Rick Rule On Gold, Silver, & Miners: “We’re Now Seeing Capitulation By Institutional Investors”

Following this week’s stunning and repeated collapse in gold and mining equities, I had the chance to reconnect with legendary resource financier and investor, Rick Rule, Chairman of Sprott US Holdings.

Speaking toward what he’s seeing from the institutional investor community, Rick said, “This is the fourth time in my career that I’ve seen capitulation selling, and it get’s ugly and spasmodic…Last week I was on the East Coast of the United States visiting very large institutional investors, and the level of indecision I saw was absolutely classic of the period right before capitulation—and this week, right on schedule, we’re getting it. [It's] truly ugly, but it’s the kind of cleansing the market needs.”

“I was talking with Eric (Sprott) this morning on the phone, and what he reinforced to me was that he built Sprott from a $10
million manager to a  $10 billion manager, by the aggressive deployment of capital at times like these. Eric has always said, ‘Don’t be afraid to be right’. That’s where we are right now…This is the time when the ’A’ players go to war.”

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From Tekoa Da Silva, Bull Market Thinking:

In terms of how long this capitulation period might last, Rick said, “I think we’re going to see [continued] washout selling this summer—absolute capitulation selling, and then you’re going to have a sideways tail in the equities, as both the buyers and sellers [become] exhausted…But this is the beginning of the end, [as] I believe the precious metals themselves (as bullion) are oversold, and we might be due for a technical rebound. [However] it could sell-off again, as it’s not uncommon to see a double bottom.”

Pointing toward an historical precedent of this tough market on gold, Rick explained that, “Past is often prologue…[for example] in the period from 1970-1975 gold advanced six-fold…and suddenly over nine months [went] from $200 to $100. Investors who didn’t have the courage to survive a 50% cyclical decline in a secular bull market…missed the move in gold from $100 to $850, an eight fold move over six short years, and the move in equities was even greater. That’s a really instructive lesson.”

When asked about the significance of 50%-75% declines in mining equities in recent weeks, Rick said, “This is the way markets work. It’s bear markets that cause bull markets, and the inverse reaction is really a function of…the depth and severity of this down market cycle. The fact that maybe 700 juniors will go away over the next 12 months—sets the stage for a truly spectacular recovery.”

With respect to how spectacular that recovery might be, Rick said, “In the 1998-2000 time-frame…the capital that we allocated at market bottoms, over [the next] 5 to 7 years…generated 20 to 1 returns…[So] small focused investors, who are willing to allocate capital now, and have a two, three, five year time frame—can expect spectacular returns—if they do the work.”

As a final story on building wealth during the bottoms of horrifying bear markets, Rick commented that, “I was talking with Eric this morning on the phone, and what he reinforced to me was that he built Sprott from a ten million dollar manager to a ten billion dollar manager, by the aggressive deployment of capital at times like these. Eric has always said, ‘Don’t be afraid to be right’. That’s where we are right now…This is the time when the ’A’ players go to war.”

This interview, conducted with one of the world’s greatest performing natural resource financiers, may mark an absolutely historic time. It is required listening for serious investors and market students.

To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:

>>Interview with Sprott’s Rick Rule (MP3)

To follow Rick Rule and Sprott Asset Management, visit: SprottGlobal.com

 

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Comments

  1. I am one of those very conflicted. I found myself shorting gold/silver yesterday because of the merciless momentum but mainly because of the liquidity crisis going on in China. PBOC came out the last day saying they where not going to step in and prevent what is happening “at the moment”. That tells me that we may be seeing even more selling before this turns around.
    However, today after revising my view I took the other side again. I realized I was picking pennies (or dollars) in front of a steamroller, and that I didn’t want to be caught off guard on the wrong side when this swings around which could (as ZH said) “rip my face off” when considering how oversold we are compared to history (RSI on the weekly chart is the lowest since 1997!!). I think we are in for a strong snap-back rally at the least (to about $1270 gold. After that I don’t know).
     
    I don’t want to be one of those spamming this site with calls. I am simply sharing my opinion.

    EDIT: Gold was at 1192 when I started writing this post and 1215 when I hit “Post comment” :) Need another $30 for an outside reversal though…

    • Regarding China – I think that China actually has an ace up their sleeve.  In fact, I think their bank problems may *be* the ace up their sleeve.  They pretend to be money-printing like the rest of us, and then do a sudden 25% interest on loans, constricting their money supply.  What happens?  The currency eventually jumps up and they can back it with gold.

  2. While the institutional investors may be capitulating, they can dump their paper (1′s and 0′s, actually) with a few keystrokes on the computer.
     
    But I am not seeing any signs of capitulation of the holders of Physical PM’s.
    @The_Doc, are you being swamped with desperate people trying to sell you their shiny discs & bars?
     
    When I see people selling their stacks – THEN I will agree there is capitulation.
    And that is when I will swoop in and but all that I can find.

  3. We got morning wood!

  4. Have not the sprott’s been touting how infinitesimal the institutional money in gold is so should this be such a big hit? I guess they can go short (can they?)

  5. For the first time in Months the spot shot up a dollar in a minute, never mind a day or month. Lol. I thought I was seeing things.
    I only hear people complaining and it’s usually the weak hands and paper fools not the Stackers that have faith.

  6. Will listen.
    Rick Rule seems like a very smart guy, and practical when it comes to investing.
    Also check this out, a new Jim Willie Interview. Not sure The Doc will post it


    Just the past hours we’ve seen a good spike up in BOTH the US Dollar AND Silver. Other precious metals just slightly up.
    I sold some silver this week, and need to buy back with a bit of margin to make some bills. Right now I feel I was too late, should have bought last night. Will try to get through today and make a decision.

  7. I was about to say earlier that the dollar chart looks like a head and shoulder pattern from February and forward. If the dollar turns around here it could be in for a long fall (which would be gold/silver positive). In other words it adds to the short covering dynamite. Sadly… so far this bounce in gold today looks more like just a capped end-of-month short covering by hedge funds who need to have closed positions over the month-end. Hope it isn’t so, but it is logical.

  8. July…waiting for the August Syrian invasion. Hmmm, will gold go down with Syria burning? What ever happened to North Korea? I guess Kerry Diplomacy (give Kim Jong-il 3 billion) shut his pie hole. Syria… the satanist followers are going in there and Russia is on board. Non-event unless Iran gets stupid. They are next anyways, so stupid is better than just waiting?  I say sideways, FOMC is water under the bridge. See you next year on (significant) upward price movements. 

  9. I have no pity for anyone playing in the paper markets. It is going to bite them in the ass soon.

    • The paper markets are a necessary evil. The problem is that the law is not enforced in them.
      I was reading some old FOFOA post from 14 years ago, 3 years before the last bottom. They where saying the same thing about how paper would implode and there would only be physical which nobody could get. It took another 8 years for the price to reach its previous peak. So… what does “soon” mean? Last time they bailed out the banks with englands gold. This time around they have the whole euro area’s gold as collateral including all the invaded african countries.  If someone has not charged them for what they did 11 years ago, who think they will be held accountable now when corruption is even worse? Just saying…

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