Rick Rule, Chairman and CEO of Sprott U.S. Holdings Inc., which focuses on management of real assets for its clients, recently gave a presentation at PDAC 2019, the mining and exploration convention in Toronto.
During his presentation, Rule spoke about the major trends in the global macro economy. According to Rule, commodity prices remain low, and the industry cannibalizes its capital. This is called supply destruction. Companies are unable to make new investments, so the industry depends on old ore deposits.
Rule argues that this phenomenon is extremely bullish for metals: When demand remains constant and supply is obliterated, prices must increase to sustain a balance. The mining industry is capital intensive and relies on finding new deposits to ramp up production, so it cannot increase supply in the short term to follow the pricing signals. For instance, it takes up to six years to increase copper supply.
The US has $22 trillion in debt and close to $140 trillion in unfunded liabilities (Medicare, Social Security, etc.). At some point, our government will most likely need to default. Here, two options exist: An honest default means that the government admits that it cannot honor the promises it has made, while a dishonest default is when the government inflates the US dollar to make the debt “disappear.”
Either option, says Rule, is great for gold and silver demand and could mean that their prices quadruple.
He also points out the we are experiencing a situation similar to around 2000 when both gold and the US dollar showed strength. Typically, the two trade in opposition to each other. Back then, the dollar eventually gave way, and gold prices soared. He is optimistic that history will repeat itself.
Rule says that, sometimes, the price of gold breaks out as a result of long periods of accumulation, and he says we are building up to this happening again, albeit as a slower and steadier rise in the gold price. The public’s perception of the US dollar’s long-term purchasing power will steadily decline, resulting in a diversion from US-dollar savings products into gold.
Of investable assets, the share of gold and gold-related assets is currently 0.33–0.50%, compared to around 8.5% in 1981. The three-decade mean is between 1.5% and 2%. If the metric returns to the mean, Rick Rule says demand for gold, silver, and precious metals equities will at least quadruple, hence their price.
I’m always ready to provide advice for clients who wish to diversify into gold, silver, or other precious metals. For a free non-committing consultation, schedule an appointment with me here or learn more about investing in a precious metals IRA.
About Kevin Troy
In his more than 16 years in the financial industry, Kevin has focused on precious metals as investment assets. He has penned numerous articles on buying and selling precious metals and about the best entry and exit strategies for the financial markets. Thousands of clients have benefited from Kevin’s expertise and learned to protect, preserve, and safeguard their investments with precious metals. Kevin has been with Gold Alliance for more than 2 years as a leading Sr. Portfolio Manager, and he oversees a large portion of our clients’ portfolios.