Raw Transcript: ‘Reckoning Is Coming’: Rick Rule’s Shocking Forecast For Gold, Oil, Dollar

I will guarantee you, David, and I don't guarantee much, that the gold market in the next 10 years will fall by 30% or more at least twice. Mhm. Uh it may fall by 50%. Which is to say, I think a reckoning is coming in the energy market. Yeah. Uh I think a reckoning is coming in the industrial materials market. Give us one or two of these things that make it go to $5,000, $10,000. What happens to the rest of the world? It's always a pleasure to welcome back fan favorite, regular on the program, Rick Rule, proprietor of Rule Investments Media, co-founder of Battle Bank, uh former president and CEO of Sprat US Holdings. Welcome back, Rick. We have a lot to talk about. Today is the FOMC meeting. We're speaking right before the FLMC decision, though, so by the time this airs, um the Fed would have already made their decision. So, we'll talk about what's next for monetary policy, the economy, why you've decided to uh taper off your holdings on on uh junior mining stocks, and finally, you will give us a rating or help us rate junior mining stocks, and you'll tell us how. So, stay tuned till the end of the interview for that. Welcome back to the show, Rick. Good to see you. Thank you for having me back, David. the fact that the Fed is projected to cut their interest rate uh Fed funds rate by 25 basis points while at the same time uh the Bank of Canada is expected to hold steady while the Bank of Japan is expected to raise and perhaps the European Union uh the ECB is per might be raising again. That signals a huge policy divergence, especially considering that Kevin Hasset, whom many people believe will replace uh Fed Chair Powell next next year, is expected to be a lot more dovish. This policy divergence of the US interest rate going down while the rest of the world, the big central banks around the world staying flat, if not going up, does that mean the dollar is going to weaken a lot more? Yes. Uh in fact uh I believe as we've discussed before David that the dollar loses 75% of its purchasing power over 10 years. By the way I think the dollar will do relatively well over 10 years compared to those other currencies. And I think the policy decisions that you ascribe to the other central banks has to do with the fact that they can't get away with what the US believes it can get away with. uh if they didn't raise their interest rates uh given the sluggishness of their economies uh I think it's likely that they would hold a bond auction that nobody came to. Uh in other words, I don't think that's a voluntary decision on their point of view. I think the United States is making a major mistake. Uh what United States society is signaling to savers and investors on a global basis is that we don't care about the integrity of the US dollar. We don't care about its purchasing power. uh we are politicizing the dollar and politicizing the interest rate. As you and I have discussed, interest rate cuts are a subsidy to spenders from savers. Spenders sadly in a democracy are more numerous than savers. And so this is really all about that old joke about four coyotes and a lamb discussing the lunch menu. Uh, in this case, America's savers uh are the lunch are on the lunch menu. Fair enough. Then the fact that uh the underlying assumption here is that Americans even have the ability to spend. So you're upbeat about the economy then, Rick. You're you're upbeat by the Oh, I'm sorry. Go ahead. We have we have an okay economy, but we have a political class and fact frankly a political culture that ignores the economy uh and cares about politics. Don't get me wrong, we don't have a bad economy, but we have structural weakness. We have millions of Americans who don't have sufficient education to generate enough utility and employment that their employers can pay them sufficiently to live a middle class lifestyle. That's a big problem. We're 30 years late addressing it. Uh but I don't think the interest rate cut is about that. Uh I think the interest rate cut is all about subsidizing middle class spenders at the extent at the expense of middle class savers. It is also about frankly making the government's budget debt in the near term more affordable. Uh but what is really doing in the face of what is not a bad economy, not a great economy, not a bad economy, what it really uh signals is the abandonment of any concern on the part of the American citizenry in the integrity of the US dollar. Well, let's give some practical, I guess, uh investment directions here. uh well not directors but just let let's just take what you're doing uh with your with your own holdings and then we can learn from that. So, uh, if I'm led to believe correctly, Rick, you've sold some of your junior mining and resource stocks, uh, recently. Uh, tell us why. And, uh, second part of the question, tell us whether or not, uh, the Fed, uh, decision to cut rates further into 2026 and of course the end of quantitative tightening