Gold is your protection in an economic war on savers - Rick Rule
(Kitco News) - An economic war on savers is going to push gold prices much higher than $2,000 an ounce, according to Rick Rule, president of Sprott U.S. holdings.
In an interview with Kitco News on the sidelines of the Mines and Money Online Connect Global mining conference, the celebrated fund manager said that while he is no fan of the Federal Reserve, he sees that they are in an untenable position as they try to support the U.S. economy as it continues to feel the significant effects of the COVID-19 pandemic.
He added that to promote growth, the U.S. central bank will continue to be forced to keep interest rates low and that will drive gold prices higher.
"Understand negative, real interest rates for what they are: they're a war one on savers by spenders. And in a democracy, the winner of that war is foreshadowed given that the spenders are so much more numerous than savers. So from a political point of view, the Fed is doing the only thing that it can do," he said. I don't see what their way out is."
Although low-interest rates will support economic growth in the short-term, Rule added that there will be a long-term price to pay for all the capital being pumped into financial markets.
Rule added that in the current environment with low to negative real interest rates that generalist investors are starting to pay attention to gold. He also said that the renewed interest comes as there is still value to be found in precious metals and equities.
"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," he said. "The three-decade mean is about 2%. My suspicion is that the market share of precious metals and precious metals related assets reverts to the three-decade mean, and demand for these financial products, precious metals and precious metals related assets, would somewhere between triple and quadruple the largest savings and investment market."
As to what companies Rule said that he likes, it depends on the type of investors. He explained that investors who don't have a lot of experience in precious metals should stick to the blue-chip companies and royalty and streamers.
However, he added that he said that he likes mid-tier companies that are generating "very high, free cash for the investor with some experience."
Although investors should look to gold to protect them from the growing economic uncertainty, Rule said that the country will recover.
"We will get through this. It won't be pretty," he said. "Individually, we're tenacious. The truth is that individually, so far, we've been able to generate enough value that we've been able to afford our collective stupidity. What I foresee is that we do it again, but the interim will be unpleasant. The way that I take into account the interim is by buying gold for insurance purposes and buying gold equities because of current gold prices; they feel cheap."