Transcription
We were trimming in January. We're not really selling now. Prices down, valuations down, sentiment weak. I mean, that is just the perfect setup for a strong move.
>> Special coverage from the floor of the Rule Symposium is brought to you by Palace of Gold. Adrien Day joins us here at the Rule Symposium. He's the president of Adrien Day Asset Management and the portfolio manager of the Europacific Gold Fund. Adrien, welcome back to the show.
>> Oh, good to see you again, David.
>> Good to see you in person. We had you on over Zoom just a few weeks ago. It's always better in person, I feel like.
>> Always.
>> How are you evaluating the sentiment here at the Rule Symposium right now versus a few months ago when we talked at the Vancouver show, I guess, >> also at Beaver Creek?
No, I think the sentiment is definitely positive. I mean, remember these are gold investors. So, these are people by and large who've been invested in gold a while. They've made some money in the last few years. No, I would say the sentiment is quite bullish, but I would call it realistic.
>> How many people are concerned about the pullback from 5,000? If they're long-term holders, why do they care?
>> Oh, I don't think they're concerned about the pullback. There is a concern. Are we going to see another pullback? You know, if gold breaks down, let's say gold retests for recent low and fails on that retest amid all the hawkish talk about interest rate hikes. if we break if we don't uh if if we fail on that retest you know we'll be down to 3600 >> not the end of the world uh but the stocks of course will come down meaningfully from that so there's not a lot of concern about uh what they've lost already from 5500 but I would say there is more concern about the possibility of another pullback >> they're probably concerned also about the possibility of higher interest rates which may affect the dollar positively and gold doesn't like a stronger interest rate or a stronger dollar.
>> Well, exactly. At the moment, we've got the worst trifecta. We've got a higher dollar. We've got um you know, higher CPI, which means, you know, the potential for higher interest rates and of course bond yields. The bond market's already done what the Fed hasn't yet done. Yields are up. So you got a higher yields, higher dollar, and the potential for higher interest rates. You know, that's that's negative. That's negative for gold. Now, let's not remember, let's not forget two things. One is we still have negative real interest rates. You look at the CPI, which understates inflation, but forget that. You look at the CPI and you look at the bond yield and we have negative real interest rates. And the other thing we're talking about the Fed, you know, is obviously obviously the sentiment right now is that the Fed is going to raise rates. You look at the Fed's Fed Fed futures, Fed funds futures, you know, over 80% in January were saying rate cuts this year, cuts with this plural. And by April, 80% were looking for rate hikes >> this year and next. So the sentiment swang dramatically and the gold price reflected that. Part of the part of the sentiment for higher interest rates of course is Kevin Walsh coming in and the hawkish tone was backed up by the higher CPI, right? And the strong jobs report, remember? So both of those two things were saying, oh, they can and maybe should raise rates. What have we seen since then? Well, the last jobs numbers we we had were pretty pitiful. And not only was was the um latest month pitiful, but they uh revised downwards, you know, the previous strong number.
>> Uh so that's one thing. And um with the oil price coming down, you know, we know that one of the reasons that the that the CPI rose so much um in April and May was because of the higher oil price. Well, with the with the oil price having come down, that should feed its way through to gasoline prices. So, we should see a lower CPI number, I think, only temporarily. Um, it always takes longer for a lower price to feed through to the gasoline pump than a higher price. You know that, right? When the price of oil moves up sharply, it's reflected in the gas prices very quickly, very soon, but it takes 6 8 weeks before it feeds through on the downside. So you've got a situation where the jobs numbers now the job situation now by government owned numbers doesn't look as good as it did a month ago and the in the CPI number could be weak uh for July and August and so I think a lot of the pressure on the Fed to raise rates will perhaps be removed. That was a long answer but I'm sorry.
>> Uh following on the same train of thought, economic growth has been quite robust in Q1. Y >> revised up to 2.1%. I'm talking about Q1 GDP. That's a sharp move upward from 0.5% in just a prior quarter in Q4 2025. Does this stronger uh economic growth number indicate to you that perhaps not all oil spikes lead to a recession? Maybe this time is different.
