While the price of gold has flattened out over the past week, one expert in resources and resource stocks sees the current bull market for gold lasting 2 - 3 years. Rick Rule, CEO of Sprott U.S. Holdings recently shared his thoughts on precious metals.
He sees a general “unwinding” of the previous decade of rising asset prices. Rule noted that higher valuations were primarily a function of “excessive liquidity, which is to say quantitative easing” as opposed to stronger fundamentals.
In a May 6th interview with Kitco News, Rule also expects the overall “commodities complex” to experience a bull run some time in the next 3 – 5 years. This is based on his perception that the current financial and economic crisis will be more severe than the 2008 Financial Crisis.
With respect to the collapse in oil, Rule chose a glass half-full approach. He cited the economically stimulative effects of lower oil prices. Indeed, mining companies in particular benefit from cheap oil.
Regarding the miners, Rule cautioned that a bull market (outside of precious metals) is unlikely to emerge until we see rising base metals prices.
“The caveat to that is that the industry has underinvested in exploration for many, many years and the exploration and development pipeline is very constrained, so companies that enjoy successful exploration efforts will see themselves rewarded extravagantly in the market.”
Then Rule’s focus returned to gold mining stocks. He cited a 50-year index of these companies. He sees current valuations as being extremely attractive from a long-term/historical perspective.
“The oversold bottom that we have been through beginning in 2011 and existing through 2019 was both very long and very deep. It’s important that investors understand the bear market we went through in historical context.
It’s also important for people to note the incredible cyclicality of gold equities. There have on that chart been eight major recoveries from oversold bottoms. The speculators should note that those recoveries have varied in scope between 180% equity index gains and 1,200% index gains. The point of this is that when bull markets take hold that they really, really, really move. [emphasis mine]
…The recovery that we are likely to enjoy, at least if history repeats, could be very, very dramatic.”
A multi-year bull market. “Extravagant” gains. Cheap stocks.
When someone with Rick Rule’s stature lays out those parameters, a lot of investors are going to want to start buying.
