Transcription
Hello everyone. Welcome to the Vancouver Resource Investment Conference. How you all doing today?
Gold and silver have sold off dramatically since this conflict. Uh, obviously, uh, the yields were up. Um, gold and silver down. Uh, much of the stocks were were down and such. And so, just want to get your uh, perspective on uh, the precious metals uh, in this environment.
Most people thought that, oh, you know, a conflict, gold runs up. Uh, typically going into a conflict, and we did see this in 2022 with Russia and Ukraine where we saw gold run up significantly, and then it then it sold off um, once the um, the the war started and such. And we saw that looks very similar to what just happened uh, with um, Iran. And so, I'm curious in your thoughts on on the precious metals.
Look, you'd be interested to know that um, I mean, the that's the commentary is that gold is uh, it's a hedge against uncertainty. Um, and that's there's there's often times when that's true. Um, but it can also get caught up in uh, a fund flow malstrom uh, which is happening right now. I think people might be interested to know that in Gulf War I, one, which we had talked about, gold, gold sold off. I think people would be interested to know that, you know, when we had the Long-Term Capital uh, fiasco in 1998, gold sold off. 9/11, gold sold off. Uh, in after Lehman collapsed, gold sold off a lot. And you'd be thinking, "Wow, why I thought gold was a hedge against uncertainty."
Well, like what's happening now, uh, you have a situation where everything is going down. Everything is correlated with the oil price. And so right now, if you have margin calls because so much of the uh, say in the equity market, so much of the buying in equities was on leverage. Uh, so you have a lot of margin calls going on right now. Uh, so investors typically sell their winners. Uh, so, you know, gold is still up something like 40 or 50% over the past year. You know, like if I told you a year ago gold's going to be up 40 or 50% a year ago, and yet we'd be talking like slitting our wrists over the gold price, you'd be saying, "But isn't going to go up 40 50%." Well, yeah, but it's going to do a partial round trip. But it's facing these um, margin calls. Uh, so you're seeing uh, the selling of gold to meet the margin calls that often happens after you have the sort of seizure we're having right now in the financial markets.
On top of that, dollar strength, don't forget when when we were all very bullish on gold, the dollar, everybody's talking about dedollarization, uh, the dollar was going down. Now the dollar is going up. Uh, and real interest rates were low. Now real interest rates are going up. Um, so that's what set the stage for the decline in gold prices. Uh, you know, silver to me is just, uh, as my friend Rich Bernstein, uh, would put it, a high beta way to play gold. Um, and there's typically a lot more speculation. Go, silver swings around a lot more than gold does, you know, as we've just seen in the past several months.
Uh, the other situation is that you had a lot of weak hands in the gold market. Um, and when you go into the Comex futures and options pits and you looked at the net speculative position amongst non-commercial accounts, it was going crazy when when oil when when gold looked like it was going to break towards $6,000. I mean, it did the chart didn't look as nutty as silver, but the gold chart started looking really crazy because, you know, going into say October, we were settling into a 3500, 4,000 range. I had a 6,000 ounce peak, but I thought it was going to come a few years from now, and then we almost hit it uh, like at a blink of an eye. Um, so what's happened is that you had a lot of weak hands, a lot of speculators in the gold trade, and it became a crowded trade. But what's happened now, and this is actually a good thing, is that the net speculative long position in the Comex on gold and those futures and options pits have been sliced in half. So the good news is that a lot of the weak hands, that negative fund flow effect, a lot of that is has already taken place in the rearview mirror. Um, but that explains what's happened with the with the gold price, the the weak hands getting out, you know, that drove the parabolic move. Um, higher real rates, stronger dollar, uh, and um, and of course, the fact that you've had selling to meet margin calls. And it's not the first time this has happened. And actually, I'm still a long-term bull on on gold. And I think that I think we will reenter that $3500 to $4,000 range. And um, I'm going to get back in in large increments um, once that happens, but I expect that to happen.
>> Okay. So uh, liquidity has been uh, a big topic, especially with the recent uh, credit issues in the credit markets uh, as well as, I mean, obviously gold being a source of liquidity. Uh, we're also seeing, I'm just looking at the uh, the S&P, the SPY chart. It looks like it's just rolling over um, and such. And so, uh, do you think being in, um, cash or, you know, T-bills or bonds or whatnot could help, um, investors during this time? I mean, obviously, you know, if gold goes down to 3500 to 4,000. Um, you know, you got to have the dry powder if you want to load the boat. And so, um, for me, I I've been getting more in the T-bills and just curious in your thoughts on that on that particular strategy.