>> Uh, well, I'm not going to say this time is tiffing, but four most dangerous words in the investment lexicon. I mean, I certainly think, yeah, the economy has been more resilient than I thought it would >> and there is an awful lot of um, you know, there's a lot of cushion in the economy right now. And so the a higher oil price and of course oil prices are nearly back down to where they were in January. They're already back down below they were when the war started, >> right? Um, but if if we get a higher oil prices, remember that that doesn't affect the US as much as it did, you know, in the 1974 oil embargo or in 1990 invasion of Iraq or in other oil price spikes. Previous oil price spikes which led to US recessions were when the US was a net importer. Now we produce all we're now in oil uh self-sufficient. So the impact of a higher oil price will have less impact. Um, but I frankly think we'll have to wait and see if oil shoots back up to 120 and then up to 150. I I I think that may still lead to a recession, but we'll we'll see. But certainly the economy at the moment is much more resilient than I thought. A lot of cushion in the economy. So I think it can it can certainly withstand higher oil prices.
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>> Yeah. Caution aside, are you I'm talking about caution with the gold uh price itself. Are you cautionary on the gold mining space with the GDX falling 35%? Is this a good buying opportunity?
>> Um well yes and yes. Am I cautious? Is it a buying opportunity? You know, yeah. Yes. For if if if gold breaks down as I think it might. Is it a 20% possibility? I don't know. But if it if it if it does go when I say break down, I'm sorry. If it breaks under the previous uh support level, the previous low, obviously the gold stocks will come down lower. But if you look at the gold stocks on a price basis as you said 35% down from January on a valuation basis valuations within the lowest 20 percentile of historic valuations you look at um anything you care to look at there was a report out by Scotia recently which looked at the gold stocks maybe 20 of the producers and they looked at them on the basis of all um different valuations page of on valuation metrics and on virtually every single one the space is within its lowest cortile today. Um so so the valuations are low and the sentiment David is extraordinarily low. We are still getting withdrawals from the GDX. People are not taking advantage of a low and as you know the bullbear sentiment index is hovering around 7 to 7 and a half% bullish on gold equity miners which is in any bull bear sentiment index you know they do this for stocks for the dollar for different assets but on any go a bull bear sentiment index to be down at 7% is is very very very very weak I mean it's it's an extraordinary low number um for any any market at any time. But one day, two weeks ago, we actually had zero bulls in their sample. We had a zero bullish sentiment. So the sentiment is just about as weak as it could possibly be. So price is down, valuation's down, sentiment weak. I mean, that is just the perfect setup for a strong move. And so what we're doing frankly I mean if we've got a conservative global account who opened 3 years ago and we had a 20% gold allocation for him and we've sold a little bit on the way up but that allocation he now owns 35% in gold. I do not feel the need to buy any more for that client. If we have a client that opened in January and I bought a little bit but was nervous about going all in. We are definitely buying more now. Definitely.
>> Market moves aside, I'm talking about the underlying metals um gold, silver. Market moves aside, what have been the most frustrating hurdles for your particular investments to move up? I'm talking about company specific events or milestones that you would have wanted to see as an investor that maybe didn't happen in the last couple years.
>> Um was there a trend? No, I don't think so. We always I think we always tend to be more, you know, more optimistic and eager for M&A to happen. an M&A takes a long time, especially if it's senior companies involved because as I think we've talked before, but you know, people need to realize that senior companies, if they want to buy a junior, they're less interested in buying when the price is low than they are buying a when the junior has already de-risked the property, when they have the social license, when they have their permits in place, they when they've already got a resource. So the senior is willing to pay up for a d-risk project. And the other thing that's really critical that people don't always focus on is unless it's an asset where you're going to get keen competition, you know, a competitive process like the um like the Robert in Finland. Clearly there was more than one company interested. But unless you're going to see that competitive tension, the senior company is going to want to buy when it fits into their pipeline. So again, they are willing to pay up. And so, you know, when you see a when you see an M&A activity that you say, "This is just obvious. This is obvious. It's obvious that company A is going to buy it. Why don't they just buy it?" You know, we we're surrounded. Our property is surrounded by them. Well, they can take their time. They are in no hurry to buy it. So, that's a bit of a frustration sometimes. But for me, honestly, David, I I mean, I'm I wish I had a good answer for you because you asked what's frustrating to me. We very very rarely very rarely will we buy a a stock purely because we think it's going to get taken over. We buy a company because we like it, because we think it's good value, and a potential uh acquisition is is is just icing on the cake. People talk about management teams as being an important criteria for selecting a mining company, but how important is a management team when it comes to building a takeover target? In other words, if you have a deposit, does it really matter if your management team has a track record of building a mine?
>> Oh, you know, bad management can always screw up.
>> They can drill in the wrong Sorry. Is that Yeah, I guess I can say that.
