Adam Rozencwajg: Gold's Record Run Not Over Yet, Silver Still Looks Cheap
Summary
Inflation Outlook: Adam Rozencwajg anticipates a new inflationary surge, drawing parallels to the 1970s, with potential for sustained inflation due to extensive money printing and high debt levels.
Federal Reserve Dynamics: Historical tensions between U.S. presidents and the Fed are highlighted, suggesting potential shifts in monetary policy and Fed leadership, which could impact market dynamics and inflation.
Gold Market Insights: Rozencwajg believes we are in a sustained gold bull market, driven by central bank buying and a lack of Western investor engagement, with potential for significant price increases.
Energy Sector Challenges: The podcast discusses the underinvestment in energy, particularly in shale oil, which has peaked, potentially leading to higher oil prices and inflationary pressures.
Precious Metals Strategy: Silver and platinum are seen as undervalued, with silver expected to catch up as the bull market progresses, and platinum poised for price spikes due to supply constraints and rising demand from hybrid vehicles.
Gold Stocks Outlook: Despite higher gold prices, investor interest in gold stocks remains low, but Rozencwajg sees potential for significant gains as cash flows improve and market sentiment shifts.
Investment Opportunities: Emphasis is placed on real assets, particularly in the context of global geopolitical shifts and potential regime changes, suggesting a strategic focus on tangible investments over high-multiple growth stocks.
Transcript
[Music] I'm Charlotte Mloud with investingnews.com and here today with me is Adam Rosenwag, managing partner at Garing and Rosenwag. Thank you so much for being here. Great to have you back as always. Yeah, wonderful to see you again. Really good to be speaking with you and there's of course plenty to talk about given what's going on with gold and precious metals. So, we'll get into that as we move further into the interview. But where I wanted to start is maybe taking a broader look at current circumstances. I was reading your latest quarterly commentary and you mentioned that the next inflationary surge is due to begin. It's a pretty interesting look at the past going into how US presidents have had conflict with the Fed in the past. And I'm wondering if we can start there and take a look at your outlook for inflation and what history can tell us about what might be coming. No, absolutely. And and I do think it's quite an interesting history. It kind of goes all the way back. I mean, it really goes all the way back to the beginning part of the 20th century. But I think the key takeaway here is for all of the strain on the relationships between uh President Trump and Chairman Powell. Uh we know we hear a lot of talk of the unprecedented nature of um Fed uh government interference in the Fed and things of that nature and certainly you know the rhetoric between the administration and the Federal Reserve uh is quite hot right now. Um there there's you know no um secret as to the president's feeling towards chairman Powell and you know Trump wants lower interest rates and a more accommodative Fed and uh has been very vocal in saying that to the uh extent that everyone is now you know saying well is Fed independence uh at risk and look it might be but it's not like we haven't been here before and the most poignant example would have in in the late 19 uh60s and going into 1970. And what happened then is you had uh Fed Chairman Martin, William McKinley Martin, and he'd been the Fed chairman for 20 years. So, you know, the longest tenure Fed chairman, super um you know, well respected in in in circles and things of that nature. and uh Lynden Johnson became so irate that Martin would not lower interest rates and provide more accommodation to um the administration that if you were to believe the stories and and it's put together quite nicely in a book called The Great Society by AMD Schllay which I would highly recommend but you know LBJ called Martin down to his ranch and actually shoved him against the wall and you know took him by the the the shirt collars and sort of slammed him into the wall and said you know my boys over there in Vietnam dying and you're not giving me the money I need to win the war. Uh and and I think that's such a vivid story for a couple reasons. You know, first of all, while Trump is being very um antagonistic on social media and things like that, to my knowledge, he has not physically assaulted uh Chairman Powell. So, as far as a low water mark, we might not have hit that quite yet. Uh but second, you know, these things do come and go. And I'm not trying to minimize the relationship between government and the Fed. And I'm not trying to minimize the importance of uh Fed independence. I'm not saying that that we're not at a crisis. But uh to say that it's unprecedented is not entirely true. There's another period of time earlier than that, right in the very early days. You know, the Fed was established in 1913 following the crash, the panic of 1907. Uh, and I don't that's a kind of wild story in and of itself. We do our um investor day every year at the uh Morgan Library