Rick Rule: The Wind is in the Sails of Gold and Silver

In the current economic climate, gold and silver are the flavors of the month, according to mining expert Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF).

Speaking at a MoneyShow webinar last week, Rule talked about the main bullish factors to consider when looking at the resource space.

“The first is simply the ascent of man. Through wars, through turmoil, through disease over time, as a species we have managed to survive, we have managed to increase and we have managed to thrive.”

Moreover, the fact that the world’s population is increasing is a good thing from an economic point of view, according to Rule.

“More people, and more people becoming slowly or rapidly more prosperous, increases demand for natural resources,” he said. “So that’s the good news — the ascent of man and particularly the ascent of the bottom of the demographic pyramid.”

But from a macro perspective, there is plenty of bad news to consider. For Rule, the economic expansion that the world enjoyed after the 2008 liquidity crisis was a 10 year expansion that is very long in tooth.

“I would suggest to you that that expansion was due to come to an end anyway, as a consequence of its age, as a consequence of its artificiality … that 10 year economic expansion was driven as much by excess liquidity, by quantitative easing and by artificially low interest rates as it was by any expansion in world trade or individual productivity,” he explained.

That’s why in Rule’s opinion the coronavirus pandemic was more of a catalyst than a cause of the current economic situation.

“My own sense is that the V-shaped recovery that we have seen in equity, and particularly (in) debt markets, is more a consequence of manipulation and in fact outright purchases by the Fed, than it is any sense of economic strength,” he added.

For investors interested in jumping into the markets, Rule said the place to start is precious metals because right now “the wind is in the sails” of precious metals.

“Gold markets traditionally have moved for many reasons, but in my 45 year experience the most important reason is a decline or a lack of faith in government securities,” he said. “And that lack of faith has manifested itself, and so the gold price has begun to move.”

Looking back at prior recoveries from oversold bottoms, gold has moved first and gold equities have moved later. “Silver also moves after gold, but generally moves further and faster,” he said.

That said, Rule is expecting these markets to be volatile in the near future.

“The truth is that precious metals and precious metals equities are some of the most volatile investments and speculations on the planet,” he said.

Giving his suggestion on how to play these volatile markets, Rule said that everyone should own physical gold because it is insurance.

“A little bit of insurance goes a long way — when the gold price moves, it really, really, really moves,” he said. “Buy some and hope the set of circumstances doesn’t occur that makes it go higher.”

But what will happen to equities?

“Make no mistake that if the gold price goes higher the way I think it will, the gold equities will go higher, and in my point of view, probably most much higher,” he said.

Rule explained to the audience that the best and most liquid stocks move first, then down the various quality categories all the way to the juniors.

“Remember again too that silver follows gold. It is the gold stocks and the gold itself that move first, but historically silver and then the silver stocks have moved the furthest — and I suspect that that will be the case now,” he said.

On Wednesday (June 17), gold was trading at US$1727.65 per ounce; meanwhile, silver was changing hands for US$17.52 per ounce.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.