In his latest interview, Rick Rule shares extraordinary insights based on four decades of investing in the resource markets. In this article, we picked out two topical and highly relevant questions which Rick Rule answers. First, is it wise to sell some gold and silver in order to move into platinum and palladium? Second, with (expected) inflation and real negative rates, is it smart to hold cash?
Is it wise to sell some gold or silver, and move into platinum & palladium?
“I would prefer that people sold US Treasuries. I like all forms of bullion. I love John Mauldin’s quote that you want to own things that the enemy can’t print. Certainly gold & silver constitute that.”
Rick Rule goes on to say that, if pushed, the best form of bullion in terms of price appreciation for the next one to two years is platinum and palladium. It is not because of the monetary aspects of it, but because the industry does not earn its cost of capital at this price point. On the supply side, there is no above ground inventory. There is only new mine supply. At this price point, new mine supply is falling. The biggest platinum & palladium producer in the world is South Africa. They have experienced a 19% production decline in six years because the industry is not profitable at this price point. They are facing labor cost inflation, tax inflation, capital inflation, power inflation … all those costs have to go up, and the industry cannot pay them because do not make any money at these costs at this price. At the same time, demand is increasing; it is increasing because the utility of platinum and palladium at this price point is extraordinary. The trade-off is platinum versus smog. Society believes that it gets a great deal at this price point.
So it is important to know that platinum and palladium prices MUST go up, and prices CAN go up.
Which investments are still safe? Is it smart to own cash?
We believe this is such a key point that it is worth taking the time to think about his answer. “I think you need to hold some cash, and you have to acquaint yourself with the fact that liquidity is a tool in turbulent markets.
You need to have some dollars [cash] knowing that you will lose two or three percent compounded, because if turbulence increases, cash will give you the means and the courage to take advantage of the mistakes that others will make in a 2008-style market. So the first thing is that you need to choke down the fact that you are losing money in a real sense, and need to hold some cash. It is an ugly lesson, but you have to do it.
The second thing is that some of that cash ought to be a store of value that is a medium of exchange. I cannot tell the individual speculator whether he or she should be long gold, silver or platinum.
Traditionally, the fear trade (which is what I am interested in) is gold. The greed trade (which is what Eric Sprott is interested in) is silver. The math trade is platinum.
March 3, 2013 – Non-Stop Gold