or we've done it once at the Morgan Library and we're going to continue to do it there. We like that venue quite a lot. And that's actually the site where during the panic of 1907 prefed um the original you know JPont Morgan locked all the New York bank presidents in his library and locked it from the outside took away the key and said you guys figure out who's going to bail out whom. I'm in for this amount of money and I don't I don't remember the amount but it was you know large sum and he said we need another x billion and you guys figure it out and knock three times when you've when you've come to a conclusion and I think it took them you know all the night and maybe taken them a couple days. Um and you know the Fed was established a few years after that largely in response to be kind of the lender of last resort so you wouldn't have to resort to kidnapping your bank presidents anymore. And um by the 1920s, it was still finding its footing, but there was a very uh very powerful Fed uh New York Fed president named Benjamin Strong. And he put forward all these crazy radical proposals, including the first bout of quantitative easing where the US actually printed money. We all think that that was post GFC was actually done in the 1920s. And it resulted, you know, was trying to devalue the dollar and prop up the pound. and it resulted in a huge stock market bubble that we all know about in the late 1920s and no one assaulted him and no one yelled at him on social media or the newspapers or anything like that. Uh but you know it was a very contentious period and Benjamin Strong actually dropped dead um partially you know health issues and likely some of the pressures that he was under as well and and what the first two have in common both Strong and Martin is that you know immediately following this period of maximum pressure the Fed completely changed course. it completely uh pivoted not just in terms of its stances but actually you know fairly major major um changes to how it conducts uh its affairs. And in the case of the late 20s it caused the great depression and a major sector rotation out of stocks and into things like gold and commodity stocks and whatever. And in the late 1960s, it ultimately led to a couple years later, 1971, the US going off of gold and breaking the Bretton Wood standard and putting in place a pure fiat dollar standard. You know, massive wholesale um reshuffleling of global monetary systems and and I guess what we would call a regime change in central banking and how we conduct our monetary affairs. And you know, I wonder if we're not in for the same here. uh you have um Steven Mirren who's you know being put put on the Fed u board now and uh whoever you know the next Fed chairman is is likely going to have very different views from what Chairman Powell has and you know Mirren's talked about like a real major change to how we conduct global monetary systems including a red dollarization a doubling down of the dollar as the reserve currency potentially gold being revalued on the Fed's balance sheet these like major major major changes to the plumbing of global central banking. And that that has always and forever um been kind of the the cue to get this big sector rotation out of growth, out of large cap and back towards resources and and real assets. And I suspect this time will be the same as well. And this time I think has maybe a double parallel to the 1970s not so much the late 20s30s which is to say that inflation is sort of like the big sword you know damicles hanging over everyone's head and and um I think inflationary pressures are are pretty well established in in the economy. I think now the you know the view that the inflation of COVID and 22 was transitory is kind of receding from memory and and I suspect that if we do get you know more accommodative policies or reshuffleling of how things are viewed uh we'll probably have another bout of of inflation very similar to what happened in the 70s. In the 70s you had the first bout in the early '7s. It was kind of squashed. Everyone thought that the the coast was clear. In the in 7374 there was a recession. They cut interest rates and and provided a lot of liquidity and inflation just came ravaging back and that's really when kind of the fireworks started in real assets and I suspect this time will be very similar. Well, thank you for going into all of that. I find the history very fascinating and hopefully everybody else does as well. You're going in, I think, exactly the direction I was hoping. I was going to ask you if we are heading into this new inflationary age. What exactly does that look like? And you mentioned the comparison there to the 1970s. Anything further you would add on what we're heading into there? And maybe if you could talk about the response from the Fed given that we've got all these changes perhaps laying out there and maybe the implications also for the US economy as we head in this direction. Well, you know, I think there's a lot of unknowns and a lot of questions, but I think given the amount of money that we've printed and the amount of debt that's in the system, um the chance for a real sustained inflation is quite high. And