Craig Hemke - Navigating Metal Volatility Amidst Global Tensions, Open Interest At Multi-Year Lows

Hey, everyone, welcome to the K.E.

report in a daily editorial Monday, March 2nd.

We are chatting with Craig Hempke.

Craig is the founder and editor of TF Meadows report.

We're going to be talking precious metals, but Craig,

there's a whole lot else going on in the world to talk about.

And it's a lot of geopolitics again is now the world or at least the US

went after Iran and we still have missiles, I think being shot kind of

in and out of there causing a lot of volatility in

the oil price, that's for sure.

But it's also a fair bit of volatility in markets and metals,

but metals have been volatile for a while.

Really, if we just take a step back, we're starting off March with

gold over 5,000 over 5,300 actually in silver right now,

right around $90 an ounce.

It was up a lot more earlier today or really overnight tonight as

the markets were opening up after those US attacks in Iran.

But again, it's volatility, but when you consider just what we've

seen already this year, it feels like we should be at the end of the

year for the kind of volatility we've seen in the metals.

But Craig, what do you take away from where we are to start March

in precious metals after what already has been a wild two months of

trading?

Isn't it though?

Goodness, great.

You're right.

It feels like time flies anyway, but it feels like it should be even

more than just March the first because it's just been such a

crazy two months.

And really outside of that just complete wipe out day that we had

just one day that Friday, January the 30th, I mean, the trade has

been pretty positive.

We finished the month of February at all time highs on that day for

gold price and for the GTX silver off of its lows of February,

the fifth came up something like 43% over the remaining three

weeks of the months.

We've had a heck of a rally.

And even here today, we're still hanging in there.

Yeah, it's been a frustrating day to watch, but you know, look,

we know here in the US so much of the trading is done by a

computer, you know, sometimes on the New York Stock Exchange,

you have days of volume that's 75 85 90% high frequency trading

computers, and that's what I think we're seeing on comics today.

Yeah, we're down, but we're not down as much as we were up on Friday.

If you average that out, I mean, price is up about $2 if you put

them together Friday to Monday.

And when you get a day like today, where there's a huge rally in the

dollar index, which is mainly just a safe haven trade, but you

combine that with some extremely low open interest in comics,

gold and comics silver, comics gold, lowest open interest at this point.

In seven and a half years, you got to go back to the middle of December of

2018 to find total contract, open interest is low.

You got to go back to July of 2023 to find open interest is low in

comics silver.

So you have kind of scant liquidity.

And then you get this, all the algos on the one side of the boat,

because the the dollar index is spiking.

And then all of a sudden you get this wipe out comics silver was $95

when the comics started trading at 825 Eastern.

And it fell what to 87.

Again, it's not logical.

It's not anything that maybe human beings are doing as much as it is,

just computers trading in a pretty light environment.

So it will let you see, it is only Monday.

We have an adage at TF Metals report.

We talked about it's not how you begin the week.

It's how you end it that matters.

And then we got a lot of week left to go.

Well, Craig, we sure do and it seems like every day is a rollercoaster ride in

these markets.

Just to the point you made, I don't think it can be emphasized enough that

February closed so strong.

It was not just all time weekly highs, but all time monthly highs for gold,

for the GTX GTX J had a 14 year height.

So hasn't eclipsed that that prior peak, but it's still breaking out to new levels,

copper, all time, weekly and monthly closing high in February.

Copics, same thing.

I mean, we're seeing such strength in the metals and even in the resource stocks

and silver clawing its way back.

A lot of people were in a doom loop with silver thinking it was going to crash

down into the 40s, but seeing it in the mid 90s overnight,

I actually thought we'd start the week on a stronger foot here.

But to your point, the algo trading and some of that dollar weakness is what's

causing it to move down.

But from an institutional perspective, from a big money perspective,

from a generalist perspective, don't you think people are going to be looking

at those weekly and monthly charts and still staying in bullish mode in the

metals?

Yeah, the intraday and daily stuff is really the realm of the day traders.

And I mean, I have nothing but respect for those people that can do that and

make a profit at it because in these markets,

that's, you know, you get whips on pretty good.

If you're an investor, though, it's not the hourly chart that matters.

It's like the monthly chart, the quarterly chart.

And that's what demonstrates and opens for all to see what the actual trend is.

You know, we entered February.

Everybody's, oh, shaking their boots.

You know, he saw those big ugly red candles in January of the 30th.

But the monthly chart for gold, the monthly chart, even for silver,

but also the shares as we end of January, look fine.

We finished January above even the intramont high that we'd seen back in

December.

In my book, that's always very bullish.

And so we waited.