>> That's okay.
>> They can always, you know, they can always drill in the wrong place. They can have a bad, you know, they don't have the right thesis on the project. They can mess up the um community relations. So they don't have a social license. They can waste money and dilute and continually raise money and dilute.
>> Uh no, there's a lot of ways a bad management can screw up a good project. Absolutely. And so when you are taken over, maybe you bought the stock at a dollar when there are a million shares, 10 million shares out, it's taken over when there's 100 million shares out. Well, it's still at a dollar. So yeah. Yeah. I would I would go I would always and this may I would always take good management with no money and no project over bad management with lots of money and a good project always.
>> Are you selling any of your stocks right now your holdings? Are you planning to unload some positions after a great run in the last year?
Well, look, to be honest, we were selling in January, particularly the silver stocks, which went exponential. So, we were trimming accounts in January, never as much as you would have liked when you look back, but we were trimming in January, but particularly the silver stocks have moved up so far. Uh we were selling again in um April. So, no, we're not really selling now. Uh I would want something to change. So either prices to move up or something fundamental at the company uh to change.
>> Okay.
>> Any um significant headwinds you see on the horizon for gold and the precious balance? We've talked about risks, downside risks a lot. What about the other way around?
>> Headwind. Oh, headwinds. Sorry. Headwinds though.
>> Oh, I'm sorry. I meant tailwinds. Sorry. We talked about headwinds. I meant tailwinds.
>> Um I I think a a big headwind potentially a tailwind. Sorry, >> I got you. I got us both confused. It's my fault. Yeah. Any upside any upside potential from there?
>> Yeah. And and uh uh yeah, I mean definitely um you know, we see the Iran situation resolved and we see the dollar start to go back down against other fiat currencies. that would be a huge tailwind uh for gold. um if we start seeing talk from Kevin Walsh and I don't want I always hate to put too much on you know one government individual cuz the Fed is government whatever they say but you know but if we see I think there's a possibility of a a meaningful revaluation in the gold price um you know over the next few years but if we start to see people talk about that, how gold is going to play a role in the monetary system. That would be hugely significant for gold and an unexpected tailwind, >> right?
Does gold need higher inflation now to go up?
>> No. No, gold does not need higher inflation. um higher inflation and higher re I mean and and lower real interest rates which are sort of corollery that would be very important for getting retail people back into gold but if you look at the main buyers of gold over the last 3 years the main buyers that have driven gold the central banks and then more recently tether they are not looking for higher inflation or lower interest rates or anything else. They are buying for very specific reasons uh and price price insensitive. They are price insensitive.
>> So, yeah.
>> Explain.
>> Well, I was just going to say so a central bank is buying well first of all they're selling dollar. That's where it starts. Central banks are selling an asset uh because they're nervous of concentration in an asset that is an asset of a fiscally irresponsible government that is willing to weaponize its dominance. And so that has been going on for 15 years now, picked up dramatically with the confiscation of Russian assets after invasion of Ukraine. And nothing that the current administration has done has changed that thesis. But the important thing to realize, a really important thing to get across, central banks concern about a concentration in the dollar, which is the asset of a fiscally irresponsible government which is willing to weaponize his dominance did not start when President Trump was sworn in and it will not end when President Trump's office term in office ends. It's something that transcends that. So, um, we're going to continue to see that move. And the central banks reduce their dollar exposure, the one asset that they've been buying. And the one asset that makes sense of them to buy is gold because gold is an asset that's no one else's liability. It's the only asset that's no one else's liability. So if you're concerned about a weaponization, you want an asset that no one else can take from you. So Moscow, Russia owns gold in its vaults in Moscow. Short of I Well, this doesn't sound very good. I was going to say short of a nuclear bomb going off.
>> Um that gold is safe. It's it's it's in their own vaults. No one can no one can touch it. That I guess partly answers my next question as to why central banks are interested in holding gold in their FX reserves anyway. Presumably, if you're doing trade with multiple trading partners around the world, you would hold a reserve of their currency such that you can do trade them. People don't really trade in gold that much.
>> No, they're holding gold as a reserve, not for trading, but as a reserve asset.
>> Um because of what I just said. It's an two things. It's an asset that holds its value.
