Transcription
Welcome back. I'm Jeremy Saffron. All right, gold just broke below $4,000 for the first time since November. And as we speak, it's clawing back, trading above $4,000 today, about 1% green on the day. And here's the tell that matters. One of Wall Street's biggest banks is blinking. Bank of America just pulled its $6,000 gold target as Wall Street shifts from betting on rate cuts to bracing for possible rate hikes. So, here's a question for today's show. Is the smart money right to step back from gold here, or is a bank pulling its target the kind of moment contrarians wait for? Now, my guest has spent 50 years in this business, and after a week like this, Reed Matters. Stay with us.
All right. Joining me now is Rick Rule, founder of Rule Investment Media, a friend to the show. Rick, what a week. Welcome back.
Look, good to have you here.
>> Pleasure to be with you. Uh, and as you suggest, an interesting time for this discussion.
>> Yeah. Yeah. Very topical. Obviously, a lot of people looking. I mean, right now, gold sitting here testing $4,000. Bank of America just pulled its gold target this week. And, and I mean, you've spent 50 years doing the opposite of the crowd. So, I mean, I guess we could start with straight up. For the person watching their position right now, is this a moment to be nervous, or a moment to be buying?
>> I think it depends on, uh, your time preference. I think in the very near term, that US policymakers are prepared to allow the market to set the tone of US interest rates, and that suggests to me that interest rates will go higher in the US. If that's correct, uh, that will continue to strengthen the US dollar and reduce the quotes of all items denominated in US dollars. That includes, ironically, Canadian dollars and gold.
Longer term, uh, I think that the US political class will capitulate with regards to interest rate rises. Interest rate rises will make the level of government debt in the United States increasingly difficult to service. It will, as it did in 1975, have a very deleterious impact, uh, on the long bond market, and hence the portfolio values in things like pensions, uh, retirement funds, profit-sharing plans, and university endowments. It would also, uh, be very difficult on equities prices, as yield-oriented instruments became relatively more attractive based on, uh, income yields than dividend-paying stocks, and of course, it would raise the total cost of owning houses and buying, uh, consumer durables like cars on time.
So, my suspicion is, in the very near term, that the US political class will flirt with higher interest rates because, in the real, true interest of the economy, the long-term interest of the economy, that's the right thing to do. But doing the right thing, uh, is seldom anything that troubles the political class in the US. And my suspicion is, towards the end of this year, you will see them capitulate, uh, and both force interest rates down to the extent that they can, and, uh, monetize, uh, the debt and deficits, including the debt, uh, associated with the recent Iran conflict, through quantitative easing.
Uh, in the very near term, I'm pessimistic as to the gold price. Ironically, uh, that's good for me because I'm looking, continually looking to increase my gold holdings. I, Jeremy, as you know, save in gold while maintaining liquidity in US dollars.
>> You know, you brought up something interesting. You talked about 1975 there, and it's important because gold had that brutal correction inside what later became a much larger bull market. Uh, what should investors kind of learn from that period that, that gold can fall hard even when the long-term thesis is right?
>> Well, that's the lesson right there. Uh, younger investors, in particular, who didn't live through 1975. I did. Uh, there's a lot of things to learn. Uh, in a secular bull market, which is what I believe we're in for gold, you can experience cyclical declines, and you can experience a lot of volatility. In 1975, inflation was becoming a political issue throughout North America, the United States, and Canada. And the consequence of that is that the US political class, perhaps responding to voters' wishes, uh, decided to tackle inflation head-on. And the way that you did that, uh, of course, was to increase the interest rate. And while that did, uh, stop inflation temporarily in its tracks, uh, it had a very deleterious near-term impact on a lot of sectors. And the consequence of that was that the political class, uh, backed down, uh, drove the interest rate down, and signaled to savers and investors worldwide that short-term politics in the United States were more important than protecting the integrity of the US dollar.
The consequence of that, in gold price terms, is that in the beginning, uh, you know, before the decline, uh, gold was priced at about $200 an ounce. As a consequence, uh, of that interest rate rise, over nine months, the gold price fell by 50%. Gold stocks, by the way, fell further, uh, to $100 an ounce. And, uh, the faithful, but not really faithful, gold bugs who liked gold at $200 decided they didn't like it at $100. And when they sold out, uh, they missed a subsequent rise in the gold price from a $100 low to an $850 high, which occurred over six years. Is past prologue? I think yes.
>> I mean, so, key point, the political class backed down. And I want to stick on that because, so, because I mean, is the real gold trade not about inflation itself, but about the moment policymakers decide the pain of fighting inflation is worse than inflation?