We saw things played out in February and look at had even better months.

Again, as you said, shed closing at all time, monthly highs by the time we

wrapped it up back on Friday.

So we'll see where this month takes us.

This, the geopolitics of this are, I mean, you talk about, you know,

they always talk about war being all of full of unknown unknowns.

I think that's an old Donald Rumsfeld line.

And that's exactly the case here.

I felt confident in discussing things where my site over the last couple of

weeks that this is where it was headed after the US grabbed up Maduro.

They made it pretty clear that they weren't going to just be issuing letters of

condemnation anymore that they were going to try to get some stuff done.

And so with the build up and everything, you know, it seemed like this was where

it was headed in no case.

So now here we are.

Well, now you, what you don't know where the unknown, unknown, how long is it going

to play out as it pertains to crude oil?

I look, it may go straight back down as we peaked up in June.

We went all the way to 75 or eight or whatever it was.

And then we had the bombing runs, you know, the 12 day war and all that

seven, which straight back down went all the way to 55 by the time we got late

November, early December, whatever it was.

And that may happen again.

But if, if this becomes an actual existential threat to the Iranian regime,

I mean, they may, they may really muck things up over there on their way out.

And I think that's worth watching because it'll impact the crude oil price,

which in turn will impact the global economy, which will that impact interest

rates and 4x and everything else.

So this is the time to be alert, like a trader, but also a while keeping your eye

on the long term charts, like an investor.

Yeah, who knows how this war is going to play out, but boy, boy, what a move over

the weekend again, the UF flexing its muscles.

But Craig, I want to go back to the COT reports where you just said, gold,

lowest interest, open interest in seven and a half years, silver,

lowest interest in two and a half years, is that because it's so volatile that

a lot of people then sit on the sidelines?

We've seen a lot of generalists on our show ride the wave higher in the

precious metals, but a lot of them right now are on the sidelines.

They're actually starting to nibble again and take some positions.

But is that just a microcosm of again, this massive volatility we've seen

that forces people to move to the sidelines?

Yeah, I suppose, you know, in the volatility causes the margin hikes and the

margin hikes, forced traders to the sideline too.

So there's all these different factors that have played into it.

But I mean, you go back to when we were at all time highs in open interest,

about six years ago, right before COVID, I think we're the all time highs back

in February of 2020.

Coates gold got to like 844,000 in total open interest.

Something like there's no, seven, I get my numbers, 799 I think is what it was.

It's not in a 410 or something like that.

I mean, half silver is down by more than half.

That's where I got my 44.

It peaked at 244,000 contracts of open interest six years ago.

I mean, as of Friday night, it's 115.

So I don't know.

It's a loss of investor trader interest because of everything's going, you

know, that maybe pricing's being somewhat made now in China and other place

around the world.

I don't know.

It's a whole bunch of things combined.

But it way, you know what?

Definitely leads me to conclude is we're not in any kind of bubble.

I mean, you got that like crazy over the last month.

Oh, it's a blow off top.

It's some speculative bubble.

Well, you look through it.

I mean, whether like the, if you're to combine it into what they call the

large speculator category on the legacy report of the COT reports,

in gold, the combined large speculators have a net long position.

That is the smallest.

It's been since the report that was surveyed on February the 27th of 2024.

That's a long time ago, right?

Two years ago, that was before price broke out above 2100.

And so we're back to the, you know, the human combined bullishness,

if you will, of all the speculative money.

Again, the lowest level since then, the hedge funds, if you, as a subcategory,

also smallest position in two years.

And it's the same thing is true in silver.

I mean, we've seen again, you think it's the hedge funds that are trading in and

out and they're all running to the exits today and all that kind of stuff.

Are they?

I mean, they were only last Tuesday, net long 8500 contracts.

That's down from like 45,000 back in the third quarter of last year.

So there's just been this, again, this, I don't know what we want to call it,

lack of interest, people leaving the market, leaving the price discovery process.

And you're left with just these, when you get high volume,

it's with fewer market participants, which basically equates to less depth.

And then that all eventually trickles out into price,

which is why you see price go up $5 one day and down $4 the next.

Yeah, Craig, it's very interesting because despite the big moves up in the price

and both gold and silver and the related equities,

it didn't have the same tenor as like a bubble top or a blowoff top.

But there was a lot of volume that came into ETFs and even the leverage ETFs,

the inverse and the 2X and 3X leverage.

So maybe it's gone digital as opposed to showing up on the COT reports.

It's hard to know.

But what we can say is we're two out of three months through the first quarter here.

And we've talked about this with you before.

We're not going to catch it for the next couple of weeks.