that already started this month in December. More liquidity in the system, would that incentivize you to buy back some of these stocks? Uh, in a word, no. Uh, I began to anticipate this cycle that we're in in 2022. Uh, and a lot of the actions that other folks are beginning to take now, uh, I took a long time ago. Specifically, uh, I have no no, um, I own no bonds with a duration longer than two years. uh the deterioration of the purchasing power and the artificially low interest rates means that the bond portfolio that I maintained in the 1990s is a dinosaur. It's gone. I was surprised by the strength in the juniors this year. It usually takes a precious metals bull market longer to come down to the juniors. And when the financing window was open, the juniors stormed through it. When uh a company issues stock, they are telling you that they believe that your money is worth more than their paper. That's why they're trading their paper for your money. And the fact that virtually the whole junior industry was willing to do that told me what the insiders thought about the relationship of price to value in the junior industry. I have also been uh a very very very large investor in the junior space since 2020. I mean a reasonable investor in the space for 25 years but a much more aggressive investor in the period 2000 to 2022. Uh and I was able to sell 25% of my junior holdings uh recoup all of the capital that I invested in the space since 2020 uh and pay the capital gains tax on the distrib on the on the disposition. So, by selling 25% of my upside, I eliminated my downside, which for a 72-year-old is a very good trade. And I should tell you, I didn't exit the space. I took half the proceeds uh and I bought a package of gold, Franco, Nevada, wheat and precious and agel. In other words, I went to quality. I went to beta instead of alpha, which I considered overpriced. I put the other half in the oil and gas business, which I continue to consider to be very, very cheap. I will not be increasing my position in juniors to the extent that I won't be adding new capital to it, but I will harvest gains as they occur and recycle that money uh into positions that I think are relatively more attractive. I will also participate as I'm able in private placements with the note that over the last year the fondness of the public and institutional investor for private placements means that the pricing that the industry has offered up has been appalling. Management teams don't seem to seem to be able to spell warrant claiming that they're delilution. Somehow they're able to spell options. Uh, I guess the dilutive difference between a warrant and an option is mostly who gets it. But until that is addressed, I'll likely be buying securities on market as opposed private placement. You already know why people hold gold. It's because it's real money. But what if your gold could do more than just sit in a vault? 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Uh people were people were celebrating at 40 and then it was euphoria at 50 because that was basically sustaining 50 was unprecedented. And now uh look there's very little reaction around 60 I guess people are used to this. My question first question Rick given how well metals have performed is there still an investment case for resource stocks juniors midiers and or seniors uh why take the additional risk when the underlying could do so well? Uh the answer to that question is yes yes and yes. Uh I believe uh for reasons that you and I have discussed uh at infinitum perhaps even adnauseium uh that the purchasing power of the dollar declines for 10 years which means that the nominal price of gold increases for 10 years. Uh I have also made the observation in interviews with you that when the momentum in gold attracts generalist investors into the precious metal space, when the momentum validates the narrative, silver begins to move faster than gold. Uh it would appear in the last five or six weeks that that's happened. In fact, in the course of this year, uh silver has escalated right roughly twice as fast as gold. This is concurrent with my uh with my experience in prior bull markets. It would seem now in this market and we've seen this in terms of retail inflows to bullion oriented ETFs that generalist money is coming into the space. uh and when the momentum is established by both metals gold and silver, what you see is that both the perception of the industry changes for the better, but the free cash flow of the producers uh also increases and the valuations increase. One thing that I would like to note, David, for your audience is we are due for continued earning surprises. I've looked at the Bay Street Consensus earnings and they're using somewhere between 3,000 and 3,200 on the gold price uh to um calculate their earnings. Uh it will be difficult for an industry that sells gold for 4,200 not to beat consensus earnings estimates with a $3,200 base. U so I think some present surprises are coming up. Remember