>> I think that's right. And I think it manifests itself in the gap between the interest rate and what I would describe as the real interest rate. Uh, the most broadly quoted interest rate in the world, the benchmark rate in the world, is the US 10-year Treasury. It's the largest and most liquid savings asset class on the planet, and it's the one that, uh, Bloomberg and S&P use to judge other credits. The yield on the US 10-year right now is about 4 and a half. I don't know what it is. Might be 4.4, might be 4.6, but, you know, in the mid-4s. And that is what I would call the nominal interest rate. Here's why. Uh, if you believe, uh, the number that the US government uses to gauge inflation, which is the Consumer Price Index, the CPI, you believe that the deterioration in the purchasing power of the US dollar is proceeding along, uh, at about 2.8%, 2.9%. Let's call it 3%, just for fun. Which means that if you buy the US 10-year Treasury, getting paid, let's say, 4.5, you aren't making 4.5. You're actually losing 1.5.
A real interest rate is an interest rate that provides a compensation for savings slightly in excess of the deterioration of the purchasing power of the US dollar. And it's this deteriorating real interest rate that I think ultimately determines the fate and the price of gold on a day-to-day basis. Certainly not. Narrative and rhetoric and momentum is what matters. But over time, as we learned in the decade of the 1970s, it is the real interest rate, which is to say the yield above the rate of the deterioration of the US dollar, that sets the tone for the gold price. By the end of the decade of the '70s, in the early '80s, when Volcker came in, those interest rates rose to the extent that the US 10-year Treasury was yielding in excess of 16%. When the US Treasury was yielding 16% and the underlying rate of inflation was 12%, there was a 400 basis point real yield in the US Treasuries, and that set off a bear market in gold and a bull market in bonds. And until we have a real yield in the US, uh, I think you're going to see, over time, uh, sadly, a very, very strong gold market.
>> Yeah. Yeah. So, I mean, you know, we don't talk price targets. I know you don't like to do those. And I, you know, give me kind of a level instead. I mean, today, the 1975 lesson is that the political class eventually backs down. Then, I guess it's the question is, you know, how long could the Fed stay tough? I mean, we got PCE just out today running 4.1%. The market pricing possible hikes, but also a federal debt load that's much larger than it was in the '70s. So, you were talking about the T-bills there a little bit on the Treasury side. What breaks first? Is it inflation? Is it the consumer? Is it the bond market? Or is it just the Fed's resolve?
>> Uh, I think you are going to see a couple things happen as a consequence of higher long-term interest rates. Uh, most, not most noticeable immediately, will be, um, the cost of servicing federal, state, and local debt. Those debts are increasing very rapidly. Uh, as I, increasing fears of inflation slip into the economy, the compensation that savers demand for savings will go up, which means that either the interest rate will have to be allowed to rise, or the political class will have to monetize that debt with quantitative easing. One or the other. To the extent that interest rates rise, it will begin to impact the price of consumer credit. Uh, it will begin to impact, as a consequence, the sales of consumer durables, in particular automobiles, but it will also make, uh, housing, which is currently not very affordable in many parts of North America, even less affordable, given the fact that most people finance, uh, their, uh, accommodation on long-term interest rates, usually rise in excess of the rates on the US 10-year Treasury. This, of course, will impact the long bond market. Uh, ultimately, as I say, if passed as prologue, witnessed 1975, it will impact the equities market too. At some point in time, the accumulated short-term pain likely, uh, causes the political class to capitulate. And when that capitulation happens, I suspect that, uh, the 1976 lesson, uh, passes prologue, that gold, unfortunately, does. I say unfortunately because I believe that very well.
You know, Jeremy, uh, this is a very long answer to a short question, but when I look at the aggregate levels, and I'm not talking in Canadian terms because I don't know the appropriate numbers for Canada, but in American terms, when I look at the aggregate debt levels of federal government debt, that's soon to cross $40 trillion.
>> Yeah.
>> Or $36 trillion net of the Fed's own balance sheet. But that's a, that's the smaller cousin of the problem. The bigger cousin is that the net present value of unfunded entitlement liabilities in the United States, Social Security, Medicare, Medicaid, federal government pensions, the environmental trust fund, military pensions, that number, uh, depending on the discount rate you use, according to the Congressional Budget Office, is at about $120 trillion. Uh, if you combine those two numbers, uh, the aggregate debt in the United States hovers around $155 trillion, and that number grows by $2 trillion a year in terms of on-balance sheet deficits. It'll be higher this year, and $2 trillion a year in the net present value of unfunded liabilities. The only way that I can think of that the United States services both its on-balance sheet and off-balance sheet liabilities would be to inflate away the obligation. In other words, maintain the nominal payments while they inflated away the net present value of those payments. We did that in the United States in the decade of the '70s. In the decade of the '70s, according to the Office of Management and Budget, the US dollar lost 75% of its purchasing power over 10 years, which is what I believe happens over the next 10 years. I believe it's happening as we speak. And the consequence of that, or one consequence of that, was that the gold price ran from $35 an ounce to $850 an ounce. I'm not suggesting that we're going to have a 25-fold increase in the gold price. Now, what I am suggesting is that the increase in the gold price could easily mirror the deterioration in the purchasing power of the US dollar, which is to say that gold would maintain its purchasing power while the dollar lost 75% of its purchasing power.