But you know, all things considered,

unless gold and silver fall out of bed so bad that it erases the first two months

of January and February, we're going to have a step change way higher from Q4 into

Q1. And there's gamesmanship around how people position in the producers for that.

How are you looking at that?

We just got a lot of the Q4 earnings.

They were pretty good.

They're a lot of records.

So I guess that's better than pretty good.

But do you think the step change is factored in yet?

Well, that said, it's an investor's stuff we're talking about.

You know, again, you go back to January the 30th and the panic and the GDX dropped to 94 or whatever that day.

And the GDX finished Friday, what, 115, something like, you know, whatever up 22, 23% of the month.

So, you know, what was going on there?

Well, everybody was all bearish at the end of January because of what happened.

But then the fundamental reality kicked in.

All these miners started reporting their earnings and everybody went, whoa.

Now, we got to get some of these.

And so you had this, I mean, I'm at 22% in a month.

It's pretty solid for any sector.

So as you rightly point out, Shad, we're now two thirds of the way through the first quarter.

What have we seen outside of, you know, what looked like some side deals on some of these companies?

What the average selling price in the fourth quarter, what, maybe 54, 55 for silver?

Is that sound about right?

Is that what we've seen so far?

Yeah.

And a few actually reported even higher because they were able to forward sell it.

So that's what actually got the 60s.

But the 50s is average.

And then 4200 for gold, 4200 gold.

Okay.

So let's just eyeball the chart.

You know, what's been the average price of silver so far for the first two months of the year?

It's got to be 95 to 100.

Ish, maybe a little bit, but more than 54.

Okay.

And gold's the same way.

I mean, what's, I mean, here even today we're still 53.

And so what gold's going to be what?

Average selling price can be another 20% higher first quarter over fourth quarter.

So again, you look at then days like today, we're all, you know, all of a sudden, again,

this rush of what has to be just computer selling on New York Stock Exchange.

And the GX goes from 115 to 111 in like 30 minutes.

But how is that's not at all factoring into what has already been a lot of gold and silver

sold by these mining companies in the first two months of the year at these extremely high prices.

So now again, you might say, well, you know, well, by the end of this quarter and into spring time,

gold's going to be back at 2000 and silver's going to be back at 30.

And that's what the market is going to start pricing in.

But if it's not, you know, and we just paint another green monthly candle on the chart here in,

or, you know, or even just a flat candle in March, boy, those next hit earnings are going to be

even better than the most recent one.

And so that's where again, we got to stay nimble and pay attention to the headlines and all this

geopolitical risk like a trader.

But we also have to be cognizant of the fundamentals in the long term trend and remain investors.

Now anything else catch your eye in terms of those earnings.

Couple of things that stood out to me was we did see a lot of share buybacks.

Well, we're seeing dividends get paid back to shareholders.

But the miners seem to be focusing a bit more on share buybacks rather than paying dividends.

And I think it's barric that has come out saying that they're looking a lot more to acquisition.

So anything else that you got from the earnings reports or the calls afterwards, Craig?

Well, in gold that the free cash flow, some of these big companies are generating is just out.

What it wouldn't newmont like a billion dollars or something like that in the quarter alone.

Even some of the small and smaller ones, but Agnico Eagle was 330 million or something of free cash.

Anyway, if they're not, you know, turning that right back into buying back dead or increasing the

dividend and that kind of stuff, then yeah, you would sure think they must be considering that, you know,

they've got these depleting resources, especially some of the bigger ones, you know, they're continually drawing down.

They got to start thinking about adding back onto their pile.

And so M&A, you would think that's just going to become more and more prevalent as this year continues.

You know, the other question.

And again, I, I'm so busy just watching the medals and everything else that's going on the world that I didn't get a chance to dig it.

What was it? A shadow mentioned was a heckla and who was the other first majestic that had an average realized price of like 69 bucks?

Yeah.

What did you ever, did you see, I mean, because I never saw, and then again, maybe they don't say, but to whom were they selling?

Because that, that would be an interesting thing to know.

Well, there was some information put out by some other people that I haven't verified that they were basically forward selling certain things that got held.

And so they realized price happened later.

And when it happened later, they actually got a higher amount.

It was retroactively focused back on Q4.

So they were actually sold in Q1 and then got paid on them in Q4.

So there's some kind of weird gymnastics going on there.

But I guess the point being that those kind of numbers are what we can expect from all the silver companies for this quarter or higher.

Well, that in, you know what, and that's, I think in the end, that's the right way to look at it.

Because then that was based off of 69.

What's it going to look at 89?

And so again, got to stay nimble and be aware of what the risks are.