we started to see that coming out of CO and really, you know, as bad as things were in terms of dollar to basement, money printing, whatever, post the GFC, you know, CO really put that all to shame, right? you know, the the numbers that we're talking about pre-COVID seem almost quaint uh in terms of budget deficits, in terms of just the sheer size of the Fed's balance sheets and things of that nature. So, there's clearly a lot of uh you know, gunpowder here ready to go off at a moment's notice. And we started to get a little bit of that um in 22 23 and then the Fed responded and to some degree inflation came down. And it's been mostly energy that's driven inflation lower. And we can talk about energy as well because I don't think that's going to be the same uh help for the inflation prints that we've seen in the last couple years. I think the most of that is behind us. And the risk there is probably to the upside. Um and we also now are in the process of of losing the resolve at the Fed to really fight inflation. you know, anyone that spoke to Chairman Powell or knew anything about him um would tell you that that he really wanted to go down as the Paul Vulkar of his generation, meaning the Fed governor, the Fed chairman rather, that was able to break the back of inflation through higher interest rates and through, you know, very strong resolve. um and that he wanted to avoid at all costs being uh Arthur Burns who was the Fed chairman who you know called the coast is clear and um ended up bringing about the massive second inflationary spike in the 1970s and so who who by the way topic for another day is probably unduly criticized. you know, he he had a tough job and was under a huge amount of pressure and was a very very astute economist and Fed chairman, but nevertheless, he probably wins the award for the worst Fed chairman in history just because he was there. It all happened under his watch. So, you know, that's what Powell wants to go down as Vulkar and not as Burns. But there's a third option which I don't think anyone really considered which is that he'll go down as Martin the guy who tried his best and ultimately uh was pressured out and and whose views were were then completely undone in in the chairmanship uh after um not dissimilar to Benjamin Strong also in the 1920s although he he was he was a a president not not a chairman. Um so you know I think that we're about to get a period here very clearly where the we're going to have a more accommodative Fed at a time when uh there's a huge amount of um pent up or or or excess liquidity still in the system where deficits and debts are extraordinary and all of that I think leads to a very very inflationary period until we get the moment where someone can come in and and potentially really begin to write the ship. But I feel that that's quite a ways away. And you know, if you if you read Mirin's stuff and you read between the lines, you know, they they'd like to see a weaker dollar. They would like to see um you know, inflation to try to rightsize the balance sheet a little bit, right? The idea that you you take everything in nominal terms, you just make the value of it less. You know, everybody that listens to your podcast, I'm sure, realizes that when you have an debt level this size, you can either default or you can inflate it away. And I don't think anyone is talking about default. I think the United States remains very central in all geopolitical affairs. So, you know, the idea of the US going by the wayside, I think, is uh certainly overblown, and that really leaves inflating it away. And I I suspect that that's what is is they're going to try. Uh and that's I think what gold's telling you today, making its all-time highs. Well, and just before we move on to talk about what's happening with gold, you mentioned the the energy impact on inflation. So, just briefly, what would you what would you lay out there for investors to know about? Well, we're in a real tough spot on energy because we haven't invested in energy in quite some time. I don't mean us as a firm. We're very invested in energy, but I mean us as a society. Energy today is u 2% 2.8% of the S&P. His long-term average is 14%. Um, and the reason that it's fallen so out of favor has been the massive shale boom which has provided this kind of excess supply into the market now for the better part of 15 years. But that's come to an end. And shale production on the oil side peaked in October of last year. And we predicted that that would happen in 2019. We built all these really sophisticated deep neural network models looking at the geology of the shells. And we said, "Look, they're huge and they're, you know, really I this word gets thrown around too much, but they are almost unprecedented in in their size and scale." And we brought on seven of them within a period of 10 or 12 years. And and it was really transformative for the United States. And you might even be forgiven for thinking that they were infinite because they were so big. But but immense is not the same as infinite. And they come to an end. And we made a stab back then to predict when peak production might hit the shelves. And our best guess said 2025. And