So, I mean, the clean, the cleanest version of the, the gold thesis here is not runaway kind of inflation tomorrow, but that slow transfer of purchasing power away from savers and towards debtors. Uh, what you say is incredibly important. Artificially low interest rates are a subsidy to spenders by savers. They're an income transfer, and, uh, societies don't get richer by spending. They get richer by saving and investing. This is a self-correcting phenomenon, but the, the, the method, uh, by which it corrects is painful for all.
>> Yeah. Um, you know, here's what is kind of striking about this past week. I mean, the same day that gold broke, the AI trade came roaring back. Micron blows out. I mean, the NASDAQ jumped 2%. The whole market is leaning on these handful of names. So, if, if that trade cracks, does gold get sold too in the panic? And then what does, you know, the policy response do for resources?
>> In my experience, uh, if you have a crack, particularly a liquidity-inspired crack like 2008, which is to say, a crack predicated on credit concerns, the market takes no prisoners. Uh, the sales aren't made by investors. They're made by margin clerks, and margin clerks sell whatever has a, has a bid, and gold usually has a bid. Now, the policy response to a market crash has always, in my lifetime, with no exceptions, been, uh, artificially low interest rates and quantitative easing, which is to say, bailouts. Uh, and what that means is that in the aftermath of the crash, precious metals, uh, usually come back faster than other, uh, investment segments because the market correctly perceives the antidote to this crash as, uh, inflationary in the intermediate term. So, my suspicion is that if we had either a credit-related correction, say, around concerns in private credit, or if we had a precipitous market decline as a consequence of disintermediation from technology stocks, it is very likely that the policy response would be to flood the market with liquidity. Uh, and while the initial crash, from a historical perspective, would likely be tough on gold and gold stocks, the result of the policy prescription would be extremely bullish for gold.
>> Mhm. Yeah. Critical distinction in a liquidation. I mean, we saw gold kind of gets sold because it has that bid. But if the policy response is artificial low rates and QE, then the first move can obviously be painful, and the second move can be bullish. So, I mean, is that what we're kind of looking at right now? I mean, how should investors survive that first leg without missing the second?
>> That's up to investors. Uh, what I've learned is that my view of what's going to happen in the market in the near and intermediate term, uh, is on par with everybody else's, which is to say, lousy. So, despite the fact that I think there might be a substantial correction, while I do maintain liquidity, uh, and as stated, uh, maintaining liquidity costs me as a consequence of a negative real interest rate, I maintain liquidity because of the possibility, not the probability, but rather the possibility, that there will be a liquidity-driven crash. That liquidity that I maintain will give me the opportunity to take advantage of that crash rather than being taken advantage of. Uh, separately, I save in gold. I regard gold as wealth. Uh, it is liquidity for me, too. I proved to myself in 2010 that I could sell gold when other asset classes became more attractive to me. But I'm, when I look at the future, I'm very cognizant of the fact that neither I nor anybody else I know, uh, has a crystal ball with regards to the immediate future. There are no certainties. There are only probabilities. And my actions reflect my judgment on the probabilities, and they also reflect the fact that I'm, uh, older. Uh, I'm a person of substantial means. Uh, you know, no threat to Bill Gates or Bezos or anybody like that, but, you know, a man of some means. Um, and I also enjoy the process. Uh, so, um, other people, the actions that other people are going to take are going to be predicated on their own, uh, means and their own needs.
>> Okay, I got to ask you about miners on this front because it's something we can naturally go to. I'm not sure if you said this to Bank of America came out with something this morning. According to their analysis, the gold mining stocks are being valued as if gold were only about $3,350 an ounce. So, I mean, you know, obviously in plain terms, you can buy a miner as if gold were roughly $600 cheaper than it is actually now, a 19% discount. And according to the, uh, BFA, the, the spread inside the group is quite wide. On their coverage, Wheaton is priced as if gold were near $4,400, while Franco-Nevada is priced as if gold were only about $2,400. So, I mean, when a top royalty name is implying a gold price that is, you know, far below spot, what is your read? Is, is the market handing you an opportunity, or is, or is pricing a risk, you know, the headline number kind of hides?
