Gold investors should be prepared for frequent and fairly steep price declines, said veteran investor Rick Rule — even in a bull market.
Gold’s price decline this year has some investors concerned, but for veteran investor Rick Rule, the yellow metal’s fall isn’t something to be worried about.
Speaking this past winter, when gold was priced around US$1,800, Rule said gold was likely in “a cyclical decline in a secular bull market” — several months on, he believes that’s still the case.
He emphasized that even in a gold bull market like the industry is seeing right now, cyclical declines can occur. In fact, they can be frequent and fairly deep, he told the Investing News Network.
“I would suggest that investors who can’t stand that volatility — that they simply exit the sector. It’s a factor — it’s part of participating in the sector,” he said.
Rule, who recently announced his retirement from Sprott (TSX:SII,NYSE:SII), will continue working at the company in a reduced capacity, and continues to see opportunity in the overall commodities space.
“If we can continue with the benign economic climate that we have been enjoying, irrespective, I think, of its origin, then the near-term outlook for the commodities business is good,” he explained.
That said, in Rule’s opinion, it’s more likely that the current economic recovery will falter. In that case, he would expect the “reflation trade” to be postponed by two or three years.
“But make no mistake,” he said. “A decade of underinvestment in exploration and construction and development will hamper the supply of industrial commodities for a fairly long time. That means that we will almost certainly — either sooner or later — enjoy the type of trade across industrial materials and energy that we saw in the 2000 to 2006 or 2007 bull market.”
Rule concluded, “It’s really a question of pay me now (if the economic boom continues), or pay me later (if this boom falters, but the supply-driven constraints rise later in this decade).”
Watch the interview above for more from Rule on the resource space.
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Securities Disclosure: I, Charlotte McLeod, 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.