so now you look at the monthly data and sure enough in October of 24 shell production peaked. And we're not far off the high but but we haven't made a new high. We've rolled over and unless we can really pull a rabbit out of the hat. Uh it looks like this October when the when the data comes out we'll probably be down year on year. I mean, if by definition the monthly high was last October, then on a year-on-year basis, if we don't make a new monthly high by this October, we'll be down year on year. And anyway, you cut it, the the major growth engine of the shelves has now come uh come to an end. And and it's unclear where where you get the next easily mobilized barrel. Yes, there's OPEC and things of that nature, but history tells us that when the nonopc oil supply group stops growing, OPEC gains pricing power. or they gain market share. And that's not usually a time, in fact, it's never been a time when oil prices fall. It tends to be a time when oil prices rise usually quite sharply. We've had two good examples, the US in the 70s and the North Sea and Gulf of Mexico in the early 2000s. In each case, it was a catalyst for oil prices to move up a lot. And and certainly right now, you know, investors aren't positioned for that. There's very little holding of energy stocks. there's very little capital spending and the commodity traders are not they're pretty pretty short or or very low net length levels. So I think all told you could see a risk to higher oil prices uh in the next 12 to 18 months and and then beyond that. Um and you know the even the IEA who who is the perennial you know this is the big the international energy agency they put out a lot of data on oil markets and they are very uh well followed and kind of the gold standard and very wrong a lot. Um, even they put out and and they've they've in the past couple years they've developed this like super bearish bent all the time. And maybe it's political, you know, maybe it's uh global warming uh political, maybe it's how they really feel. I don't know. I I suspect it's probably political more than anything else. Uh but even the IEA was forced to admit this past month that the base decline and the crude supply is quite high and getting higher because the assets are aging and we're not really spending enough to offset those declines and and to meet new demand. And at the same time as they say that they expect a huge surplus this year and next year. So it it's a really tricky situation. Uh I think most investors are following the headlines and not looking at the data and the data points to a much tighter oil market uh going forward. And when you look at the gold to oil ratio that's at really stretched levels. So a single ounce of gold has bought nearly 60 barrels of oil. That's an all-time record. It's only ever been surpassed I guess not an all-time record. It's only ever been surpassed when oil went negative in CO which made an infinite ratio and as a pass through zero. So leaving that aside, uh it's at a record and there's a lot of room I think for that to normalize uh which which will be tough on inflation and uh and also probably lead to some slightly higher costs for the gold producers. Yeah, that definitely helps me understand how it all fits together and certainly it can be easy to focus on those headlines and not look beneath them. So great to go into that and I'll let us move over now to gold which I think everybody in our audience is certainly focused on right now. So just looking at again your your latest commentary looking back at gold in Q2. You mentioned that during that quarter gold couldn't really decide if it was in trouble or in charge. And I think for Q3 which we've just wrapped up it's pretty safe to say gold decided it was in charge. So, if we look forward to the rest of 2025 and and beyond, if you'd like, do you see gold staying where it is right now, kind of in charge? Yeah, I I do. I think we're in a real sustained true gold bull market here. Um, and I think there's some very good reasons for that. Uh, the first is, you know, I think when you when you think about gold, I like to separate it into what I call a valuation metric and and and a market structure. if you will. So, if you if you'll bear with me, I'll kind of go through each of them here. From a valuation perspective, the question is, is gold expensive? And that's always a really tricky one. Expensive relative to what? Um, there's certain commodities where it's helpful to look at, for instance, the price of the commodity versus the cost to extract that commodity. uh lots of industries if you're generating really ample margins what usually ends up happening uh is is you have profits and you attract capital and you have more investment and new supply comes online and it kind of balances the market that way. Gold's a little bit different though because if you think about the gold market and you think about all the gold that's above ground throughout all of time uh that's a very large number relative to the amount of new gold that comes into the market. And so if you think about that pool of gold that's all available to transact and you have to think about the marginal elasticity of the buyers