>> I think there's, I think there's three questions in there, Jeremy. Uh, the first, uh, I, I think, uh, we think from the work that we do that the mining companies are discounting a price of $3,400 as opposed to $3,250 or something, but that's, you know, that's nibbling around the edges. Who knows? The point is that the gold mining companies are pricing in substantially lower gold prices. And while I can't speak to the gold prices in 2026, I'm very constructive as to the gold prices later on in the decade. So I think that that discount is unwarranted. As to the difference between, uh, Wheaton and Franco, uh, I would suggest that the market is beginning to price into Wheaton the probability that very, very large streaming transactions will occur over the next two or three years, which means that Wheaton, although they compete with Franco directly in this market, will benefit. The type of transaction I'm talking about is, uh, the fact that the copper mining industry needs to raise literally $250 billion over the next 10 years to maintain production. And cash flows from copper mines, or byproduct cash flows, pardon me, from gold and silver production in copper mines, is priced by the market at sort of 15 times cash flow in, uh, a royalty and streaming wrapper, or six or seven times cash flow in a copper producer's wrapper. That means that a substantial part of the capital stack for this $250 billion raise will come from selling byproduct streams. Uh, Wheaton being the largest streamer on the planet. Uh, the recent transaction, the four and a half, pardon me, $4.2 billion transaction between Wheaton and BHP, I think, is the beginning of a trend. And I think that some Wall Street analysts have come to understand that the criticism of Wheaton was that the big deals that it could do, the deals that spawned its growth, were behind it. And now there's a realization that, no, the big deals are in front of it. Uh, and Wheaton may or may not be in the catbird seat. There will certainly be competition for those deals.
>> That's interesting. So, I mean, if this is a beginning of a trend, how big can it get? Are we talking about, you know, a few large streaming deals, or kind of that, that structural shift where copper miners increasingly fund development by selling gold and silver byproduct streams, like you said? I mean, how big do you think this will get?
>> I think minimally there will be $50 billion in new transactions in the next 10 years. Minimally. Uh, and by the way, that $250 billion number I gave you came out of Metals Week in London. And they specifically said that that was, uh, 250, uh, $225, which is to say, non-escalated. They pointed out at Metals Week that the inputs for capital cost to build new mines is increasing by 8% to 10% compounded annually. So when I say $50 billion, understand that I mean $50,000, 2025, uh, likely the nominal number will be much higher, $70 or $80 billion.
>> So, does that mean, you know, the, the kind of best risk-adjusted opportunity in precious metals may, may not be the minor with orbody, but the company financing the mine?
>> Absolutely positively. Yes. Uh, the gap between, uh, Wheaton and Franco's cost of capital and their return on capital employed, if you adjust for certainty, is outstanding. Really, truly outstanding. The amount of general and administrative expense necessary to run Wheaton or Franco compared to the G&A expense of an operating gold mining company is very large. And it's important to remember that adjusted for the purchase price in the streaming business, your gross is your net. Uh, which means that when, uh, an operator has to make a capital expense or a sustaining capital expense, neither Wheaton nor Franco feel it. When there are increased input costs or at the mine level, increased taxation, Franco and Wheaton don't feel it. On a risk-adjusted basis, for many investors, the royalty and streaming space, from the biggest to the smallest, uh, are likely better places to be. They don't offer the optionality or the leverage that you see in riskier endeavors. But for the right investor, one who wants to play the trend while taking as little, uh, operational and fiscal risk as he or she can do, the place to be is the royalty and streaming companies.
>> So, I mean, for viewers kind of trying to to separate the the winners from the crowded trade, what matters most here to you, do you think? Is it, is it kind of balance sheet capacity? Is it more deal pipeline? I mean, we know that we're seeing more disciplined management, or is it the terms of the streams, where, you know, they're writing right now?
>> Well, I think the answer to the first question is both. Uh, I think, well, you must, you got to define yourself. Uh, and not impose the market on yourself. How much risk are you willing to take? How much volatility are you willing to endure? What sort of upside do you demand? Uh, a speculator, a true speculator, let's say an Eric Sprott, uh, would have no need, no patience for Wheaton Precious. That's not what a speculator is interested in. A speculator is interested in optionality, or discovery. They're interested in quantum gain. Uh, an investor who cares about the trend, which is to say the potential impact on his or her net worth as a consequence of rising gold prices, but does not want to subject themselves to the vagaries, uh, of operating performance, uh, or inflation in terms of inputs, would be much better off with structured cash flows like royalty and streaming companies. It depends on who you are and what your goals are.
>> Yeah. And I mean, in terms of the generalist investor, that we always ask, why aren't they coming back to the market, right? I mean, do they still just kind of see streamers as gold proxies rather than a financing platform for the next wave of mine supply?
>> Uh, the generalist investor, in my experience, >> uh, doesn't, doesn't understand how to express his or her preference for the gold equities market because they don't have enough experience. I think, uh, I'm almost certain, Jeremy, I mean, back, if you take yourself back to your retail stock brokerage days, >> you will remember when the generalist investor came into your office, that they required a lot of education. Uh, the market hands out that education. It's generally fairly painful. My hope is that when the generalist investor comes into the market, uh, he or she starts with physical gold. They start with a savings asset. If you believe the gold price is going to go up, the best way to express your affection, really, is gold. The rest are second-order things. Then I would hope that they would construct their equities portfolio beginning with the royalty and streaming companies, divorcing themselves from as many cost externalities as they possibly could. Then my hope is that they would focus on the best of the best in terms of producers. That, in my mind, right now comes down to one name, Agnico Eagle, and then worry about populating the rest of their portfolio.
