Interview conducted by Charlotte McLeod; article text by Georgia Williams.
The Investing News Network sat down with veteran investor Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF) at the Prospectors and Developers Association of Canada (PDAC) convention in Toronto this week to discuss current conditions in the gold market.
“In my experience, in the very near term, in a liquidity crisis like the one we experienced last week, all assets get sold,” he explained.
“The sale doesn’t necessarily take place because the investor wants to sell it, the sale is generated by the margin clerk — people who owned gold on margin experienced a margin call.”
Rule went on to add that similar to 2007 and 2008, he expects gold to ultimately benefit from the uncertainty in the market. “If the policy reaction to a liquidity squeeze is to inject more liquidity, that’s generally very good for gold,” he said.
When asked about the COVID-19 coronavirus’ role in recent market action, Rule said he doesn’t see it as the driver. “I think it’s the trigger — I think it’s an excuse,” he said.
“I think that there were underlying concerns in the market … my suspicion is that there were pressures building in both debt and equity markets for a reset, and we certainly got a good excuse.”
Speaking about the potential for a recession either in the US or globally, Rule said he wouldn’t be surprised to see that, but was quick to remind viewers that he is a credit analyst and not an economist.
“I believe that we are probably overdue for an economic slowdown,” he noted. “This recovery has been in place since 2009, 2010 — that means it’s 10 years old. Historically that is fairly long in the tooth; I would argue that a lot of this recovery has been driven by artificially low interest rates, (making it) credit driven rather than fundamentally driven.”
Watch the video above to hear more from Rule on how timing and liquidity issues will affect the gold price. You can also click here for our full PDAC playlist.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