>> Sure. and it's an asset that's no one else's liability. So, it can't be confiscated. Um, and let's not forget prior to prior to the huge dominance of the dollar in central bank reserves, 1999, the dollar was like 80% 78% of of aggregate central bank reserves. It was huge. But prior to that period, you go back to the 60s and 70s and 80s, beginning of the 80s, gold was the dominant asset. So the central banks are really only only returning to their traditional primary reserve asset. They're only returning to that. Let's talk about some of the um changes in 2026 in the later half 2026 that you might anticipate versus the first half um >> with the economy.
>> There you go. Please do it.
>> And um basically changes in investment themes or trends. We now have two I guess if I may two developments that I'd like you to comment on. First of all, the coming of Kevin Wars, whom I don't think we've talked about in too much detail last time. Um, and second, uh, the unwinding or normalization, shall we say, of the Iran situation.
>> Yeah. Well, look, as you say, looking at the second I'll answer those two, but looking at the second half, most of the most of the significant trends I see are already underway. You said Kevin Walsh, you said Iran. Um the other thing let's not forget is the um uh collapse if you want or the unwinding of the AI bubble that that we're seeing. Uh and also the potential for private credit. You know, I don't think the I don't think the risk in the private credit market has gone away by any means. And I will remind people who were concerned a year ago, >> but their concerns have been assuaged because nothing has happened since.
>> Let's not forget from from the blow up of Century. What was the name of that mortgage company that blew up in 2007? Morg what >> me?
>> No, no, no, no, no. Um, uh, Century was it? There was a mortgage company that blew up and everybody said, "Oh, housing bubble's about to burst. It was a whole year, a whole year before we had Bear Sterns and then Lehman." So, and then, you know, um uh so so what I'm saying is that was a whole year >> and and so the fact that we haven't had a credit blow up of significance in the last year does not mean that that market is not a risk. Yeah.
>> So I think those are four very very meaningful things. The Iran situation is really just sort if that gets solved that really just sort of from the point of view of the markets takes us back to where we were before it started. So I wouldn't call that a hugely fundamental or long-term fundamental shift in markets. The biggest concern to me or the biggest market effect would be that countries that found themselves suddenly squeezed for oil, not that the price went up, but that they couldn't get it. Um, mostly in Asia, those countries are going to be more willing. They're going to they're going to see building an oil reserve as a priority and an urgency. uh which they didn't before. So, and that applies to most of Asia. We don't know if China had reserves or not, but that applies to China. Japan had reserves. We know Japan, but other than China, which is a question mark, Japan was the only country in Asia that have built up meaningful reserves. So, I think all of those countries are going to build up reserves of oil and that of course means more more demand and higher prices. After witnessing the events of the Iran war, it's been more than 110 130 days now. Adrian, have you as an investor thought about a next potential choke point and the associated asset of that choke point? In other words, another straightup moves kind of incident that may push a commodity in one way or another.
>> Yeah, not really. I mean there are obviously potential choke points but nothing I mean the straits of Gibraltar coming out of the Mediterranean or um uh obviously the Dardanels's coming out of the Black Sea which is Russia's >> um uh way to >> perhaps financial or geopolitical choke points as well.
>> Yeah.
>> No, not really. Nothing that's imminent. I mean I do think the credit private credit is still a risk. Um,
>> how is private credit risk? Can you just expand on that a little bit?
>> Well, because the private companies mark their own loans. So, I give you a loan. I mark it at 100 cents on a dollar. My performance fee is based on the valuations of my loans.
>> Yes. I have a incentive to continue to uh to continue to to value it at 100 cents on a dollar and it's a private loan so no one can really see it and it's a private company that owns all these loans so there's no scrutiny and so I can value it at 100 cents on the dollar until until I clearly can't anymore. So let me give you an example. When a company values a loan at 100 cents on a dollar for this month, for this month, for this month, and this month, and then the next month they value it at zero, I would say the odds are remarkably remarkably high, but they were overvaluing it for the last few months because a a private company with a loan doesn't typically just go from very healthy and able to pay back the loan to bankrupt to not able to pay back the loan. So they should have been marking those loans down. That is a very that's a very obvious sign to me. And remember these things are done on leverage. Um so I I think there's still a risk in the private credit market. And if interest rates were to go up that of course only makes it more um you know that only makes it more more more more more likely to happen. The AI stocks I think are just grossly overvalued. based on based on future earnings but may or may not come. A lot of the companies that are building these huge data centers do not have do not have models for how they are going to make money from those data centers. That is just astonishing. So you're putting millions, tens of millions and billions of dollars into building data centers along with half the world it seems also building data centers. And you don't have a plan. And we know that we need energy and silver and copper, you know, to build and to power these data centers. resources that simply are not there to supply all of the projected data centers. So, we're going to get that scale back and that's going to affect the prices of um you know the companies that that that are you know building the data centers where it's a major part of their business. So I we've already started to see you look at Nvidia or um Microsoft or um Amazon all these companies their stock prices have come down 15 to 20% over the last month.