If you so, congratulations if you've been in T-bills um, and yeah, I would say that uh, liquidity is very important right now in times like this. Uh, I would say that um, a couple of things. The the first is that uh, until this, until I'm not going to say the war ends, until the Strait of Hormuz is opened and the stranglehold on the economy uh, finally comes to an end um, uh, you you want to be in cash in US dollars. Uh, you want to be in uh, oil. Uh, you want to be in the ENTP and integrated stocks, and that's basically about it. Like nothing else is working.
You know, you said to me earlier, well, you know, gold is usually a hedge against uncertainty. We're in a war right now and military budgets are going up around the world and all this stuff is going to have to be replaced. All these armaments, you know, and you look at uh, the S&P 500 defense sector, you look at stocks like uh, like Raytheon and um, Northrop Grumman, and they're down like 12, 13%. I mean, they're down more than the market defense stocks. Uh, yeah, Philip Morris is down like 8 and a half percent. Philip Morris, what what does Philip Morris have to do with the war in Iran? Uh, you got the healthcare stocks, right? You have CVS, you have uh, um, uh, you uh, uh, down double digits.
>> Mhm.
>> Right. What does that have to do with the Iran war? So people are just, it's really broad-based selling, and we haven't even reached a panic yet. Like you showed that chart, that's not panic. Panic is when the VIX gets to 40 or higher. That's panic. There's there's no panic right now, but it doesn't feel very good. Um, so I think that um, there's there's nowhere to really hide. Uh, the places you thought you could hide in gold, uh, in healthcare, uh, tobacco, uh, defense, uh, nothing nothing has worked uh, because nobody wants equity risk right now, and no one wants credit risk. Uh, and of course, you brought up what's happening uh, with uh, private credit.
So, I would say that uh, that's all you got up until this trade opens. And then the Strait opens, you want to get out of that trade. Uh, and um, go back to what was working uh, before the war started. Um, but you don't I wouldn't suggest anybody be too quick on that. You got to make sure that the Strait is open uh, and that might take some time because there's going to be some test runs cuz just one drone will upset the entire Apple Cart. Okay, so it is a tricky situation. I'm not saying that it's not. Um, but you want to wait till then and uh, not be too early and then go back to what was working. Uh, like gold was working. Gold was working. Um, you know, the MAG 7 still wasn't working. I'm not saying to go back to the MAG 7. And and we're seeing the complexion in the AI trade was already changing long before this war. And you had to become a lot more selective. Like the AI trade became um, really finding needles in the haystack instead of the rising tide lifting all the boats.
>> Mhm.
>> Um, but a lot of the stuff that was working, healthcare was working, defense stocks were working, that stuff will will work again, you know. Uh, so, you know, I go back again because I'm trying to find at least one template as imperfect as it is. So I go back to the 1990, 1991 Gulf War and and the good thing for me is that most people don't remember it. But that war ultimately ended, and people tend to forget there was a lot of anxiety, and you know what Saddam Hussein was sending Scud missiles into Israel. Um, that war didn't end overnight, but you know, if you if you waited to just till that war ended, which was say early February of 1991, the S&P was up 14% in the next year. Bond yields came down, inflation came down, the Fed was cutting interest rates, so it went back to the environment we were in before Gulf War one. And that's what I think is going to happen. I just can't handicap, you know, what the date is going to be. Uh, so yeah, so you want to have the liquidity on hand.
I think right now if there's a really appealing trade, it's that I don't think the Fed is going to be hiking rates. We've gone from pricing in two cuts. Even the last dot plot, which was what, March 18th, the word already started, the dot plot, people said the Fed was hawkish. Well, the median dot plot was still one cut for this year. Now we're now we're pricing in uh, the prospect of a rate increase. Um, the Canadian. So, so I like the front end. 4% two-year notes, pretty damn attractive. Um, especially if the Fed doesn't raise rates, and I don't think they will. The Canada, same thing. Your price for like two and a half to three hikes in Canada. The front end looks very attractive. Um, so right now if you're looking for an opportunity, if you're looking for um, something to buy that uh, looks very attractive and that has some certainty, my my certainty level is very high that they're not going to raise rates. And if that's my forecast, cuz in this business um, of forecasting, uh, your assumptions drive your conclusions. My assumption is that the Bank and the Fed aren't going to raise rates. My assumption is that the Bank of England is not going to raise rates, and they're also priced for multiple rate hikes. So, you want to buy the front end of these curves. Uh, Canada, the US, and the UK. I think that's a good trade right now. Um, the ECB, I'm not so sure about, and they're priced aggressively, too, for rate hikes, but the ECB has been prone to make policy mistakes in the past, like they did in the summer of 2008 when Trichet hiked rates two months before Lehman collapsed. Great move.