>> Yeah. Yeah. Incredible company, and, uh, some would say at a discount right now. I want to bring this into kind of your own book. I mean, if the speculator wants optionality, and the investor wants that durable trend with cash flow, I mean, where are you personally leaning right now? Are you allocating more to optionality, or more to businesses already converting this trend into cash?
>> Uh, I'm laughing, Jeremy, because, uh, I always urge people to be, uh, cautious and green-eyeshade investors. All the money I now invest carefully, I made by speculating wildly. Uh, and so I'm, I'm this odd mix, uh, of, uh, cautious, conservative saver, uh, and green-eyeshade investor and wild speculator. Uh, we're in a risk-off environment right now, which is to say that the tertiary names, the riskier names, are selling off harder than the high-quality names. My own portfolio is also underallocated to the riskiest part of the trade. You may recall, Jeremy, I was fairly public in selling 25% of my junior portfolio, uh, uh, back in October, and then selling 80% of my physical silver in January. Uh, so I'm in a position where I have more liquidity in my portfolio than is optimal, even given my fears of the credit market. And I personally am attempting to allocate, uh, in the exploration names, or in the names that I believe are very likely takeover and amalgamation names. And no, I won't name them because I'm actively trying to buy them, and I don't want competition from a 100,000 get-go viewers.
>> It's true. It's true. And actually, this is a good opportunity here. We can kind of talk about, uh, some of the opportunities that you're looking on the junior space. And just for the audience, it's a quick break because I want you in the room for this. In just a couple of weeks, our team is heading to Florida for Rick Rule's Symposium on Natural Resource Investing. Uh, July 6th through the 10th at the Boca Raton, beautiful resort. Uh, I'll be there with the Kitco team on the ground, of course, putting these exact questions to the biggest names in the business. Now, the in-event, the in-person event, I know is, is sold out, but you can still get the whole thing on live stream, and that replay runs throughout the rest of the year. I think the link is right below the video. Uh, so reserve your virtual seat, then come back. Uh, we're going to be getting into silver and where the money's going. Um, you've been putting this on a long time. I mean, we've seen that up, we've seen that down. I mean, I remember just even a couple years ago, breaking $100, and I had Shawn Boyd on, and we was looking at it. You know, I'm just thinking, I mean, are you excited about this one now that there's been a bit of a correction?
>> You know, I'm hugely excited about this. Uh, financial markets are the only markets in the world, I think, where when the shoppers are in a store and a sale starts, all the shoppers leave the store. Uh, the circumstance that we're talking about today is as true as it was a year ago or two years ago. The price levels, uh, of the companies, despite the obvious advances that some of them have made, uh, in understanding their properties over the last two years, uh, are flat to down. Uh, which means that the lessons that we teach in the conference, the macro lessons, the portfolio management lessons, the analytical lessons that we teach, uh, are much more actionable. Uh, it's important to note, at that conference, there are 69 public company exhibitors. In order to exhibit on our conference floor, you have to be owned in the accounts of the conference sponsors. So our exhibitors have been vetted. We turned down over 130 applications to exhibit at our conference because we made a promise to our attendees almost 30 years ago that we wouldn't have an exhibitor that wasn't vetted. And by vetted, we mean, uh, that we knew them and liked them enough to own them in our own accounts. Uh, there's no guarantee, of course, Jeremy, as you know, that because I own a stock, it goes up. But at most competing conferences, the qualification to be an exhibitor is merely a check that cashes. Uh, our, our vetting process is much more extreme. And I, I'm delighted by the price levels that exist because I would like to introduce our attendees to the opportunities afforded by our exhibitors and allow the attendees to learn the lessons that we teach on the podium in real time to their own benefit when financial goods in our sector are on sale.
>> Yeah, well said. And I mean, you know, this is beyond company presentations. I mean, you got a lot of different speakers there. I think we'll be on stage here at some point too. I mean, talk to me just a little bit about that macro framework. I mean, it's coming to fruition. I talked to guests even last year at your show, and their calls are here. Um, and I do want to get into silver here, Rick, because I mean, the story is kind of bigger than, you know, the solar headlines everyone continues to repeat. It did get hit, obviously, harder than gold, and it's near 58, I think, today. Uh, according to the Silver Institute, the market's been in structural deficit for years. In plain terms, obviously, the world is using more silver than it produces. Uh, at the same time, more silver is mined as a byproduct of copper, lead, zinc, or gold. So a high silver price alone does not quickly bring a wave of new supply. So, put all that together for us. Is silver a buy right here? And, and if it is, I mean, do you want the metal or the producers, the streaming names?
