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11/21/17

Rick Rule at The Colombia Gold Symposium (from IKN444)

The intro to Sunday's edition of The IKN Weekly, IKN444:

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Rick Rule at The Colombia Gold Symposium
As I write up the Weekly in a hotel room in Medellín, having decided to stay on here to put the weekly together before flying back home (more time, less clock stress), I get to reflect on the success of the Second Colombia Gold Symposium and thoughts turn back to the very start of the week. As the keynote speaker at the and first up on the first day, it was fun to watch Rick Rule stand up and give 45 minutes of monologue to the attentive audience of over 300 people. He covered a lot of ground, as well as coming up with the wise saws and modern instances of the experienced and ultra-smooth mining raconteur. However it wasn’t all fluff, there was plenty of substance and three main themes espoused by Rule caught my ears:

1)     Volatility? Get used to it. More of a reminder than a revelation, all the same a timely one that we’re in one of the most volatile and near-term unpredictable sectors of the whole market. Stocks move down and up by 20% for no reason and in no time at all, they can double or be cut in half rapidly just because sentiment changes, then there’s the way the price of gold (and any other metal you might care to mention) can pull the rug from under our feet at any given moment; that’s when the best stockpicker in the world goes down the same tube as the worst. The message was simple, the way of our sector isn’t about to change soon, so if you cannot stomach taking a 50% loss on a stock before it turns into your envisaged 200% winner, (junior) mining isn’t for you.

2)     The gold price looks promising for 2018. Rule was careful to hedge his bets on timing and it might not turn at the precise moment in 2018 he prefers, but his view is that the cycle is now turning favourably towards gold (and the others) and next year will be better than this year for the metal(s). Now for sure he has a vested interest in calling gold higher and as a self-confessed goldbug, wears his heart on his sleeve at moments of speeches such as this. But there are reasonable grounds for being bullish gold today and they’re mostly from North America. For a long time we’ve tracked the close relationship between the gold price and the real rate of interest in The USA using the ten year TIPS yield chart (see below) and it’s still working like clockwork. It’s interesting to note that even though the Fed is jawboning higher base rates now, what really matters isn’t the nominal but the real rate of interest so if inflation starts to notch up in what is still in historic terms a very low interest rate environment (even after the hikes that started last December), TIPS will trend to and perhaps even below zero. And yes it’s happened before and yes, when it does it’s about the best bull signal for gold in the whole armoury.

3)     Own quality stocks. According to Rule, now is not the time for optionality. His sense is that the miners are now lagging the metals and the bets way to play the year ahead is via quality mining stocks, be they profitable producers or explorecos/developers (his preference) with strong projects. This of course was music to my ears as the vast majority of my personal exposure to the market, as well as the preferred investment policy of The IKN Weekly, is to go for the quality end and let the dogs wag their tails in their own time. Rule spent quite a bit of time expanding on this point and one of the drivers according to him is the combo of reserve depletion in majors and supply destruction. The majors have tried to ignore the fact that their reserve assets have depleted to current low levels and at some point need to address that. This is of course the same point made sans cesse by Brent Cook and many others, but that doesn’t make it false either. So for Rule’s taste, it’s time to buy and own the stocks that the majors will find attractive down the line because as day follows night, the largest miners are going to time the market as badly as ever and will be forced to pay up for assets they could get at their current discounted levels of today.


It was an entertaining 45 minutes for sure and as a bonus ball I had the chance to pick Rule’s brains a bit over the following couple of days, one of advantages of a small but well-attended conference like the one Paul Harris hosted last week. I’ll be here again next year for CGS3 and it would be great if more IKN subscribers could make it in 2018, the coffee/beer is on me if you do. As for Rick Rule, does this suddenly make me one of his fanboys? Not yet, but I can say he’s interesting and stimulating company. He’s probably less fun to be around and to talk with if you owe him money, though.