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There is no vast conspiracy to suppress gold price, Fed will back off aggressive rate hikes - Rick Rule

Kitco News

(Kitco News) - The gold price may be "manipulated" on a short-term by traders using various trading techniques, but there is no "vast conspiracy" for governments to orchestrate the long-term suppression of the gold price, according to Rick Rule, Founder of and former President and CEO of Sprott U.S. Holdings.

"The idea that there's some vast conspiracy between governments and central banks and the Trilateral Commission to depress the price of gold… seems silly to me," said Rule. "I mean, look at the supposed players. The government can't deliver the mail, they can't educate the kids, and [yet] they can preside over a 40-year manipulation of the gold price? I don't reckon."

Rule spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News, at the Vancouver Resource Investment Conference.

However, on a short-term basis, the price of gold has been subject to price manipulation. Rule said.

"[To] say that short-term gold markets are manipulated, I wholeheartedly agree with," he said. "I believe that all markets are and can be manipulated in the short term. If they can manipulate a market the size of the U.S. Treasury market with a LIBOR market, for sure they can manipulate the gold market."

Turning to inflation and a possible U.S. recession, Rule said the Federal Reserve will back down from raising rates. This is despite Chairman Jerome Powell's hawkish rhetoric.

"I haven't made a lot of money in the last 40 years by believing that my government tells me the truth," said Rule. "I think [Powell] should raise interest rates. I don't think he will… The political superstructure in the country will react to the problem that the voters see today, which is the interest charge that they pay on their first mortgage, and the interest charge that they pay on credit cards."

Only when people realize that inflation is a serious problem will they turn to gold, he said.

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Interest rates will still rise, Rule noted, but not to the extent of the most hawkish of Fed projections.

"I think they could raise the interest rate by 50 or 75 basis points. I think if they do that, the equities markets continue to decline. I think that the long-term debt market gets decimated. I think that the broad economy begins to suffer," he said.

Rule said he has invested in Russian stocks, "The rationale being that the cheapest natural resource stocks in the world, which were Russian, had fallen 50 percent."

He currently has "about one-and-a-half percent" of his portfolio in Russian resource equities. However, Rule admitted that Russian stocks were a "trying investment," due to sanctions.  

He predicted that countries such as Russia, China, and Iran, "should and will develop alternative trading arrangements."

"What will actually occur, I think, is a series of formalized bilateral agreements in currencies, outside the U.S. dollar, so that the U.S. dollar can't be formally weaponized," said Rule.

He went on to comment on the effect of recent events on uranium.

"The uranium market is very opaque," said Rule. "The consequence of the potential Russian embargo was to see panic buying, which took uranium from $50 to $62 or $63, and then a relaxation of concerns that saw uranium retrace all of the gains."

Rule said that image problems plague the uranium market. Yet, that may change as demand for low-carbon energy rises.

"My whole lifetime in the uranium business, it's been regarded as a pariah fuel," said Rule. "When I talked about uranium, people act as though I am championing Hiroshima and Nagasaki, Three Mile Island, and Fukushima. There's come to be a realization that… the world needs electric power in a way that doesn't generate more carbon… All of a sudden, there has been the realization that, in many senses, uranium production and the generation of electricity from uranium is environmentally friendly."

Rule said that it is important for investors to hold cash when there is a downturn. "Cash is not trash," he said.

To find out which commodities Rick Rule recommends, watch the above video.

Follow Michelle Makori on Twitter: @MichelleMakori

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.