too, David, that we when we do it correctly, value these companies on a P-NAV basis or an adjusted P-NAV basis. Uh I made the case with you earlier uh in an in an earlier interview that Agniko Eagle as an example despite doubling in share price in share price is cheaper uh on an enterprise value to PNAV basis than it was before the share price doubled which is to say the net present value of current cash flows from their approved developed producing reserves at $4,200 is more much more than twice as high as the net present value of those future cash flows was at $2,500. And you're seeing that reflected in the share price. The fact that banks are using $3,200 gold in their net asset value, that signals low confidence that it'll stay around 4,000 and or more perhaps just part of their modeling process. They're taking the average of 2,000 which is before the big rally to and 4,000 which is the current price. So I'm I'm not really sure how their assumptions are uh formed, but I I have seen uh what you're talking about exactly, Rick. But how confident are you that $4,000 is not going to turn to $3,200 by next year? Which is exactly what happened, by the way, in 2012? I will guarantee you, David, and I don't guarantee much, that the gold market in the next 10 years will fall by 30% or more at least twice. Mhm. Uh it may fall by 50%. Uh I'm not saying it will and I'm not saying when it will. I will tell you this. I came of age in the gold bull market 1970 to 1980. Yes. The gold price increased uh 28fold. In the middle of that bull market, in the middle of that bull market in 1975 when the US political class decided to raise interest rates, the gold price fell by half. Yes, that's right. It was an interesting memory for me in the in the period 1970 1975 the gold price had gone from 35 bucks an ounce to 200 bucks an ounce and it attracted a lot of adherence. People who had a religious interest in gold. When the gold price fell from $200 to $100, many of those people of faith deserted their religion. And in doing so, uh, they missed a rebound in the gold price from $100 an ounce to $850 an ounce. An eight-fold increase that occurred over five and a half short years. I guarantee you that the gold price at some point in time in the next decade, probably more than once, will fall 30 or 35%. I wouldn't be surprised at all to see it fall by 50%. Uh if you are not prepared to be a rodeo rider, uh beware of the tertiary gold stocks. Own gold for insurance. In fact, own gold hoping it goes down in price because the thing that makes it go up in price destroys most of the rest of your portfolio. Give us one or two of these things that make it go to $5,000, $10,000. what happens to the rest of the world. Uh it it depends on the response of policy makers. If uh as the United States finally decided to do in the form of Ronald Reagan and Paul Vulker, they raise the interest rate to accommodate for the deterioration in purchasing power of the US dollar. Uh people spend less, save more, and the integrity of the dollar is restored. If they don't, there's going to be a real reckoning. Uh we have discussed before, David, on your show, uh the dilemma that faces US society with regards to private savings versus spending, in particular, government spending, $ 38 trillion in onbalance sheet liabilities, $120 trillion in the net present value of entitlements. That number, the combined number, which exceeds $150 trillion, is offset in a very bleak way by two numbers. One, the private net worth of all American citizens estimated by the IRS to be $161 trillion, which is to say there's 11 trillion in margin, and $5 trillion, which is the gross income of the federal government before any bombs are bought, before a ballroom is built at the White House, before any money gets spent. Think about trying to service $150 trillion in debt with $5 trillion in income. And then uh think about a creditor that's trying to service $150 trillion in debt with $5 trillion in income that is proposing to pay you uh an interest rate that is lower than the rate of deterioration of the dollar. This could work for a while. Society operates on trust and trust was built up in the period 1982 to 2022. People have confidence in the dollar based on history but not based on arithmetic. If that trust runs out, a couple things can happen. They can give a treasury auction that nobody comes to. That will shake confidence. Uh we could have uh a liquidity squeeze. Uh I'm not saying we will, but we could have a liquidity squeeze on the order of magnitude of 2008 or greater. Liquidity squeezes are all about a lack of confidence. I'm not saying anything any of these things has to happen, but I am saying that your listeners need to be psychologically prepared for them to happen and construct their portfolio in a way that accommodates the risk that's in front of them over the next 10 years. And a cornerstone of that I would suggest is precious metals. Precious metals. But what about just other fiat currencies around the world? We