>> Well, you gave a pretty good summary there, Jeremy. I'm not going to put you on the main stage. Um, to me, in my own account, uh, silver is a speculative asset. I buy gold from fear, uh, and I buy silver for greed. Uh, and I believe, as a speculation, there are other asset classes that are cheaper than silver. Among them are the silver stocks. So I personally would express my, my fondness for silver, which I'm doing, uh, in the silver equities market. Uh, I had a fairly well-publicized sale of my physical silver, uh, in January of this year. Uh, as you know, Jeremy, I always sell hyperbolic ups, and I always buy hyperbolic down moves. Uh, we had a hyperbolic up move, but the down move has been much more gradual in both the silver and the silver stocks. If we get a precipitous decline, in other words, if we get a capitulation in the silver market, I might be a buyer. Uh, it might, it might get cheap enough that I consider to be a speculative asset, but it's much more likely that I will continue to buy the silver stocks as a speculation in favor of silver. The points, the two points that you made in terms of supply and demand are critical for people to understand, uh, which is to say that an increase in silver price doesn't necessarily lead to an increase in silver production because less than 20% of the silver supply on an annual basis comes from silver mines. The vast majority comes as byproduct from other mines or from recycling. The other thing is that the industrial utility of silver is high and is growing every year. Um, it's important to note those two factors, and there are two other factors that I think need to be added in. Uh, a lot of the above-ground supply we can't trace because it's used as informal savings by people in poor countries with high tax rates like India. We don't actually know what the above-ground supply is. We do know that when the silver price rises, uh, uh, miraculously, some people discard and sell it. We learned that during, uh, prior silver squeezes. I think, uh, the other thing that people need to understand about silver is that silver is reactive to momentum, which means, uh, exactly that. When you are in a structural precious metals bull market, which I think we're in, by the way, I think we're in a cyclical decline in a secular bull market, that when momentum is established by gold, and the generalist investor comes down into the precious metals space, attracted by the momentum in gold, that market leadership changes from gold to silver. We saw that occur, uh, in 2025. And when the momentum again favors gold for a while, the gold trade will outperform by a substantial margin the silver trade. But when leadership changes from gold to silver, uh, silver has explosive up moves. And I think, uh, a characteristic of the upcoming bull market in precious metals, uh, will be eventually a leadership transition from gold to silver. I can't tell you when it will occur, but Jeremy, you're not going to need me to tell you.
>> Yeah. Well, I'll be, I'll be reporting on it here, Rick. Okay, let's just assume that the silver equity discount is real. And the answer is not just simply buy everything. I'm not going to ask you to pick names, but I mean, what separates the silver company that is kind of genuinely mispriced from the one that deserves, you know, the discount? I mean, in, in your portfolio, do silver equities deserve a separate allocation from gold equities right now, or are they just kind of the higher beta version of the same trade?
>> Uh, they don't deserve a higher rating, but I give it to them because when they perform, they perform so stupidly. So, I, I give them a premium, frankly. Uh, in terms of buying silver companies, uh, I think you need to emphasize companies that operate deposits that are in the best quartile worldwide, uh, in terms of production cost, and also in the best quartile worldwide, uh, in terms of return on capital employed. These are rare deposits, and no company will be entirely comprised of deposits that meet those categories. But that's where you start. Then you need to take two other things into consideration, at least two other things. Uh, one is the pipeline. Will the company be able to maintain or exceed or, or, or increase production in the five to seven-year time frame? Uh, I think that's critically important. And then the third is management. What has the capital allocation track record of the company been over the last 10 years? And are the people responsible for the good or bad capital allocation still in charge of the company? Uh, there's a lot of predictive utility in understanding the capital allocation track records of management teams.
>> Here's something that stands out for me. You know, gold corrected obviously, but the senior producers are still throwing off strong free cash flow. I mean, we're not seeing aggressive buybacks, special dividends. Uh, there's some debt paydown, but not a ton. I mean, what, what does the caution tell you about how the people running these mines read the cycle right now?
>> I think they're being constrained by the industry's track record in the 2000 to 2010 timeframe. Uh, that was a ludicrous bull market where the selling price of the material that the companies produced increased six or sevenfold, and the free cash flow per share fell. Uh, it took real skill for the mining industry to screw up a market like that. Uh, and they're still being held to account. I think that changes in two or three years. Uh, I think you have a market right now where the owners of the companies, the shareholders, particularly institutional shareholders, are insisting on a very rigid fiscal discipline. Uh, I think that changes because I think the concern over the next two years will be the ability of companies to maintain or, or increase their production to the extent that they're not making sustaining capital investments and they're not, uh, their ability to produce the cash flows that they're generating today falls. And I think the concern on Wall Street and Bay Street will go from capital discipline to avoiding cannibalization, that will require increasing investment in their own pipelines, and it will also involve a continuation of the mergers and acquisition trend that we've seen over the last two, two and a half years.
>> Well, that's a perfect time. It's almost like you're reading my mind because I actually have an audience question here. I wanted to bring them into this because I got tweeted this morning, uh, this quote, Rick, we got cheap equities, strong metal prices, and a market that is paying for good assets, usually sounds like the setup for M&A. So, why aren't we seeing more deals?