and the sellers in that um in in in that pool if you will right so in the oil markets for for instance you have 104 million barrels of both supply and demand give or take uh and you have about 44 days of inventory cover in the gold market if you think of that pool of above ground gold as your inventory. You add 1% for that to that every year in the form of new mine supply. So you have like a 100 years of inventory if you will, right? So the uh and commodity producers are inherently price elastic. I mean they they don't care what the price they care whether they turn the mine on and off and and they're happier when it's higher. But you know an oil company doesn't sit and say, "Well, oil's weak. I'm not going to sell my oil today. I'm going to hold it back and hope for higher prices." I mean they produce and they sell. They are elastic sources of supply but that's a small part of the total gold market and instead you have buyers and sellers both on the financial side you know western speculators you have Indian and Chinese buyers and you have central banks and right now the central banks are the big buyer and they're completely priced in elastic they they they don't care they made a policy decision to diversify out of the dollar and they're buying and so maybe the Chinese pull back a little bit because they don't want to be deemed as the sort of dumb money chasing the gold price and so maybe they pull back a bit and then they come back in. But you know, you're seeing post Russia's invasion of Ukraine where US froze all of Russia's assets, you're seeing countries around the world saying, "I want my reserve assets that sit in my central bank to be completely under my discretion." And so you're seeing diversification on the margin. I don't think that's changing. I don't think that we're kind of settling down on that. So that's going to continue. The Western investors, are they sensitive on price or not? I mean, I would argue that if prices go up, they want more, not less. Uh, they're they're they're trend followers, and they haven't started buying yet. You can look at the holdings of the GLD. You can look at the holdings of gold shares. They've been going down and down and down. So, that's still a huge leg left to go. Uh, and so you put that all together, and to me, that's a recipe for quite a strong um move higher in prices. uh and and gold mine production, you know, which is price elastic supply, if you will. Uh you that's been down the last seven years. It hasn't made a new high. So, and it's small relative to the global trade. So, I think that you're probably in a good spot and I think that gold's going to continue to move higher. The next question is how high can it go? How high is too high? And that's when you have to start considering the valuation side of things and you say to yourself okay um what you know the same way you might say to a currency is it expensive relative to a basket of comparable goods you say okay is gold expensive relative to all the money that's out there is it expensive relative to the size of GDP and if you track that over time gold tends to move uh in these in these waves in these patterns it becomes cheap and out of favor relative to other financial aggregates and then it becomes expensive and and quite high relative to other financial aggregates. And if you look at it on that sense, you're you're well below average. You're probably at this point, you've gone from about two standard deviations below average to about one standard deviation below average. So you certainly can't say that you're expensive. You're still cheap. Uh maybe a little less cheap than you were a year ago, but still cheap. and the market structure, the micro structure of who's buying, uh, to me suggests that that you'll continue to, um, to see prices move higher because they're largely inelastic or trend follower buyers. So, I think that this rally is sustained. Uh, I think that it's going on until I see otherwise. And even though we're making all-time highs in the gold price, um, I think that it has a lot of room to run before. I would consider it overdone either because you've exhausted the sellers and you're bringing in more price sensitive sellers or um or it looks expensive relative to other financial assets. Very good summary there. And just a little bit more on the note of the price. I remember from previous conversations, your long-term gold price target has five figures in it. So is is that still something that you're expecting at this point? It feels like now we're getting into a place where that's even more attainable than it once was. Yeah. I I think that that would make gold expensive. So, just to be clear, right, I I don't I don't think that that's the long-term fair equilibrium price. That that would be, you know, one to two standard deviations too expensive. And we've had that at three or four times uh in or sorry, two times in the last 100 years. We've had we've had four extremes, two highs, two lows. you know in 19 uh 30 late 1930s with war coming to Europe we had a tremendous amount of gold flood its way into the US treasury and that was sterilized. It was not money was not printed on the back of that. So the amount