don't have to specifically look at the dollar as the only safe haven. I mean, there's a Swiss Frank. There's the Bank of Japan raising rates like I mentioned. Yeah, go ahead. That's a wonderful question. Uh despite the fact that your portfolio is penalized in terms of purchasing power by holding fiat currency denominated uh instruments, you have to maintain liquidity. the negative interest rate that you suffer whether you own a Canadian dollar, a US dollar, an Australian dollar, a euro, uh really is an option premium so that you have liquidity if a liquidity squeeze comes despite the fact that you lose money holding cash, you have to owe cash. I think that the next 10 years will resemble in many ways the decade of the 1970s which is a decade where currencies relative to each other were volatile and I think that savers will need to need to begin to be flexible uh around the currencies. I am one who believes that although the absolute strength of the US dollar will be poor, the relative strength of the US dollar, the US dollar relative to some other currencies, most other currencies in fact, will do quite well. But I think that uh people will have to be nimble. I think too a lot of it depends on your circumstance. Uh, David, if you do business in the United States and do business in Canada, you probably will need to maintain liquidity in both currencies. You will probably need to maintain US dollar liquidity and Canadian dollar liquidity. You also will need to do that simply to defend yourself from your government. uh I am maintaining uh savings in several currencies because I invest in several in several countries but also to the extent I can I want to defend my liquidity from the idiocy of my administration uh something that people around the world I think need to do. The most dangerous government remember is the one closest to you. Well, okay. Let's write that down. Let's let's let's let's just let's just end it here. No, I'm kidding. Uh let's quote of the day. Rick, uh we have a few minutes left. I want to ask you about the future of energy and then we'll finish off on ranking mining stocks. The fact that uh you said there could be a reckoning in the US monetary system. Could there be a reckoning in the energy market? Which is to say I think a reckoning is coming in the energy market. Yeah. Uh I think a reckoning is coming in the industrial materials market. I think it's fair to say that society has underinvested uh in the material stuff of humankind for 30 years. uh particularly with regards to energy. Uh it is estimated that uh sustaining capital investments by oil companies including paristatal oil companies uh the deferral in sustaining capital investments or the underinvestment in sustaining capital varies between a billion and two billion dollars per day. Uh it is estimated by the big thinkers uh including your prime minister and our former president that peak oil demand occurs in 2030. I would suggest to you David that peak oil demand doesn't occur in my lifetime and probably not in yours. uh which means that oil and gas companies are substantially underpriced and that unless new project investment and sustaining capital investment in oil and gas increases that we will see higher and perhaps sharply higher energy prices in the 2 to 2 and 1/2 year time frame. Some of your listeners will say yes but which means they kind of agree with me but it's inconvenient for their psyche. Uh and they will say well what about alternative energies? What about non-carbon generating energies? to which I say that official estimates suggest that between 6 and 11 trillion have been invested in alternative energies in the last 45 years. And that let's be conservative and call it $6 trillion investment has reduced the market share of fossil fuels from a high of 83% four years ago or 40 years ago to a low of 81% today. A $6 trillion investment has reduced the market share of fossil fuels by two%. Uh investors who ignore in particular oil and gas uh are doing their personal balance sheets a disservice. Here's my yes, but uh notwithstanding what you said, the long-term outlook for uh energy demand and the transition to electrification rest on the assumption that global population growth will be sustainable. will still have the same kind of numbers as as as it did in decades prior. Here is the fertility rate currently. This is uh this is not a forecast. This is what it is now. And you can see that the largest 10 countries in the world, half of them have a fertility rate below two. China is significantly now below one. Sorry, below two, which is the replacement level. And so with the global population shrinking in the largest countries and especially in developed countries, can't we aren't we looking at the wrong place, Rick? Aren't we aren't we looking at growth where maybe there won't be as much growth? I'll let you answer that. The challenge that you describe is real 10 years from now. Mhm. It's offset by the fact that a billion people in the world have no access to