>> Oh, be patient. Uh, we're definitely going to see more deals, and you're going to see all kinds of different deals. You're going to see strategic acquisitions where big companies consolidate assets in the vicinity of their existing producing assets. Witness what Agnico Eagle has been doing, uh, both in Scandinavia but also, uh, in the Abitibi. Uh, you are going to see non-strategic assets, uh, lateral acquisitions where companies seek to become bigger, both so that they can allocate, uh, capital over a broader opportunity set, but also because larger companies, larger market caps, have greater trading liquidity, and they benefit from passive ETF and index buying. Witness the acquisition of Osisko by Equinox. No operating synergy, but still one that capital markets will like. You will also have acquisitions simply where companies with a lower cost of capital, that is to say, a higher share price relative to their net asset value, take over companies that are less, uh, less appreciated in the market. Uh, you're going to see a lot of this, and then you're going to see, very much like you saw in the first part of the decade, 2000 to 2010, eye-popping prices paid for exploration success. Uh, exploration budgets among the majors and the large intermediates have been constrained for 15 years, and the consequence of that is that the exploration pipelines are depleted. To the extent that you have a discovery like, say, the Snowline deposit, a major discovery in a jurisdiction that's believed to be fairly safe, I think over the next five years, the prices that are going to be paid for those discoveries, uh, are going to be surprisingly stiff. I remember the success premiums, the discovery premiums that were paid in the period 1998 to 2004, 2005, as being, let's just say, I was astonished by the prices I was paid for names, as an example, like Eric Minerals, and I think we're coming on that again.
>> Yeah, I was going to ask you, you know, it's the problem is if the producers are still too cautious, or if the sellers, uh, refuse to accept these low valuations, right? I mean, the, the bid's too low, or are the assets still unrealistic?
>> Well, the beauty here is from a transactional point of view, uh, the high-quality juniors, in 2026, have sold off by 30% or 40%. Uh, which is to say that an accretive deal can be made at, say, a 50% premium to current prices. Uh, Agnico paid much, much, much more in Finland, uh, and it benefits the seller, partially as a consequence of depressed share prices, while simultaneously being accretive to the buyer. This is the circumstance where those transactions take place. This decline in share price that we've seen, decline in enterprise value, decline in market capitalization, is very, very, very good for M&A. It won't show up next week, might not show up next month, but it'll certainly show up six months from now if the market doesn't correct itself.
>> And I mean, for, for investors, should they be looking for for takeover targets, or, or is that the wrong way to own the sector because you end up buying weak companies just hoping for a bid?
>> That depends on how hard they want to work. Uh, most investors want the takeover premium, but they don't want to do the work to separate the wheat from the chaff. Uh, which means that most investors act like some kid waiting for the tooth fairy. You know, work for those investors who are willing to do the work, for those investors who are willing to look for acquisitions the way the acquirer would. Say, as an example, if you're a Canadian speculator and you are looking for deposits in the Abitibi trend, uh, that have already been discovered, and probably aren't big enough as they sit to amortize a mill, uh, but if they were purchased by somebody with a mill in the region, say an Eldorado or a Kinross or an Agnico Eagle, they could be developed to leverage off existing inventory, uh, uh, pardon me, infrastructure. If somebody is willing to do that level of work, then they absolutely positively should be looking for takeover targets. If their technique for looking for takeover targets is to simply read the industry press or listen to the BS generated by the investment banks, then don't do it. Buy the biggest and the best.
>> I got to ask you to, uh, kind of widen the lens here because where you own a mine matters just as much as you own, I guess. I mean, geography seems like it's half the game. Where in the world do you actually want to own a mine right now? And where won't you put a dollar, no matter how good the deposit, because of the politics or maybe resource nationalism that we've been seeing?
>> I take an odd view with that. I think that you need to juxtapose so-called political risk, both with political reality, but also with the size of the prize. Uh, I would rather own a very high-quality asset, an asset where the quality is high enough that the government is tempted to steal it. I don't believe there is a good political jurisdiction. I think there's, there are some improving political jurisdictions, but I note that even jurisdictions that are believed to be politically safe are political. Uh, if you look, as an example, at the American response to increased oil prices in the 1970s, it was to slap on an excess profits tax. That's backdoor nationalization. It's government theft. Uh, if you look at the response in Alberta to rising natural gas prices 15 years ago, it was to double the provincial royalty. That's resource nationalism. Uh, which jurisdictions are improving? I would suggest, uh, and it needs a lot of improvement. Uh, the recent tone in British Columbia, uh, reflects a substantial improvement. Uh, I think what you've seen in terms of the politics of BC within the NDP, the socialist party, has been that the rural trade union constituency has begun to assert itself at the expense of the academic intellectuals, the sort of Kitsano crowd that were so anti-mining in BC. Uh, I think the increasing, uh, importance of progressive First Nations, particularly the Nisga'a and the Tsimshian, and their impact on the political process in BC is very beneficial for mining. Uh, I think the political change throughout Latin America, with the exception of Brazil, is extremely encouraging. I don't know how long it lasts. The best jurisdiction in my life, in terms of money in and money out, has been Chile. And Chile decided four years ago to get even with mining investors. The consequence of that is that the flow of funds into Chile was halted, and the Chilean voters threw out the morons. But that can change. Uh, the truth is, Jeremy, and this is, this is something that, uh, most North American investors of my vintage don't like to hear. Um, political risk is relative, uh, and we tend to discount political risk, uh, when it comes from white people speaking English, stealing through the legislature according to the rule of law. But that money is just as gone. I've made a lot of money personally in jurisdictions that are believed to be hard: Bolivia, Congo, Sierra Leone, um, South Sudan. Uh, in truth, I had 24 very good years in Russia until I had one very bad year. So, I'm, uh, I have a, a much more nuanced view of political risk than many want, than many would. But I'm also risk-tolerant, willing to accept volatility, and I'm a longer-term investor.
