and hard work and going over roads with that aren't paved and that sort of thing and it's kind of like fishing you know you never know what you're gonna find right you know how long it'll take you or if you'll find even anything so that's all gold prospecting can be so my interest really turned more into investing and making money with gold and i eventually hooked up with casey research and went under the tutelage of james there and so he was kind of my mentor i mean i learned from everybody there including doug casey and mayor katuza but louie was the real one i really went to the next level in my understanding of the mining industry so could you share with us a couple lessons that maybe you've learned from your time at casey research and and louis or even uh from mike maloney as well sure so casey researched for quite a while and like i said worked under louis louis is great he's very straightforward most of what i learned came from him and his mentor was he learned from doug casey himself so it kind of passed on down the line there and i think with louie the one thing i really i mean i learned so much right it'd be hard to quantify it all but but the one lesson i really picked up from him was to learn to be skeptical uh you know the old mark twain quote a gold mine is a hole in the ground with a liar standing over it so um you know and it's not quite that bad but you do need to be skeptical because there's not so much scammers in the industry but they're always trying to put their best foot forward right and they're always trying to promote and tell you what's good about it and you have to look beyond what you're being told and what you may be reading and that sort of thing and kind of look behind the scenes look at the footnotes and start to question everything to see if it's really going to be a good investment and so that's one of the big lessons among many that i learned from louie so and as far as mike maloney uh who's the founder of goldsilver.com i went to work with him after leaving casey research and you know mike's really into he has the whole hidden secrets of money video series right very popular movie quality productions that there's a dozen of them now and the first one starts with the difference between money and currency so the main lesson there is that money is not the dollar bill in your wallet money is gold because it's the best store of value whereas the currency the dollar bill in your wallet is not a good store of value we all heard the quotes of the dollars lost 96 of its purchasing power now since the fed was created so whereas gold has lost no purchasing power over that same time period so he really makes that distinction and i think that'll be increasingly important as we go forward because the fact that we're all an affiliate currency system now the series of the hidden secrets of money is a great place to learn i've personally watched it many times it's interesting that you bring up the purchasing power and the holding power of gold recently you put up a couple charts on your twitter of real estate pricing versus gold and versus silver as well so maybe share with us a little bit about what those charts showed and what the comparisons to the 1980s price levels could be so the idea there is is if you want to try to participate in what we believe will be a wealth transfer where real estate and stocks and other common asset classes decline in value while gold and silver increase in value and if you can you know to maximize that you want to swap out your overpriced gold and silver someday for underpriced property real estate yachts you know what have you i have a really good friend in cayman who he's planning on buying a very nice yacht because he believes those things are going to be the first to go in a serious depression and loss of purchasing power so he thinks they're going to drop in value dramatically while his gold and silver increases in value dramatically and that's kind of the idea but as far as the real estate one goes the peak was back in looks like 2001 where it took 834 ounces of gold to buy the average price home in the u.s recently it's been about 270 but the bottom was it only took 85 ounces of gold to buy the average price u.s home back in 1980 when the gold price peaked and the interesting thing there is real estate home prices were actually rising in the 70s believe it or not because of inflation but the gold price had outpaced the rise in home prices so much that that ratio continued to drop and it only took 85 ounces of gold to buy a home for stover it was even more dramatic back then it took only about 1500 ounces of silver to buy the average price home at silver's peak back in 1980 so and now it's it's around 20 000 22 000 somewhere in there i don't have the exact number i haven't updated that in a few months but that just shows you three mint boxes of silver could potentially at its peak buy you the average price home if that ratio were to repeat as it did back then so that's potentially very exciting so i think you know i don't know if it'll get that low again but i think that's the direction it's going to go and when you say if it'll get that low do you mean the gold to silver ratio or the silver to real estate ratio the gold to real estate ratio and the silver to real estate ratio yes so three mint boxes of silver is is all it took back then to buy the average priced home so think about it i mean real estate's i mean it's been pretty frothy here for a few years right and now you know with covet and all unemployment and all that stuff it looks like real estate's going to roll over home values are going to roll over and meanwhile what are gold and silver going to do well gold and silver are probably going to continue to rise and rise dramatically if you have a you know two three four year time frame which means that you know the number of ounces of gold or silver that it takes to buy a home is probably going to fall and so that'll work in our favor if you're a gold and silver owner so do you think jeff in your opinion that we could see close to what those 1980 ratios were and what would the let's say inflation-adjusted price levels for gold and silver be if we're thinking about where those price levels would get to for that 1980s price level well that's the million dollar question right we don't know if it's going to repeat we don't know what the price is going to be or or how long it's going to take to get there but what i don't focus on is what it did in 1980 what i focus on is where we're at today and