primary electric primary electricity and we're fixing that. uh it's offset by the fact that many of the countries that still are above replacement rates are very poor and becoming rapidly richer. When poor people get more money, the purchases that add utility are material purchases in particularly energyintensive. The fact that we are um beginning to experience less than replacement rate uh tells me that some of the difficulty that we would face in the 2035 time frame will be alleviated by less population growth in those parts of the world that traditionally have been able to afford natural resources. uh but I think for the next 10 years and by the way all the net present value in investment is in the next 10 years uh the declining birth rates that you describe will be more than accommodated for uh in general economic growth uh growth uh per capita particularly in developed nations. I think we discussed before uh even in China which has done the best job in recorded history in lifting people out of poverty. Uh the Chinese Communist Party believes that there are between 100 and 150 million Chinese still living in rural penury that needed to be that need to be lifted into the 21st century in the next 10 years. China being one example. If you multiply that by m Nigeria, by Malawi, by Brazil, you see that the the demographics that you talk about begin to be a concern 10 or 15 years out. The concern that we have to concern ourselves with the next 10 years is three decades of underinvestment in resources relative to the demographic growth and the increasing wealth across all demographic classes. That makes sense. So perhaps 20 years from now, the population would start to fall off. Until then, the current population in the developing world still needs to transition to actually using energy. That's a very good point, Rick. Finally, tell us about uh before we head off. We got a couple minutes left. Where do we find your work? And tell us about the service that you're providing to us uh which is to rank our stocks, the process. I don't know. I don't I don't know if all my viewers are familiar with this process, but it's a great uh service that you're providing to your community. Um what are you looking for stocks? Go ahead. I should start off by saying it's a free service. I'm not charging for this. Yes. If you go to my website ruleinvestmentmedia.com and list your natural resource stocks, I personally will rank them 1 to 10. One being best, 10 being worse. Be a little patient. By the way, I've been on the road for five weeks. Uh so expect a return to be 7 to 10 days. But once again, go to ruleinvestmentmedia.com, list your natural resource stocks, and if I follow them, uh I will rank them 1 to 10, and I will comment on individual issues. If I think my comments might have value, please, please, please, no crypto, no tech stocks, no pot stocks. Uh, leave an old man to do what he does best. Can Do you comment on the portfolio overall? Let's say we've got five stocks and, you know, four of them are great, but one of them really is really bad, but and that's the biggest waiting. I don't portfolios, you know, not not great. I I I don't do that. I don't rank portfolios because I don't know enough about individual aspiration or risk tolerance. I understand. Uh, I just try to rank the companies because I don't know anything about the people asking me the questions. Okay, fair enough. Thank you very much, Rick. Uh, and just give us a few links, uh, or places where we can find you otherwise. Uh, two best places are ruleinvestmentmedia.com and the rule classroom where we have almost 300 hours of instructional programming, by the way, for free. Um, very good price. Money back guarantee, of course, for free. You're still you're still working for free in your in your your you know well into your 70s. I mean that's an inspiration to a lot. Most people would have retired. Not only are you not retired, you're working for free. Well, uh David, I do fairly well. Uh what I do is I sell uh investor education as an example through those channels. So think of it as a very efficient form of advertising for me. I should tell your listeners too in the United States and Canada, one third place to stay in touch with me is if you're unhappy with your current bank, which I suspect means every listener that you have, you should check out battlebank.com where, as an example, you can save in 20 currencies, not just Canadian dollars or US dollars, where you earn interest on your checking account. $3 trillion on deposits in North America don't receive interest. and where you can use gold or silver as collateral for a revolving credit facility. If your banks don't do these things, which I guarantee you they don't, if you're interested in interest, check out battlebank.com. Okay, we'll put the links down below. Thank you very much, Rick. We'll see you again soon. Take care for now. Thank you, David. I look forward to that. Thank you. And thank you for watching. Don't forget to like and subscribe.