Rick Rule: Pernicious Deterioration in the Dollar Will Drive People to Gold & Silver

hyperinflationSprott Global Resources Chairman Rick Rule joins The Doc & Eric Dubin this week to discuss: 

  • Platinum & palladium- is the run over, or is the real move to the upside yet to come? 
  • Rick discusses the “ugly set of circumstances” facing mining in South Africa, and the implications on the supply side for gold, silver, platinum, and palladium over the next few years
  • Why water will be the investment story of the next decade
  • Rule discusses the pernicious devaluation of the dollar over the past 30 years, and predicts that the impact of the shift in global trade settlement & savings from dollars even slightly (1%) into gold will result in a 100% move in the valuation of gold. 
  • Rick also provides his outlook for precious metals in the face of continued manipulation, and states: “In my 30 years of experience in the markets, I’ve seen alot of manipulations, and the markets always, ALWAYS win.”

The MUST LISTEN SD Weekly Metals & Markets with Sprott Global Resources Chairman Rick Rule is below: 

 

REVOLUTION

 

gold - jun 27 - 2014

 

silver june 27 - 2014

 

Precious metals performed well this week, all things considered.  Next Monday will market the end of the quarter.  Historically, precious metals usually come under cartel attack with end-of-quarter window dressing.  But we even managed to get through silver options expiration without too much downside action.  Both gold and silver consolidated this week, as I cautioned on last week’s show.  But Wednesday, not Tuesday, turned out to be the day where cartel capping was most visible, following the pattern I discussed last week as weakness began during London’s morning session and culminated with a smash timed to the COMEX open.

Precious metals quickly regained lost ground.  Even though silver was attacked during Friday’s afterhours trade and we will likely see further capping on Monday timed to match the end of the quarter, the set-up for an explosive July remains.

Rick_Rule-315x180

It was a pleasure to speak to Rick Rule today.  Platinum and palladium have enjoyed large percentage gains in the last few months.  Rule continues to believe the PGM complex offers outstanding risk/reward for investors.  Given that he just returned from South Africa we spent a portion of the show getting his most up-to-date view on PGM trends.

Long-time precious metals investors will also appreciate my asking Rule to explain in more detail where he stands on the subject of precious metals manipulation – specifically, the magnitude and frequency of manipulation.  To better place Rule’s view in context, we asked if he believes manipulation happens at least on a weekly basis in the precious metals markets.  Tune in for his answer.

Chinese Gold Warehouse Receipt Hypothecation/Rehypothecation

Bloomberg News reported on Thursday that China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans directly linked to falsified gold transactions, drawing more speculation of possible fraud in commodities financing deals.  Fear over the potential for excessive leverage given extensive gold rehypothecation has been casting a shadow over the precious metals market for nearly a year now.  I’ve maintained all along that this story is overblown, and Thursday’s report supports my thesis even though the situation is no doubt worse than what is being reported.

Goldman Sachs estimates the total amount of shadow banking system borrowing backed by base metals including copper and aluminum and precious metals to be $160 billion.  Most of this financing is backed by copper and aluminum warehouse receipts.  Unlike base metals, gold in China moves rather quickly towards the official sector — China’s central bank and sovereign wealth fund holdings.  Furthermore, consumer end demand is so robust that it also tends to draw gold more quickly into the hands of strong, long-term savers and investors.  Robust Chinese physical demand makes the gold warehouse receipt an entirely different animal than copper or aluminum.

Even if we double the $15.2 billion figure, $30+ billion in the grand scheme of things is not a lot of money.  When the issue of insolvent trusts surfaced to front page news during the first quarter, China made it clear it would make speculators whole regardless of “moral hazard.”  China can deal with a $30 billion gold warehouse receipt lending black hole — even one that is inflated still further by rehypothecation, because backstopping imploding credit positions would most likely happen on an incremental, firm-by-firm basis over time.  That’s exactly what has been happening with China’s effort to paper over the problem with insolvent trust products.

I have argued for many months that this story is overblown.  Recently, Alasdair Macleod has been making the same argument.  We’re nearly alone among precious metals analysts, as best as I can tell.  Taking a contrarian position suits me just fine.

Have a great weekend! — Eric Dubin

 

 SD readers can meet and interact with Rick Rule in Vancouver, BC July 22-25 at
The Sprott Natural Resources Symposium