October 17, 2013 at 12:59 PM EDT
Sprott Asset Management’s Rick Rule On Gold and Silver
NYSEARCA:GLD, NYSEARCA:SLV, NYSEARCA:IAU, NYSEARCA:PSLV, NYSEARCA:SGOL, NYSEARCA:UGL, NYSEARCA:PHYS Related posts: Eric Sprott, Rick Rule, John Embry, and Marc Faber Talk Precious Metals Rick Rule: 10 Questions For Gold and Silver Investors Rick Rule: “I think we are in a physical shortage in gold and silver…” Rick Rule: It’s A Great Time To Buy Silver Sprott Asset’s John Embry: Don’t Sell Your Gold and Silver

rick rulePatrick MontesDeOca: Good morning everybody this is Patrick MontesDeOca with Trading Talk. This segment is brought to you by Equity Management Academy. We have the distinct honor and pleasure to have with us today Mr. Rick Rule, President of Sprott Asset Management, USA. Mr. Rule has dedicated his entire adult to many aspects of natural resource securities investing.  In addition to the knowledge and experience in the long, successful, focused rear career, he has a worldwide network of contacts in the natural resource and finance worlds. As chairman of Sprott Asset US holdings Mr. Rule leads a highly skilled team of earth science and finance professionals who enjoy a worldwide reputation for resource investment management. Welcome to Trading Talk, Rick.

RR: Pleasure to be with you, Pat.

PM: To move right into the first question here everybody has in mind…the Fed’s decision not to taper this week.  What do you think is behind this surprising move not to taper and what do you make of this moving forward here?

RR: Well, that interesting, Pat.  If you dial back to an interview we did in this office 9 months ago, we were talking about the so-called quantitative easing.  And, the point I was trying to make is that it wasn’t just about adding liquidity into the system.  The system was full of liquidity.  What I think it was about, and is about still in some measure, is the fact the federal government is spending 1.2 trillion dollars a year more than it takes in.  Its able to borrow about half the deficit and the other half of the deficit,  it has to buy from itself.  It has to create the money to buy the bonds it can’t sell in the market.  So, of course they can’t taper.  Where is the money going to come from?  This seems to me to be an incredibly losery discussion.  And, the only thing that really amuses me is the lack of sophistication on the part of alleged big thinkers in major media who don’t understand this for what it is, which is counterfeiting plain and simple.

PM: We have a another ratio coming up which is the debt ceiling deadline coming up in a couple of weeks. Can you give us your insight on this very important issue?

RR: Well, I think they’ll find a way to perpetrate what under generally accepted accounting principles would be a fraud and find a way through it.  I think the republicans were punished for their political gamesmanship last time.  And, when I say ‘political gamesmanship’, I don’t see an awful lot of republicans that are interested in spending less, either.  They just seem to be interested in spending on different constituencies.  Spending issue seems to be less current in Washington than scoring political points against your opponents, with the grandstanding associated with the debt ceiling is. If either side or any side or anybody was really seriously interested in the deficit, there are some concrete spending measures they can take.  It seems however when they conspire to save money out of one column it’s already been spent in two or three other pet columns.  I think that the markets will respond hysterically to the discussion about the ceiling, but I personally believe the discussion will be characterized as entertainment [rather] than news.

PM: Do you think that the US credit rating will be downgraded and again and if so how will this affect the financial markets and, in particular, precious metals?

RR: Ironically, I don’t think the US will be downgraded because as rapidly as our situation is deteriorating, my joke has been for years, Pat,  we run the worst currency in the world except all of the others.  What we are is simply the prettiest mare in the glue factory.  I think that we will not devalue.  And, I think ironically despite our problems and despite that we’re counterfeiting circa 700 billion dollars a year, that the US because of its comparative advantages over other countries and the depth and liquidity and transparency of our currency markets, will still function as the reserve currency and the United States will still get the benefit, unbelievably, of seignior age.  It’s funny but there isn’t a viable competitor which is the only reason we’re able to get away with what we’re getting away with.

PM: We had the best rally in gold and silver in the last three years after the Fed’s decision.  Was this a short covering rally or is this the beginning of a more significant move to the upside?

RR: Well, you know, I am a gold bug, Pat, so I always it’s part of a significant move to the upside.  I think there were a few things [that] happened.  I think one thing is that gold was simply oversold.  We had a massive move from weak hands to strong.  You and I talked about that.  That’s a very good thing.  Gold went from weak central banks, sclerotic central banks, to emerging market central banks that were under-indebted.  Gold went from overly leveraged futures markets, weak hands, people engaged in hedge funds engaged in leveraged carry trades to the physicals markets, the so-called Chinese housewives.  So gold moved from weak hands to strong which is a very, very, very good thing.  And, I see that continuing.  I see one of the reasons for the snap back being simply the liquidation of the momentum driven hedge funds, the carry trades that came unwound in the futures markets ran their course… less available on the sell side, which meant that the market snapped back from an oversold condition.  I am very permissive to the point of view that we are ready for a much more sustained gold rally.  If you look at the actions of the guy whose name graces my door, Eric Sprott, who’s been a singularly successful directional investor for the 30 years I’ve known him, Eric believes we’re on the doorstep of a really major move in gold and silver and gold and silver equities to the upside.  I’m not prepared to be as bullish as he is I am a credit analyst, while he is a market commentator.  But, I certainly wouldn’t discount that and I am currently taking advantage of these soft metal prices to add to my own and clients’ holdings.

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Related posts:

  1. Eric Sprott, Rick Rule, John Embry, and Marc Faber Talk Precious Metals
  2. Rick Rule: 10 Questions For Gold and Silver Investors
  3. Rick Rule: “I think we are in a physical shortage in gold and silver…”
  4. Rick Rule: It’s A Great Time To Buy Silver
  5. Sprott Asset’s John Embry: Don’t Sell Your Gold and Silver

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