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Gold investment will quadruple as precious metals return to 'four-decade mean' - Rick Rule

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(Kitco News) - The run-up in gold prices since November has been dramatic, but those gains have just scratched the surface of the precious metal’s potential, according to Rick Rule, former CEO of Sprott Holdings and founder of Rule Investment Media.

“It's important to consider how far gold can go,” Rule said. “Precious metals-related investments comprise less than one half of one percent of all savings in investment asset classes in the United States. The four-decade mean market share is two percent.”

Rule told Kitco News reporter Ernest Hoffman on May 10 that the combination of negative real interest rates, quantitative easing, debt and deficits will propel gold's investment market share to the four-decade mean at a minimum. “If that's correct, demand for precious metals-related assets will increase fourfold, which is precisely what I think is going to happen.”

Rule said he believes gold’s upward trajectory is sustainable in the intermediate term, though if the “big thinkers” in government succeed in raising nominal interest rates, its progress will be slower.

“What's always driven the gold price, more than anything else, is people's concern about the maintenance of their purchasing power in more conventional savings instruments,” he said. “There is nothing that should worry savers more than interest rates which are insufficient to keep pace with inflation.”

Rule said the best illustration of this is the 10-year Treasury, which will pay 3.4% interest every year for ten years, while the U.S. Congressional Budget Office acknowledges the dollar is losing 7% of its purchasing power per year. “In other words, the U.S. government guarantees to reduce your purchasing power by three and a half percent a year compounded for ten years, the first promise made by the government that I'm prepared to believe they will keep.”

Turning to energy, Rule also expects to see some recovery in natural gas prices, which are down over 50% in 2023, though he says there are different challenges in different areas of the market.

“I think we need to separate North American natural gas markets into U.S. markets, which are merely cheap, and Canadian markets, which are felony-cheap,” he said. “Sometimes the ACO price is almost sub-zero, which is to say the gas producers don't get paid enough money to ship it into markets that'll buy it.”

He said the Canadian conundrum is political rather than economic, but sanity is on the horizon, at least in the United States.

“I think we'll have a bifurcated market,” he said. “I think the U.S. market for natural gas will bounce. I think the Canadian market will continue to be constrained because of Ottawa's policies and the inability to create infrastructure to move gas out of the Western Canadian sedimentary basin.”

The recent announcement from Chile that they plan to effectively nationalize lithium production in the country could impact battery metals prices, Rule said, but will be catastrophic for the country and any other jurisdiction that follows their lead.

“I think it's part of a broad trend in commodities,” he said, noting that whenever commodity prices rebound, governments look to nationalize the sector, but it has never worked out. “Look at the extraordinary lack of success that Chile itself had with Codelco, the world's most inefficient copper company.”

Rule said that the projections of massive growth in demand for copper, silver, and battery metals are largely based on the developed world’s electrification plans, but the impact of developing-world demand is understated.

“Many people don't grasp the importance of increasing energy density around the world, but particularly in frontier and emerging markets,” he said. “Rich people think the story is about electric vehicles, and that's certainly part of the story, but many people don't realize that a billion people on earth have no access to primary electricity, two billion people on earth have access to intermittent and unaffordable electricity. The real story here is the inclusion of 35 percent of humankind in an energy-dense, materially intense life.”

Rule said that three decades of underinvestment in exploration for minerals such as copper, nickel, cobalt, lithium, vanadium and tin guarantee shortages based on developed-world demand alone. “Layering on the demand that comes from the electrification of the poorest of the poor around the world, I think is going to generate tremendous opportunities across a broad range of these energy transition materials.”

Rule is also very bullish on uranium, which he believes is the closest thing to a sure thing for commodities investors.

“Uranium is probably my favorite commodity in terms of the certainty I have around the near and intermediate term prospects,” he said, noting that Japan is now restarting their nuclear infrastructure with the support of over 63 percent of the Japanese electorate. “We're seeing increasing public favor for uranium and nuclear power really around the world, typified as an example by the co-founder of Greenpeace saying the only hope for a carbon-neutral mankind is, ironically, nuclear power.”

“The question now isn't when the uranium bull market will begin,” he said. “It's already begun.”

To hear Rule’s price targets for various commodities, his outlook for junior miners, and his views on the banking crisis, watch the above video.

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.