where we're at today is we have numerous economic monetary geopolitical fiscal risks just all over the place right and all the reasons that investors have been buying gold for the past few months none of those have been resolved none of them and we've seen really no real world effects of the currency dilution the massive current solution all we've seen is people buying gold in response to that we haven't seen any monetary serious monetary fallout such as inflation so you know with all of that still ahead even though gold is near its all-time highs i think gold is definitely the place to be and meanwhile the stock market's overvalued by almost any major even warren buffett admits that virtually any metric you use is going to show that real estate's overvalued and probably going to decline so you buttress those things together and it makes for a very opportune time for those ratios to fall and for gold and silver prices to climb and really is it gold and silver going up in value or is it the dollar and other fiat currencies going down in value so when you throw that into the equation the fact that we're on a fiat currency system globally for the first time in recorded history the risks are clearly to the upside for gold and silver not to the downside so as we combine all these geopolitical fiscal and all those associated risks do you i know mike released a video recently on if we could see triple digit silver and what's your opinion on that oh yes we usually could i think the main thing to keep in mind with silver is obviously as i'm sure most of your audience knows it's very volatile and that's because it's a very small market and because it's a small market it doesn't take a whole lot of cash coming in to impact the price and so when cash does start to rush into silver the price is going to climb much more dramatically and will with gold what's that catalyst going to be probably inflation if you think about it what were silver's two biggest climbs in history well one was in the 1970s when we had real inflation runaway inflation some would say and then from 2009 to 2011 we had the fear of inflation everybody just assumed back then myself included that the currency printing and all that dilution that the fed excuse me and other central bankers did was going to lead to inflation it didn't but we had that fear and so people were rushing into gold and silver so i think there's going to be some type of inflation component in our future that may be even starting now we'll see but if we see inflation silver is just i just don't see a scenario where silver doesn't take off and re-test its old highs which would be 50 and on its way to triple digits i i really think the thing is i hope it doesn't actually get that bad if we go to triple digits 100 between me and you i actually hope it stops because if it keeps going if it goes these 500 figures some people throw out just imagine what kind of world would be living in then that would imply that things are really really bad or were in some type of hyperinflation and that's very destructive and would hurt hurt you in more ways than one so i actually hope we don't get that high but that risk is not zero either absolutely as you were saying explaining a little bit about how small the market is let's dig into that a little bit you had an excellent presentation that vric that was earlier this year i believe and gave several examples about how small the silver market is so could you give us a couple more of those examples this is one of my favorite topics because the silver market is small and i think a lot of people know this but i don't think they realize just how small it is so just as one example in the talk you're probably referring to you know at the end of 2019 credit suisse estimated that global wealth around the world was about 230 trillion dollars it's a little less now although the nasdaq is higher now than it was then so it's probably so close to that figure we don't know exactly how much above ground investments over there is but you know the average estimate out there i think is around 3.4 or 3.5 billion ounces and now i'm excluding jewelry and industrial use over and things like that this is just coins and bars physical metal that's investment grade you multiply that times eighteen dollars that's 63 billion so 63 billion for the silver all the above ground silver there is versus 230 trillion in global wealth and that means that global wealth is 3650 times bigger than all the investment grade silver that is currently available so that just gives you one one example of just how small it is it'd be like walking up to an olympic swimming pool and dropping a dime in the water i mean that that's not an exaggeration that that's what kind of contrast we're talking about now of course all that currency is not going to come rushing into silver but it doesn't need to it would just take literally one percent of that and it would just completely overwhelm the silver market one of your other great examples you have in there is i think it's something like five percent of apples free cash not even the total value of the company just their free cash could buy the entire silver market right oh more than that they have i think their q2 is not out yet if i'm not mistaken they're q1 they had 210 billion in cash something like that it was somewhere around there if you add up the market cap of the primary silver industry and we know there's just not that many primary silver producers where they're focused primarily on producing silver and the other metals are byproducts there's just not that many of them so apple computer could buy literally every share of every primary silver producer that exists with about 12 of its cash not the cash of the silver companies every share of the silver companies so we're not even comparing apples to apples right it's apple's cash so they could buy every share of every silver producer you know of out there the producers not the juniors and they'd still have like what 85 percent of their cash left over that's how small the primary silver industry is it's ridiculously small it's minuscule it's a rounding error it's it's a nothing burger whatever adjective you want to use and of course appleoid is probably not going to do that but that's just one company out of thousands of companies and then you throw in all the institutional investors and sovereign wealth funds and mutual funds and retail investors and central banks i mean this could get crazy and it's just not going to take a whole lot of cash coming into the