Rick Rule continues...

“That’s exactly what’s occurred.  But you are seeing underlying strength in the commodity prices as well.  International crude markets are very strong.  North American crude markets, even in the central part of the country, are stronger than one might have expected given the weak economic conditions.

We have also seen strengthening precious metals prices, especially platinum and palladium prices....

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“The other thing that is happening right now is increased merger and acquisition activity, particularly in the mid-tier oil and gas sector.  But that will spread down to the junior producers, and I think it will spread laterally across base metals and precious metals miners as well.

I would also note that the more well-heeled speculators are returning to the market.  Sprott launched its ‘Exploration Capital Partners’ in 2012, which is a special partnership for risk-oriented investors with long-term horizons.  It has a 10-year lockup so it requires a special class of investor. 

That partnership raised $35 million, on top of a $50 million raise which we just did for ‘Resource Income Partners,’ which makes bridge and mezzanine loans to the junior resource sector.  So people who say there is no money available are people who don’t have the track record to raise the money.

Very recently we have noticed plenty of money available for high quality projects.  I would say for those investors who are feeling beleaguered, this is the time, if they haven’t done it already, to prune the weaklings out of their portfolio and use the cash to go to stronger names.  A portfolio that has stronger names this year will have a very difficult time not making money.

One of the things I’ve noticed is that despite the fact that we’ve been in a precious metals bull market for 10 or 12 years, investors are still underinvested in precious metals.  Consequently many of the investors and speculators that come in to see me have less than 5% of their portfolios in bullion or bullion related stocks.  I just don’t think that’s appropriate portfolio management.

In the era that we’re in, Eric, where you have fiat money printing, and balance sheet expansion by central governments, the idea that investors aren’t well represented in physical bullion, it just doesn’t make sense in terms of prudent portfolio management.  All of the fundamentals for precious metals are strong.  When I think of what John Mauldin says, ‘Gold is a currency they can’t print,’ I think the bedrock of most portfolios would be to have some bullion.

I would also add that the selling pressure which faced silver last year from the hot money hedge funds is over.  So the silver price should do reasonably well this year.  The fact that the paper silver market can trade one billion ounces a day when there is only one billion ounces a year in new mine and scrap in the physical market, points to an incredible mismatch in the paper and the physical market. 

This situation will be resolved in favor of the physical market.  But my favorite precious metals right now are platinum and palladium because of diminished supplies and continued strong demand.  As money flows into bullion in 2013, this bodes well not just for the high quality stocks, but also for some of the quality smaller companies as well. 

I suspect a portfolio made up exclusively of those stocks for the investors that can take the political, development, and interest rate risk, I would be surprised if those stocks did not outperform just about every type of investment category available to investors in 2013.”

© 2013 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.

The interviews with MEP Nigel Farage, Michael Belkin, James Dines, William Kaye, John Embry and Jean-Marie Eveillard are available now.  Also, be sure to listen to other recent KWN interviews: Rick Rule, Pierre Lassonde, Gerald Celente, James Turk, Bill Fleckenstein, John Hathaway, Eric Sprott and Art Cashin by CLICKING HERE.

Eric King

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