Today one of the wealthiest street smart pros in the business spoke with King World News about the comments from Paulson and Co. criticizing the gold mining industry as well as what to expect from the gold price going forward.
Comments From Paulson and Co. About Miners
Eric King: “Rick, the comments about the mining industry coming from Paulson and Co. were fascinating. Your thoughts on what unfolded.”
Rick Rule: “Well, I think its hugely useful what he is proposing. Marcelo Kim was proposing that some of the bigger mining investors in the world, ourselves included, form a shareholders council — sort of like the World Gold Council — and advocate for change among the major mining companies. I think this is so important, Eric, because the change needs to come from us (investors)…
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How We Got Where We Are Today
Rick Rule continues: “If you look back to what started the current sort of paradigm around gold stocks, in my opinion it was the move in the 1970s of the gold price from $35 an ounce to $850 an ounce. And despite that incredible move in the bullion, many of the gold shares generated even larger returns. The consequence of that is that investors have looked at the gold mining industry to provide them one thing, which is leverage to the gold price. Now, amusingly, when you ask a gold company to exhibit leverage, what you are really asking them to do is be marginal because the high cost producer gets the best margin increase from an increasing gold price.
What Investors Need To Do Now
So investors have asked the gold mining industry to be marginal and the gold mining industry has complied in spades. What we as investors need to do now is say to the gold mining industry, ‘We’re sorry, we gave you the wrong instructions. What we need you to do is to be efficient — efficient in the same way that a manufacturing business would be efficient, and give us leverage to the gold price as icing on the cake.’ I think that’s a very, very important message for investors to send to the people who run assets on their behalf.”
Eric King: “What about the big picture on gold, Rick? Some long-time investors have been stressed out by this pullback from near $1,400 to just under $1,300.”
Rick Rule: Laughter
Eric King: “That’s how I feel about it but some people are jumping out of windows.”
Bull Market In Gold Is Just Beginning
Rick Rule: “In terms of the near-term on gold, Eric, I’m never fussed about these types of pullbacks. My own feeling going back 40 years is that the most important determinant of the gold price is faith in the US dollar. This faith is expressed by the US 10-Year Treasury, and the delta between the yield on the US 10-Year TIP and the US 10-Year Treasury.
If you believe that past is prologue, that is if you believe that the gold price is going to be primarily determined by faith in the US 10-Year Treasury, and you observe that the US 10-Year Treasury has been in a bull market since 1982, and that as a consequence the yield has fallen from 15.6% to 2%, I think you’re struck with the fact that the bull market in treasuries is closer to the end than to the beginning. Which means that the bull market in gold is closer to the beginning than the end.
If gold sells for $1,300 or gold sells for $1,350, neither price point is of any particular interest to me. I hold physical gold because it’s a medium of exchange that’s simultaneously a source of value. And a $20 move, $30 move, or a $50 move in either direction isn’t even background noise from my point of view. I’m in this for the long-term because gold is headed a lot higher than what it is trading for today.”
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