silver industry to really impact its price whether it's for physical meadow or their primary silver producers one of the other examples that you have on that video is the supply of m2 money and how small of a fraction that you could buy those silver producers with as well and i wanted to ask you about that could you explain to us what m2 money is and give us the contrast of the percentage that it would take to buy those shares you know i've not updated that recently that figure i gave you earlier was for global wealth so for m2 i haven't updated that in quite a while maybe a year uh but m2 is probably the broadest definition of money supply that not just the us has but other countries so m2s what we call m2 matches what other countries also have as m2 in the developing world and i think that's the example of where you walk up to an olympic site swimming pool and drop a diamond and that's what you know m2 would be the pool water and the dime would be the silver market so whether you know we're looking at global wealth or m2 it's really all the same it's just an overwhelming amount of currency and again i'm not suggesting that you know all of that or even a lot of it's going to come in i think it only takes a small amount to really just blow up the silver market and i think if we get inflation that's exactly what's going to happen another piece to the silver puzzle that we're seeing right now that you highlight is mine supply and even recycling supply falling can you tell us a little bit more about why that is yeah so mine supply for both gold and silver but especially for silver has been rolling over and it is going into decline for silver it's been in decline four years now going on five but what's really interesting is when the cpm group silver yearbook came out i did a chart there that noted the changes in mine supply and this four year period 2017 18 19 and this year this four year period has seen the biggest decline in mine supply in recorded history this four year period and that data came out before covent struck so it's only going to get worse we know that at least 10 percent of 2020 silver supply new mine supply is not going to come to market and it could easily be higher especially if they shut down again but regardless of that silver you know the reduction in silver supply coming from the mining industry is in its biggest decline in recorded history that we know this is data going back to the 19 late 1940s early 1950s i don't know if they have data before that or they just don't report it but it you know at least 70 years we know this is the biggest four-year period there's a lot of reasons for that which would take an hour to discuss but the the interesting thing is that the 10 largest silver producing countries in the world all are seeing less production for silver that's been in decline since 2016 and the most interesting thing to me that i found from that research was that mines come into development and then they go into development and then they go into production right so when the silver industry in the primary silver industry how many new mines do you think came online last year in 2019 that were a primary silver producer do you want to want to take a guess you think it was 10 20 5 i would say less than five it was one in the entire year of 2019 there was one new silver mine primary silver mine yeah that's primary reduction yeah primary right but it's even worse with the as dramatic as that is one new mind that's a primary silver you know operation came into production that's that's crazy one and that's you know in 2019 the silver price was actually stable so it's even worse though with the byproduct producers so most metal is your audience i'm sure knows you know most silver comes as a byproduct well the issue there is that these copper mines and zinc mines and lead mines and all these other ones that produce silver as a byproduct their capex is projected to fall dramatically it's already falling this year and it's projected to continue to fall fairly rapidly over the next few years so if they spend less on capex which means they're spending less in development expansions you know operations and exploration what are they going to produce less of they're going to produce less silver so not only do we have the primary silver industry struggling we have the byproduct industry that produces three out of four ounces roughly also struggling and so new supply new mind supply from both sources is actually projected to decline fairly significantly statistically significantly over the next few years at least and these are structural things it's going to take a dramatically higher silver price to bring a lot of primary silver production back online or increase expiration or increase development but with the byproduct producers the silver price doesn't really incentivize them to spend more on development because their primary product is copper or lead or zinc so if the prices of those metals are falling which would be very easy to see in a depression those mines are going to struggle and they're not going to produce more silver they're going to produce less silver because they're producing less copper lead and zinc jeff do you know let's just take uranium for example we can see the price rise all we want but it's going to take 10 plus years to get new mines into production do you know what that timeline would be to get new silver production online yeah it's roughly the same for a lot of mining operations it does take a decade uh some people think that's you're not gonna take that long but it does because from exploration go all the way through development which is you know your feasibility and your permitting and your all your political stuff and and then you go into construction and then you then you begin operations and then when you begin operations it doesn't mean you're at commercial production levels that can sometimes take months or a year to get to that level so all this takes time and so that's why i say it's structural so it's let's say silver goes to thirty dollars by the end of the year now i'm not saying it will i don't think it'll go that high but let's say it did thirty dollars you think all of a sudden all these almost every silver mine out there is profitable they can make money that incentivizes them but guess what they're not going to just run out and start producing metal the reason is because they need to see a sustainable silver price before they're going to spend millions and millions and millions of dollars developing a project