Rick Rule pulled no punches during a recent interview with Kitco News. In it, he covered a broad range of topics including gold, the Federal Reserve, and his expectations for the new bull market in gold.
When asked his thoughts on gold prices after the recent retreat from the $2000/ounce level, Rule said volatility is normal and there’s plenty of optimism left.
“Gold goes higher. Probably much higher. It of course will go higher with lots of volatility. It doesn’t mean it doesn’t go down a little bit before going up. But I truly believe that the wind is truly in gold’s sails. The circumstances that are propelling gold higher are uniquely positive for gold and probably uniquely negative for other aspects of your life.”
He said the Federal Reserve has painted itself into a corner. It can’t raise interest rates even though it desperately needs to. Given the challenges it faces, Rule said he’s not a fan. However, he believes they are doing as well as could be expected.
“The central bank has their task cut out for them, and I don’t think they’re up to it. They have a circumstance where the voters and consumers and Wall Street won’t let them raise interest rates. Interest rates need to stay artificially low. So they’re really truly between a rock and a hard place. I’m not much of a fan of the Fed. But I have to say, given the set of circumstances that they have to deal with, which from my point of view is effectively an impossible task, they are doing as well as could be expected.”
Rule believes there are four reasons why gold is moving higher, and most of it is due to the ineptitude of politicians to make tough decisions.
“When you look at the gold landscape, you look at several factors. Fiscal policy which is to say debt and deficits: continuing as long as they can get away with it. Artificially low interest rates: continuing as long as they can get away with it. Quantitative easing, which if you did it would be called counterfeiting, continuing as long as they can get away with it. And then of course the fourth factor, which is to say that from a historical context, gold and precious metals related equities are substantially underowned.”
This last factor, says Rule, shows that historically, gold is under-owned right now, something he expects to change very soon.
“It is estimated now that the market share of gold and precious metals related investment products is less than one half of 1% of total savings and investment assets in the United States. The three-decade mean is about 2%. So even if the three factors we that talked about don’t propel gold demand really high, my suspicion is that the market share of precious metals and precious metals related assets reverts to the three-decade mean, and that would mean demand for these financial products, precious metals and precious metals related assets, would somewhere between triple and quadruple the largest savings and investment market in the United States, which is precisely what I think is going to happen.”
A 10-Year Bull Market?
Rule believes we are at the very beginning a decade-long bull market. Also, if history is any guide, we could see a six-to-seven fold increase in prices.
“My experience is a real gold bull market, which is what I think we are in, real gold bull markets generally go for a decade. My initial experience was 1970-1981, 11 years, admittedly punctuated by 1975 where the market fell by half, and then of course there was the 2000-2011 bull markets, admittedly punctuated dramatically by 2008. Many people are saying the gold price has already gone from $1100 to $1950, have I missed it? Well if you look at the most tepid of those two bull markets, the 2000 bull market, the gold price went from $250 to $1900. A six-or-seven fold move. So my suspicion is if you have six-and-seven fold moves, I think this bull market has a ways to go.”
He says most investors should stick with the best-of-the-best gold stocks like Newmont Mining and Barrick Gold and leave the speculation to the professionals.