>> Hey, our time always goes too fast. I said 45 minutes. Of course, we're coming up on 48. So, really quickly, I mean, you've lived through the full cycles. I mean, what, what mistakes from the 2000s in 2010 kind of booms are you watching investors and juniors repeat right now? Is there any?
>> Nothing yet, but it will come. Markets work, and the cure for high prices is always high prices. Uh, we will see in the next five years, copper rationed by price, which is to say, production declines over the next five years will be such that the current deficits that we see in copper production will cause copper to be rationed by price. When that happens, uh, companies, banks, investment banks, and investors will forget that the cure for high prices is always high prices. The higher copper price will lead to more production at the same time that it incents copper users to utilize copper in fabrication and other things more efficiently. If we see a move in the copper price from $6 to some nominal number like $10 or $12, which I think we'll see, uh, the big thinkers of the world will extrapolate that trend in motion. They will take the rhetoric, uh, behind the escalation in price from $6 to $10 or $12, and they'll extrapolate that from the, that to the moon. Uh, and they will lose a boatload of money. Uh, commodity investors always need to remember that the cure for high prices is high prices, and the cure for low prices is low prices. That doesn't happen in the three-month timeframe, uh, but it certainly happens in the five or six-year timeframe. Remember that the higher the price goes, the more that the price verifies the narrative, the longer the trade has gone on, and the riskier the trade has become.
>> Yeah. Hey, let me wrap this up for you. I mean, you kind of answered it there, but just bring it together for the viewer. I mean, gold obviously has pulled back. Silver stocks look cheaper than silver. Miners are discounting lower metal prices. You're saying M&A premiums can actually eventually become eye-popping. Just for, for someone, and again, I know you're not giving financial advice, but for someone who wants to act on this market without getting reckless, I mean, what discipline do you think matters most right now in this volatile volatility?
>> That's a very, very, very long question. Um, I, I'm, I'm sad to say we could devote an hour to it. Uh, this is self-serving, but go to the real classroom. There's 300 hours of instructional material there that answers this question. You don't have to spend 300 hours on it. Go to Introduction to Natural Resource Investing, and you'll see the problem that you just asked me to solve for discussed over three and a half hours, and that's about how long it'll take you to learn it.
>> Yeah. Yeah. Well said. All right, Rick Rule, always appreciate the clarity. We'll see you at the Rule Symposium in Boca Raton. The live stream link is below this video, and of course, Kitco will be proud to be there on the ground. Appreciate your time today, Rick.
>> Jeremy, we will be delighted to have you and Kitco, uh, at the Natural Resources Investment Symposium. You have blessed our symposium for many years, and we're very, very grateful for that.
>> Yeah, I'm happy. And this year, I think even with some of the old colleagues, Michelle, quite a few. I think I'm hitting the stage. We're going to talk about, uh, what we see on the other side. So, I'm looking forward to it. Thanks again, Rick. We'll see you, we'll see you soon.
>> Thank you, sir.
>> All right, that was Rick Rule, and I appreciate the candor. Uh, here's where it lands. This week, some headlines said gold was finished. A major bank pulled its target, and the money rushed back into the AI trade. Now, Rick's argument is that investors should not stop at the headline. The real question is whether this is a warning that gold is further to fall, or whether the gap between $4,000 gold and miners priced near $3,300 is a disconnect serious resource investors should be studying. Whether he's right is the thing we'll have to watch from here. You decide. And we'll be going live. Of course, I mentioned there a couple times, we're heading to Rick's symposium down in Boca Raton, Florida, July 6th through the 10th. Now, the in-person room is sold out, but the live stream and replays are open. The links in the description, of course, Kitco will be bringing it to you from the floor. And for the macro and metal straight, no hype, hit subscribe and tell me in the comments, are you buying the gold under $4,000 just about now, or are you waiting this out to see where it lands? I'm Jeremy Saff. For all of us here at Kitco News, thanks for watching. Heat. Heat. Heat. Heat.