if they think it's a one-off thing or it's just a spike they need to see months and months and months of a silver price that's stable at twenty five dollar silver thirty dollar silver or whatever the case may be before we're gonna spend all that money and start the process of exploring projects and developing projects and expanding existing minds and hiring back geologists and hiring back mine engineers that all takes time it's not turning on a light switch it's like a barge trying to execute a three-point turnaround in a port it's gonna take a lot of time it's not easy and it's gonna take a lot of time now that'll it'll probably happen but that's because i think silver is gonna go you know higher and i think it'll stay higher for a while it is very volatile so it could easily sell off again but because these things are structural you know bringing new supply online is not going to happen quickly or easily so let's turn a little bit jeff to thinking about how to actually have the best leverage when this silver price decides to accelerate um you're speaking about you didn't want to get into gold panning you wanted to get into actually making money from gold as you were saying with your dad so explain to us a little bit about how best to have leverage to the silver price well leverage is going to come through the miners we know that and you know you'd want to probably want to start with the producers because the producers will move first now we've seen a big jump into juniors this year right and we can talk about that if you want but the leverage comes because the gold and silver prices move a lot more than the price of computers or microchips or shoes or office supplies you know those things don't dramatically rise you know in price that much but the product that these miners sell gold and silver can rise that much and so what happens is they're all working at the margins now there are profitable companies out there but many are just barely profitable and some are unprofitable especially in the solar space so when you have a 10 move in the gold or silver price all of a sudden you can see that company's earnings jump by 100 that's not uncommon at all and sometimes even more you can see a company that's unprofitable go to profitable on just a 10 percent move in the gold or silver price and then what happens to their leverage if they go you know if the gold silver price double the leverage can get kind of silly at that point you know can get into the thousands of percent and i'm not going to tell you that's going to happen but i think it is that's something i'm personally betting on i think the leverage is the leverage can be very dramatic and i do think it's something that's going to come down the pike here so so let's talk a little bit about about the juniors and and how you're seeing that is that more of a speculation play at this point it is but i think it always is so i'm a mining stock i'm not a mining stock investor i'm a mining stock speculator and i think everyone who's going to buy juniors needs to realize that that you're not necessarily investing you're you're speculating these are not heirlooms you're not going to hold them forever they're very volatile we want to capitalize on that volatility and i think we can and i think we will but you can't hang around forever you have to watch them and and you have to learn to take profits and you have to learn to make sure you buy enough of them you can't you have to take a pringles approach you can't just buy one right you have to diversify you know a little bit obviously you have to go after the the best ones which means the best management teams with the best projects in the best jurisdiction so um but i i you know a lot of these have it's kind of funny you know uh the the juniors that have doubled since their march low are kind of the losers because so many have tripled and quadrupled and i mean i'm sitting on two that have done 5x just since their march low so you know they've run up a lot so you have to be a little careful here i wouldn't run out and just load up on them right now i would look for a pullback but that's the kind of leverage you were asking about that's a good example of the leverage right there even though they're not in production you know the juniors but that's the kind of leverage you can get because they're also very small their market caps are very tiny so just a little bit of cash coming in can can be dramatic so perfect is there anything else we're missing to kind of complete the silver picture the silver picture i think that's the main thing to be aware of it's very volatile you can't get shaken out there will be pullbacks along the way there always is but i think ultimately we're headed a lot higher and if you see inflation headline inflation start to really spark up like you're seeing headlines of it you know in the nightly news or something like that that's your cue that it might be last train out for the for the silver train so you might want to when you see that i think you better get what you want absolutely you posted an article you said it was one of the most fun articles you've ever written about the coming wealth transfer and in it you talk a lot about the inflation so can you give us a couple of tidbits from that article and tell us a little bit about it that article was a fun article to write and it's sort of a fictional account of what a mania or parabolic rise in the gold and silver price could look like and it's not all fun and games because even though gold and silver are rising a lot they're rising a lot because all the uncertainty and the bad things that are happening around it so you got both good and bad going on at the same time but the good is you're actually protecting your lifestyle your standard of living by owning gold and silver and there will come a day where you'll wonder well should i sell now you know are we at a point where i need to sell some of this and that's why i think it's going to be like it is buying now so we buy in tranches now i think we'll probably sell in tranches as well because as the saying goes nobody rings the bell to top of the market so i i think it's important to learn how to buy in tranches now because you're probably going to sell in tranches when that time comes as well is there some indicators that you're looking at to try and identify when we're maybe getting close to a top that's a great question you know it's not a fixed price like okay we're selling everything when gold hits five thousand or ten thousand or three thousand