of gold that the US held relative to the amount of dollars it held uh the gold actually was worth nearly two times as much as all the dollars. Um that got as low as 6% uh in 1999. It was about 12% in 1969. So, it goes all the way back down again. It's good when it's down. That's when it's cheap and you want to buy it. You want to avoid it when it's really expensive. You know, from the late 1930s to 1970, the stock market went up like 6,000% and um gold was $35 an ounce, you know. So, revised up a little bit, but not nearly as much clearly. Uh in 1980, we weren't on a gold standard, but the gold price moved up. So, the US wasn't buying more gold. the gold amount was fixed, but the value of that gold went up a lot, up to 800 bucks. And by 1980, believe it or not, you had nearly $2 of gold for every dollar in circulation. The the treasury did. So again, you got back to that late 1930s valuation, at least on that metric, twice. Um, so can you get there again? I suspect you could. I don't see why not. You did it twice. And people might say, well, you know, gold's not money anymore, but it wasn't money in 1980 either, and you still were able to to get to that extreme high. Uh, and so it's not going to happen under normal circumstances. It's not going to happen, you know, when everything's going great. But by the end of this cycle, will we get there? I I think we probably will. Uh, and another way to look at it is Pierre Lassand, I heard him speak yesterday here in New York at the Grants Conference, and he was out with a chart that looks at the gold to Dowo ratio, and that's actually a chart that that Lee used to uh show at conferences in the 1990s as well. Um, so we we we certainly are quite familiar with it. In fact, might have might have been the people to first put it out in the first place. I think we were um back in back in the 1990s before I was working with Lee, but when Lee was doing his thing. And um you know what it shows is that the Dow and the price of gold every 50 years or so hits one or near one. It hit two at one point. Yeah. But, you know, to to put that in mind with the Dow at 46,000, even if it's 2 to1, that's that's okay. Um and and and again the most recent time it happened was the first time was at the bottom of the depression in 1932 and I think the Dow hit maybe 60 and gold was 35 and then the second time uh was in 1980 when they actually did cross uh at 800 and so today the Dow's at 46,000 or so and um gold is you know high three handle uh on and and so if you get 2 to1 I mean presumably that happens with the Dow falling a lot but even if the Dow fell you know great depression styles which I don't think it it would uh you would have you know you'd have room to go from here so yeah I think you definitely by the end of this cycle with all the fireworks being done um I think five figures on gold is not only possible but likely again really good context to help us understand and if we're talking about gold of course we want to take a look at gold stocks as well. So for the major miners, they've started to reap the benefits of a higher gold price, but looking again at your commentary, you mentioned the interest from investors just really isn't there at this point. So I wondered if we could talk about why that is, why investors aren't as interested as they might be in the gold stocks yet, and what could bring that in investor interest back in. Well, as far as why they're not interested, you know, I think I think a really long, brutal bare market is is kind of the answer there. And that's usually the answer. And that usually, you know, because of market psychology sets up the next bull market because without access to capital, it's hard for these guys to grow. And um we all know how capital intensive the mining business is. And so if investors aren't on your side, uh it's first of all, it's amazing how long they can kind of molder and stick around, but uh it's difficult to really see any kind of robust uh growth. So why aren't investors more enthusiastic right now? I mean, they're not really enthusiastic about gold either, to be perfectly honest. Certainly not US investors. The Swiss tend to always be a little bit more focused on gold. Um but you know, if you look at the holdings of the GLD, uh they haven't done much. If you look at the holdings of the GDX, they've done nothing. I mean, they're at an all-time low. So, people have been selling their holdings of the uh GDX, the gold stock ETFs, as the rally has taken place this year. So, so is there interest? No, there's definitely not interest, that's for sure. Um, we've seen a little bit of an uptick in gold deals. I haven't aggregated what the dollar value in that is, but I certainly feel as though I get more emails every night that a new company's coming to market. I don't know where that capital is coming from. I suspect what's happening is that people are selling other gold stocks and you can see some evidence of that with some other gold stocks being weak the day that a company announces a deal. You might get some of its comparable companies showing weakness the next day. Why would that be? Well, I think they have to sell those to buy this new deal. Um, you