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Rick Rule - Expect Higher Gold & A Wave of Mining Takeovers
With gold above $1,650 and silver near the $32 level, today King World News interviewed one of the most street smart pros, Rick Rule, Founder of Global Resource Investments, which is now part of the $10 billion strong Sprott Asset Management. When asked about the action in gold, Rule responded, “Background noise, up $40, down $40, absolutely irrelevant. Keep in mind this is all happening with a $1,500 gold base in place. The idea that equity markets should rebound because the Europeans may get their act together by printing $4 trillion in new counterfeit currency notes doesn’t matter to me. And the gold price up $40 or down $40 doesn’t matter to me.”
© 2011 by King World News®. All Rights Reserved. This material may not be published, broadcast,
rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
October 11, 2011
Rick Rule continues:
“I think with the gold price it inevitably goes higher, perhaps substantially higher, but we are going to experience a lot of volatility first. What we have seen is volatility. Upside volatility makes goldbugs feel good, they feel vindicated.
Right now we are seeing the best pricing opportunities I’ve seen in the junior market since 2008. 2008 saw the best values we have seen since 2002. I need to tell your readers that we are entering a period where the valuations are on the first hand compelling and on the second hand almost certain to get better.
Let’s talk through the perfect storm. You’ll remember from the movie that the perfect storm was a wave on a wave on a wave. The first wave here is the volatility of the market for the last three months, which has unnerved participants and caused many of them to be afraid of markets.
The second part of the wave is tax loss selling, which we think should reach a crescendo in November and December. Remember if an investor is Canadian, they don’t just carry their tax losses forward to next year, but actually recapture taxes paid last year. So Canadians actually get paid money from the Canadian Treasury to take their tax loss. So the second part of the wave is tax loss selling.
The third part of the wave is redemption from hedge funds and a contraction of bank credit to hedge funds. So in the end there are three real structural reasons why big players in the junior market are selling.
Of course the valuations that we are seeing are a direct function of the fact that some players have to sell and other players, as a consequence of their psyche, want to sell. You don’t get good opportunities when everybody is buying, you get them when everybody is selling and that is what we are seeing right now until the end of the year.”
When asked what he is doing with his own money and client money, Rule replied, “Well, this is pretty simple, I am beginning to buy some stocks with the understanding that the opportunities will increase as we go forward.
Understand, Eric, that I am extremely selective. Out of 4,000 companies, that constitute the junior universe worldwide, there are probably one hundred that we have identified as being of interest to us.
The truth is that if I buy some stock at $2 and later I buy some more at $1.50, if I’m right and the stock goes to $10, the fifty cents that I gave up is a rounding error. It won’t feel like a rounding error in March, but it will definitely feel like a rounding error in 2015, which is the real time frame that speculators have to keep in mind.
Eric, the other thing that your readers need to think about is professional buying. While the institutions and the individuals are selling, other mining companies are buying. I think we are going to see a round of takeovers in the next twelve months that is going to be pretty astonishing.
Not enough in the near-term to offset the structural selling that we’ve talked about from institutions and tax losses. But the fact is that, increasingly, the trade is going to be from financial holders to industry holders as the major mining companies takeover the successful junior producers and the exploration juniors that have exploration success.”
© 2011 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
Eric King