what you know we're not predetermining that it's what the gold or silver will buy you i think that's the best way to look at it if it doesn't buy you a whole lot even though it's at five thousand dollars i probably wouldn't sell because it's not buying me enough yet it hasn't peaked enough yet so we're not trying to predetermine a price it's what it's going to buy you it's so it'll be a lot of ratio analysis and the interesting thing is mike maloney has an insider program for those that qualify and the the bar is not high to qualify for but he has a lot of indicators he'll be using some of which are proprietary that he won't share with the public but that will be signals to him to say okay this is a signal that it's time to begin to exit the industry and he'll be sharing that with insiders not publicly just with insiders so if anybody's interested in that they can go to our website and goldsilver.com and look at the insider program and see if they'd like to do that but i think that's the thing to focus on is what it will buy you and what the ratio of gold and silver prices are to other things not the prices themselves i think another piece of that jeff that maybe some people could be worried about in a crash like that or let's say inflation like that is the risk of confiscation and so could you tell us a little bit about if that's something that we're maybe going to need to worry about well the risk of that is not zero i wish i could say that but it's not the risk is probably lower now than it was before because gold and silver are not part of the monetary system like they were then they were a core part they backed the currency and so there was a large incentive for the government to want to confiscate the gold the other reason i think the risk is low is because it just won't net the government much whether you're talking about the u.s government i was going to say canada but they don't own any gold but you know or some other country that has gold reserves um you know it's such a small market it's just not going to net them much cash you know i don't know that they could even pay off ten percent of their debt if they got a hold of every ounce of gold that's out there in investable form it's just not going to do much for them let alone try to back the currency now a higher gold price would help with that but so those are the two reasons why i think the risk is lowered now than it was you know back when they did confiscate it but again i don't think that risk is zero i think there is you know a reason to um make sure you own some physical gold in your possession close at hand so you can convert it to cash if you need to and you know by the way if we see gold getting to five thousand dollars or any of these other high prices and confiscation becomes more of a a topic that the governments are discussing well maybe that's one of our clues that it's time to exit you know and sell before that happens so that's always a possibility as well that's a little tricky but um but that's you know something we'll be looking at at the time if that becomes you know a more realistic possibility perfect jeff is there anything that you you know you do a reasonable amount of these interviews but is there anything that people miss and that you would like to talk about well i will say that you know i am a gold bug and a silver bug but i'm a temporary gold bug and a silver bug i will be selling the bulk of it when that time comes and we don't know when that is or what price that will be but i will be exiting the industry in large part maybe not in full but in large part because i want to capitalize and participate in the wealth transfer i really believe that's going to happen especially if we're right about where gold and silver are going at some point i want to participate in that i want to buy some undervalued you know beachfront property somewhere or you know maybe some other real estate or some you know undervalued stocks or maybe some personal things like uh who wants to buy the yacht yeah so you know it a lot of things will be a lot more affordable i think that gold and silver won't just keep up your purchasing power i think they're going to overshoot and i think when they do overshoot they become overvalued and i use air quotes when i say that overvalued meaning relative to other assets that it's time to swap them out you know so i'm not going to stick around in the gold and silver industry as much as i love it you know indefinitely not forever i may not sell everything but i will sell a big portion of it so that i can participate in the wealth transfer excellent lots of sound advice there jeff can you share with us where to find more information and your articles sure it's at goldsilver.com pretty easily you just look on there at our blog and mike does a lot of videos i do a lot of the writing and research for articles so all of our original stuff is there so it's really been a fun thing to participate with the company and generate a lot of these you know articles and interesting research and that sort of thing and they've been very supportive of the things that i've wanted to do and as far as the mining stocks we don't have a newsletter for that but i did kind of agree when i got on twitter that i would reveal what my buys and sells are there so if anyone's interested in following me there it's at the gold advisor on twitter and i do reveal what my personal buys and sells are there not advice of course but but i do say what i've been buying and selling excellent jeff thanks very much for your time today great let's do it again sometime this podcast is for general informational purposes only nothing on this podcast should be taken as investment advice guests on this show are not compensated for their appearance listeners are urged to educate themselves and make their own decisions do not base any investment decisions on the information contained to view our full disclaimer please visit our website [Music] i think you understand the junior mining sector and you think that the participants in the mining sector junior mining sector are good people and kind people hit the bid how violent that term could be it actually could be quite violent uh it could be a rip your face off uh uranium rally and the world is always going to need raw materials it's going gonna be copper and gold and nickel and so forth totally destabilized hey hey troll did you hear what's going on

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Length: 36min 19sec (2179 seconds)

Published: Thu Jul 16 2020