>> Um so they are coming down while the broad market uh you know the broad market over the last month is essentially flat. I don't know what it's doing today. I'm sorry, but while the broad market is essentially flat, those leaders have come down meaningfully.
>> So that's a sign that those stocks are under pressure. I think we're going to continue to see that. And as for David Walsh, you know, I'm not a fan of the Fed. I don't know if you know that or your listeners know that. I'm not a fan of the Fed as an institution. I'm also not a fan of the last three governors in particular, but also Greenspan, frankly. But I'm not a fan of of what the Fed's done in the last 30, 40 years. But Walsh struck me, and I'm don't think I'm being naive, although I'm willing to change my mind in a few months. But War struck me as someone who has an understanding. He has an understanding of the markets. That's really important. Remember, Yellen and Bernani had never worked a day in their lives in the private sector. you know, they've never had to meet payroll. I mean, how can you how can you pretend to run the Federal Reserve when you've never had a private sector job? You've been a professor or an economist all your life. And I asked that seriously. So, those two had never worked a day in the private sector in their lives. Powell was part of a hedge fund or money management firm. But um but anyway, but um so so Walsh has an understanding of markets um and how they operate. I think that is key. Walsh has an appreciation of the problems of the Fed and in his press conference he alluded to he didn't go into it. He didn't attack the Fed, but he alluded to several of those um problems. I mean, one he talked about was the backward-looking data. How by the time the Federal Reserve gets economic data on which they are basing their decisions, that data is already out of date. And I don't mean is out of date, oh, because we had an Iran war we didn't know was coming. But even in a normal economy, you think you think of employment data. You get the employment data which is what two weeks after the end of a month that they're reporting. Then you have the first revision. Then you have a second revision. That data is 3 months out of date before we have a good idea of what the data actually is. But the Federal Reserve is basing their decisions on that data. He understands how that is idiotic. and he understands that we need we can collect data nowadays in different ways we should be he also alluded to you know I've made the facicious comment that some of the 100 or 200 PhD economists in the air building would be better served just getting on the phone and listening to corporate uh conference calls just get on the call and listen to what the companies are saying about individual businesses because when Fed X is saying their revenue is down because there's fewer packages. I'm this is hypothetical. Sorry. That's telling you something in real time about the economy and they have a good good expectation of whether that's going to continue in the next month or two or three. And so I've said that before just haven't listened to conference calls. He alluded to that in his press conference and he talked how we should be listening to companies and what they're saying and the what the Fed should be doing instead of if what he would like to see is companies react I mean the stock market sorry the stock market react to what companies are saying rather than the stock market react to what the Fed's interpretation of what old economic data is saying. Final question. If they were to make those kinds of phone calls, what do you think they'd hear right now? There's a confluence of economic data we can point to to potentially answer that question. But for the most part, I would argue consumer resilience is quite strong still. Retail sales are up, sentiment slightly ticked up.
>> Yeah, what they're hearing now is very mixed. Certainly in terms of sales, in terms of consumer,
>> uh they're hearing a very strong economy and a continuing resilience. They're also hearing higher prices and suppliers remember a a CEO will tell you our suppliers have told us they are going to raise rates in the next few months, right? I mean I remember Yeah. So they're going to tell you what their suppliers are telling you. That's forward-looking information. That's not backward information. Uh, so they're they're hearing that the consumer is resilient, but they're hearing the price inputs are going up and I think they're hearing that employment is not as robust as we think. When you have a low number of people leaving jobs voluntarily, that's not a healthy sign. That's a sign that people are concerned that if they leave their job, they might not be able to find another one. That's a weak sign. So I think it's a mixed picture we're hearing right now.
>> Okay. Excellent. Appreciate your talk as always, Adrian. Thank you so much. Where do we learn more from you?
>> Well, Adrian Day asset management uh.com.
>> Adriendayassetmanagement.com.
>> Adriendayassetmanagement.com. We'll put the link down below. Make sure to follow Adrian there. Thank you very much, Adrian.
>> Well, thank you so much.
>> A pleasure to speak with you as always. Even better in person. So, I look forward to next time and thank you for watching. Don't forget to like, subscribe,