Rick Rule, well-known mining investor and president & CEO of Sprott US Holdings, began his career in the securities business in 1974 and has been principally involved in natural resource stock investments ever since.
He has financed numerous exploration and mining companies over his 45-year career.
Last week, Rule spoke to Stockhead’s Oriel Morrison about why he believes a recovery in the gold price – and the value of gold stocks — is imminent.
Here are the highlights. Scroll to the bottom to watch the full interview.
Are you bullish on the gold price?
“I am bullish,” Rick Rule says.
“In our last interview we were talking about the malaise in the gold price, and I tried to point out that the circumstances – which I described as ‘a cyclical decline in a secular bull market’ – is a common feature if you look back at the two prior bull markets of my career.
“Both of which were 10 and 11 year-long affairs.
“Cyclical declines — where the gold price falls by 10, 15 sometimes 20% per cent – are common.
“That doesn’t mean investors new to the sector find any comfort in the fact. But the truth is, they are common.
“If the factors that contribute to a gold bull market are intact, the gold bull market itself is intact, irrespective of the near-term price action.
“I would reiterate that the fundamentals behind gold are very much intact.
“I think gold and precious metals equities are already in recovery. I believe the cyclical decline is over, and we will soon resume a secular bull market.”
How high can the gold price go?
“Let me give you some historical guides,” Rule says.
“People say, ‘It moved from $US1000/oz to $US1800/oz – have I missed the boat? Is it over?’
“Well, the first gold market of my career commenced in 1970 at $US35/oz and went up to $US850/oz.
“That’s something like a 25-fold increase.
“The second was tamer, beginning in 2000. The gold price in US dollar terms went from $US253/oz over 11 years to a high of $US1950/oz.
“So, one would suggest that this current bull market — which is perhaps four years old — is not even halfway through in terms of duration.
“And the dimension in terms of the gold price being up from $US1000/oz to $US1800/oz – relative to the dimension of the move we saw in the 2000s bull market — would suggest we are really, truly just getting started.”
Has gold lost its safe haven status within a portfolio?
“No, gold is insurance. One issue with people that adopt the gold narrative slavishly is that they have more insurance than they need,” Rule says.
“Which is to say they go all in on gold. Going all in on anything is stupid.
“But I would suggest that the risks on not owning physical gold is higher than the risks of owning gold.”
If I had $1000 – where should I put it? Buy physical gold or invest in a gold miner?
“It depends on who you are. If you are someone that needs protection – say you have a bond portfolio and can’t afford any risk whatsoever — I think you buy the gold,” Rule says.
“If you are a young person with good earnings, or an older person with better savings, and you want to invest instead of buying insurance then you certainly go with the gold equities.”
Is Bitcoin an alternative to gold?
“I think Bitcoin is an alternative, but not to gold,” Rule says.
“The problem I have with Bitcoin is twofold. One, it has no value other than the network. You can’t fabricate it into something.
“The second thing is that Bitcoin ends up being so volatile that it is difficult to use it as a medium of exchange.
“I don’t dismiss Bitcoin as an asset class, I just think it is unrelated to gold.”
What should investors look for in gold companies?
“Look for companies that enjoy strong free cash flow,” Rule says.
“Statistically, the cheap ones are the single asset producers and the mid-caps (400,000oz to 1.2moz per year) with good free cash flows.
“Look for companies with good development pipelines. By the way, Australia has five or six of them – you don’t need to look overseas.
“I would argue that if you look at Australian gold equities, particularly the mid-caps and the single asset producers, they are selling at the lowest multiple of net present value to enterprise value that I have seen in a 45-year career.
“These companies are as statistically as cheap as they have ever been, at a point in time when I believe gold is going to go up.
“That makes them very attractive to me.”
Watch the full conversation here: