Rick Rule: “Leveraged Gold Longs Are Heading To The Sidelines–In Fear Of An October Financial Panic”
October 2, 2013 | By Tekoa Da Silva
I had the opportunity yesterday to reconnect with legendary resource financier and investor, Rick Rule, Chairman of Sprott US Holdings.
It was a fascinating conversation as Rick spoke to the likelihood of (and his preparations for) an October “black swan” event, Sprott Asset Management’s investment approach at this time, and what investors should keep in mind in order to successfully navigate today’s resource market.
Commenting on the elements that suggest a coming October black swan surprise, Rick said, “If ever there was a set of circumstances that came together that would give an asynchronous event the ability to take the financial system off the rails again, it would be this month…the dysfunction of the US congress with regards to the spending authorizations and the upcoming problem with regards to the debt ceiling, and the fact that those occur…[during] a psychologically important month raises the specter in everybody’s mind…of a black swan event that takes down all markets and drives everybody to respect liquidity.”
An early flight to capital was witnessed in the gold market on Tuesday Rick noted, in that, “Whatever remaining leveraged longs there were in the gold futures markets thought about the fact that there could be a constraint in available capital as a consequence of a broader financial panic…and people decided to go to the sidelines and go to cash.”
In terms of how he’s preparing for such a panic event, Rick said, “For the balance of this month, I am in cash, cash, cash, and cash. But if we survive this month I am certainly much, much more inclined to be making some big bets on the best assets in the [resource] sector.”
When asked about Sprott Asset Management’s firm-wide approach to the resource market at this time, Rick noted that, “I am probably the most conservative in the firm…[but] Eric Sprott who runs the firm is as aggressive as I have seen him since the year 2000. Eric believes we are truly at a tipping point with regards to precious metals prices and as a consequence, he is, as is his style, the style that has made him a billionaire, very aggressively going into the marginal junior producers…Eric believes that gold within 12 months will certainly be above $2000 and could be above $2500. So he’s looking for companies that barely make money at $1400 but would be making $800 or $900 an ounce if the gold price went higher, that are producing 100,000 ounces a year. Eric believes that this is the year where his portfolio will see ten to fifteen, 10 to 20 baggers.”
In terms of what investors need to keep in mind in successfully pursuing those types of returns, Rick indicated that, “[What] people (particularly in the juniors) need to remember is that it’s all about leadership and it’s all about people. Mines are made and you have some people who I regard as “A” players who are consistently successful and to be consistently successful as a speculator, what you need to remember is that you need to buy aggressively the best of the best of people during the worst of the worst of times…”
“If you do that one thing—which is awfully goddamn hard,” Rick concluded, “you will do very, very well.”
This interview, conducted with one of the world’s greatest performing natural resource financiers, is required listening for serious investors and market students.
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Tekoa Da Silva
Bull Market Thinking