But there's a reason why the GDX was up that much that much.

There's a reason why it's making new all time highs, the SIL and all these other ETFs and all these mining shares.

Heck, I've got some that I own that are up 10 and 12 fold.

I mean, there's a reason behind it.

Now, if you see the reason change, see something fundamentally different coming around the bend.

Okay. Well, you know, well, we're going to move pretty quick to lock in some of these gains.

But the longer price stays up at these levels and then it begins to extend again.

I mean, again, you guys and your, your listeners know, I mean, these are just multiples upon multiples of earnings growth that if price keeps

rallying have yet to be factored in.

Well, Craig, I got a good question for you.

You seem like the right guy to ask this too.

We have a lot of people constantly weighing in on whether there'll be enough physical to settle things on the comics.

What that could mean over they settle in cash.

You're seeing restrictions in China on some buying and in different funds where there wasn't enough silver.

You're seeing things like that happen in India where at one point they had to halt trading on some of their new ETFs because there wasn't enough silver.

So we're hearing a lot about the lack of potential silver to even backstop some of these big ETFs and funds globally.

And Willem Middlecoop, we've had on the show before he's a sharp guy put out a thing is saying in the future, if there's a scarcity issue with the physical,

more and more of the world will turn to the mining stocks as their way to get exposure when it becomes unobtainable.

What do you think about those comments that statement, are we running out of the physical in the exchanges?

Will people have to shift to the stocks if there's no more physical available?

Is that just hyperbolic? What do you think?

Well, that's a multifaceted question, Shad.

You guys can just get up and walk away for a while. I'll take the mic for the next 15 minutes.

Regarding the shares, that's kind of what happened back in 78 to 80.

You know, when you see some of these charts of, you know, companies that went from 50 cents to $40, that sort of thing.

It's because there was a, where else were you going to, if you wanted to play along, what else you're going to do?

There weren't any ATFs or when, certainly when the Bitcoin, all that kind of stuff.

And you weren't really maybe holding a lot of physical metals.

You played along with the shares.

So there's precedent of that kind of thing happening in terms of impacting the exchanges globally.

It's maybe more of a local concern.

We've seen the vaults in China get depleted by about two thirds over the last year and a half, two years now.

China probably, whether they let everybody know or not or whether it is yet to really get it going,

it probably could be the largest silver producer in the world if they wanted to.

And who knows how much they actually produce?

Because I, you know, like anything else, it comes out of there.

How can you really trust what they report?

But, you know, India is another market that maybe could have some structural issues.

If there's not enough physical supply because they're obviously a net importer of silver too.

The stuff on the comics, I've, man, I've tried to bat all this stuff away.

I, look, there's a lot of folks out there that are raging with hype and clickbait.

And trying to get followers and stuff like that, even here's a funny one for you.

Shad, you can appreciate this in trying to point out to people that the March contract,

the delivery month March contract was not going to cause a comics default.

Well, don't you know, there's a hundred thousand of open interest right now.

That's 500 million ounces and there's only 90 million registered.

Yeah, well, it's not going to be 100, you know, 500,000 contracts standing for delivery.

It'll be lucky. It'll even be 10 and in pointing that out, I, me, I got called a shill and a troll.

Look, what? Wait a second.

And so low and behold, when it went off the board back on Thursday night, there were 6,000, you know,

for 30, 30 million ounces.

And that's, it's just going to be a regular delivery month.

There will be a time, you know, if we can keep the physical demand going and investment demand,

everything else, we're the leverage of whatever silver they have in the comics fall.

It eventually gets stretched so thin that yeah, they're going to have issues.

But despite the hype and everything else that goes with it, it's not going to be this month.

It's not going to be May, okay.

But there are the places you can watch around the planet.

India, China, you know, something on an allocated account programs that are run, you know,

by various banks and others.

Those are the places you want to watch, not the comics.

Craig will wrap it up there.

But I think we've all been around for at least a couple bull markets.

And yeah, when it is a bull market, we start to get some of these comments that quite frankly are a bit crazy

and even more so, just click baity.

And that's what we're seeing right now.

But yeah, if you just stick to I think to the longer term trends and try to ignore any of these so-called shock

or big day moment type things, you usually just do better in this market.

But hey, you also get called a shill.

So thanks for your time, as always, Craig.

I like to listen to what you have to say rather than some of these other so-called commentators out there

that generate a lot of clicks.

But if you go back through their track record, they just come up with a whole lot of stuff that doesn't pan out.

But if you want to follow along with Craig, click that link in the show notes or just search TF Metals report.

Craig, thanks for your time today.

Have a great rest of your week.

All right, guys, you do the same.