Rick Rule on the disconnect between gold price and equities

Q: Gold is now at an all-time high, but the majority of gold stocks are around 5-year lows.  Can you explain the disconnect?

Rick Rule: Absolutely.  And first of all, gold is only in all-time highs in nominal terms.  In real terms, against the U.S. dollar at least, gold is not at all-time highs.  And people need to understand that when they think about where gold might go.  The second thing is, with regards to the underperformance of the gold price, it's worth noting that the buying of gold is not widespread.  You are not seeing retail buying of gold except in China and India.  The gold purchases that you're seeing are central bank purchases.  And those central bank purchases are really looking for an asset that could be a medium of exchange outside the U.S. dollar.  It's the weaponization of the dollar, rather than the fear of inflation, that is the driver of gold itself.  These gold buyers, central banks, are not buyers traditionally of gold equities, or equities at all, for that matter.  So it makes perfect sense... to say that the gold bull market and the market in gold stocks thus far is disconnected because while the buyer has a need for gold to circumvent the U.S. dollar, the buyer doesn't have a need for gold stocks.

But there's a second reason that I think is worth discovering and that is the chronic underperformance of gold mining companies as businesses for the last 50 or 60 years.  Lucijan, if you were as old as I, which I can tell you're not, you would remember the decade of the 1970s when the gold price went from $35 to $850, the best bull market for gold stocks probably in recorded history.  The hangover from that, if you will, is that the gold stocks the most in that bull market were the ones that exhibited the most leverage to gold.  And the most leveraged companies, ironically, are the most marginal.  If you're a high cost producer and the gold prices goes up, your margin increases faster, ironically, than a more efficient producer.  When the investor, which they have now for the last... 50, 60 years, looked at gold investments, they looked for the most leverage, which is to say the most marginal.  And the industry became very very marginal.

If you look back to the decade 2000 to 2010, the gold price in U.S. dollars was up more than seven-fold and yet free cash flow per share among the XAU [PHLX Gold and Silver Sector Index] in the U.S. declined!  It took real skill to screw up a market where the selling price of your product increased seven-fold and you reduced free cash flow per share.

So the expectations that the investment community has around gold mining companies are extraordinarily low.  From my point of view, that's good news.  It's good news because I don't have much competition on the bid for gold mining stocks.  And I would suggest to you that some investor expectations have become more rational.  I would suggest that most of the management teams that presided over the destruction of capital in the period 2000 to 2010 have been allowed to pursue other employment opportunities.

So I think that the gold industry is held in ill-repute, ironically, right at the beginning of its renaissance and I regard this as a particular opportunity.

~ Rick Rule, interview with Lucijan Valkovic, 7:20 mark, March 28, 2024

Rick Rule on the long bull market in commodities

If you look around a range of commodities over the last two decades; pick one: oil, coal, copper, nickel, even the ones that are down substantially in the last 18 months like lithium.  We are clearly in a bull cycle.  And the reasons for that are really simple: There are eight billion of us on the planet; every day there's more.  For 40 years we've done a great job lifting the poorest of the poor worldwide - 1.5 billion people - out of dire poverty, making them merely poor, as opposed to extremely poor.  Is there a lot more to be done?  Absolutely!  But we've done a great job.  The consequence of that, Lucijan, is that when poor people get more money, which has happened on a wonderful scale for 40 years - the stuff they want to buy is made of stuff.  When you and I get more money we buy some little gadget from Apple or we buy a service.  But when poor people get more money they replace a thatched roof with a metal roof, they replace mud waddle with concrete, they go from barefoot to shoes to bicycles to 55cc motorcycles to a Toyota Hylux.  And this is going on around the world.

Is the bull market going to continue?  Of course!  There's a billion people with no access to primary electricity... a billion!  There's another 2 billion people on earth with access to either intermittent or unaffordable power.  And the same can be said for calorie counts.  The same can be said for the whole range of the material standards of living.  Meanwhile, you want to live better, too.  You want your children to live better than you do.  All of this requires stuff.

~ Rick Rule, interview with Lucijan Valkovic, 5:10 mark, March 28, 2024

Rick Rule on natural resource investing

In terms of natural resource investing, you're either going to be a contrarian or you are going to be a victim.  There isn't much by way of middle ground.  Everybody wants to invest in commodities where the price action has already justified the narrative, but the price action takes the value-added out of the narrative.  You have to look for commodities that are in liquidation, where the price is so low that the industry is liquidating and where if the price of the commodity doesn't increase, the commodity will become unavailable to humankind.  And finally, humankind needs to need that commodity.

Another way to put that phrase, in terms of the time value of money, is that you need to invest in things that are inevitable, even if they aren't eminent.  And you have to need to know the difference between those two words.

~ Rick Rule, interview with Dan Ferris and McLaughlin, Stansberry Investor Hour, 60:30 mark, March 4, 2024

Rick Rule on competing with woke portfolio managers in the energy sector

I think you have a whole collection of portfolio managers investing or decapitalizing the oil industry for woke purposes.  I love competing with people who don't compete.

~ Rick Rule, interview with Dan Ferris, Stansberry Investor Hour, 31:40 mark, December 19, 2022

Rick Rule on the government-made supply shortage of oil and gas

I believe there's a very good intermediate-term play in the oil & gas sector.  Ironically, that's almost guaranteed by our government.  The government is suggesting to the oil industry that they need to increase the availability of oil and gas while telling them that they're going to put them out of business in 2030.  Telling somebody that you're going to put them out of business in 2030 is not really a good way to get them to invest hundreds of billions of dollars today.  So we have an artificial supply constraint.

~ Rick Rule, interview with Dan Ferris, Stansberry Investor Hour, 24:30 mark, December 19, 2022

Rick Rule on the bull market in precious metals

I suspect that the duration on this gold bull market is greater than people think. And I think the dimension is greater than people think, too, because gold and precious metals move when people are concerned about the debasement of the currency and the impact that that has on the purchasing power of their savings. And anybody who isn't concerned about quantitative easing, debt and deficits and negative real interest rates I believe needs to have their head examined. So I'm constructive to higher precious metals prices and hence higher prices around companies that produce them.

~ Rick Rule, "Where to Find Big Gains in Resource Stocks," Stansberry Investor Hour, 34:00 mark, May 13, 2021

Rick Rule on financial regulation

It seems to me that the apparatus of regulation is designed to protect the public from a few bad apples who pay no attention to regulation whatsoever. It seems that most of the impact of regulation is to constrain the flow of information from honest people to honest people around the vainglorious hope that you can protect investors from their own worst instincts, and from some of the worst elements of humanity, something that I believe is futile. I actually believe that investors would be better served if they understood that neither FINRA nor the SEC can protect them and they had to do the work to protect themselves. 

~ Rick Rule, "Where to Find Big Gains in Resource Stocks," Stansberry Investor Hour, 16:00 mark, May 13, 2021

Rick Rule on investing, patience, and time arbitrage

The old guys..., those few who have been really, really, really successful, always seem to invest for the 5 to 6 year time frame.  My suspicion is that time arbitrage, that is aligning your preferences with the reality of the investments that you are making, is one of the most important determinants of success.  Some people believe that because they want something to happen in the near term, that their wants are germane.  And they're not.

~ Rick Rule, "The Time for Value Stocks is Here," Stansberry Investor Hour, 30:15 mark, April 16, 2020