know, there's no net money coming in yet to the space. That'll definitely change and the bull market will end in a moment of investor euphoria when there's tremendous amount of money coming in to the space. that's just not even begun uh at this point. What makes investors change their mind and and have the psychology shift positive? Um if I knew that then then I would be a much better market timer than I am. I have absolutely no idea why people can't see this. Uh a year ago I would get questions all the time as to why gold stocks weren't going up. Gold prices were going up. Gold stocks weren't. We gave them an explanation that we thought was quite valid, which was the central banks were buying gold bars, but not gold shares. Give it time, the cash flows will catch up. Cash flows have caught up and the gold stocks have been the best performers of the year and still nobody seems to care. So, what'll do it? I don't know. I guess they have to keep going up more um to to you know, first couple hundred% or so and then maybe people will start paying attention, but they're certainly not now. And I think there's still this pervasive view that gold stocks are toxic after the bare market that they had between 2011 and 2015. Right? And you know the reason I ask that question is because I think in the past I've heard from different people, you know, this is the point where investors will get interested interested again or it's this or it's this and we keep hitting these points and it's still not coming. So yeah, I guess I guess we'll wait and see. And but I'll tell I will tell you one I'll tell you one thing, okay? I if you needed those investors to come in in order to make a return on your gold stock investment that would be frustrating and that to a certain extent that was kind of the case in 24. Gold had a nice run and the gold stocks didn't go up and investors were not interested and the gold stocks didn't go up. So if you held gold stocks that was a frustrating year and I empathize with it all of my you know investing brethren that did that and we did it and we added to it throughout the year. And this year though is a little bit different because you know I don't know what's going to attract the general investor. I don't know what's going to attract money back uh into the gold space. But I don't really know that it matters um right now. You know, we're sitting on really nice nice gains and so can gold stocks go up without people buying them? Yeah, I think they can. Yeah. Yeah. Apparently they can. Speaking a little bit more about the gold companies, this is a little bit on a different note, but I'm wondering if you had any thoughts on the management shakeups we've seen this week at couple of the major miners, Bareric and Newmont. Of course, these are for different reasons, but any any thoughts that you would share there? No, I don't probably have anything, you know, super gerine to add to that. You know, it it's a tough industry and particularly amongst the majors, they have a bit of a challenged asset base. Some of those companies are, you know, sitting on assets that were um developed a long time ago. And if you think about it, I mean, you become a worldclass mining company by having a world-class asset. Uh the problem with a world-class asset is that it can be difficult to replicate it when uh the asset eventually begins to deplete. And you look at some of these companies that have gone through a huge huge huge period of capital rationalization and things like that. And you know, fine, good, kudos to them. But it also means that you haven't been investing in that business. And so, a lot of these guys have a tough situation. Uh, particularly the big super majors. I much prefer the more emerging new majors, if you will, like the we own Alamos is a big gold holding of ours. Um, the companies at the bottom of the so-called land curve that have, you know, developed their project and are just waiting for them to come online. I think there's some really good opportunities there in some of the big old legacy mining houses. I mean, there's a lot of historical baggage and institutional baggage that that makes that a very difficult job. So, I don't know that I have anything, you know, particularly unique or insightful to add about these management changes, but but that's that's a hard job. Yeah. Yeah, fair enough. For sure. It definitely seems like for them there's there's a lot of focus on trying not to repeat those mistakes of the past, but maybe just a little bit more on where you would focus right now on those maybe smaller types of companies. Anything you would add there? Well, like like I said, you know, for those unfamiliar, the Land curve, which which I don't claim that we had anything to do with that was all that was all pure Land. Uh but it was an observation that he made years ago that said, you know, the life cycle of a gold company. Um this is my editorial, but it starts out worthless and it ends up worthless, but lots of fun stuff happens in the middle. And you know, you make the discovery and the stock rockets higher and uh the it grows and you delineate it and you make your final investment decision to move forward and then the stock starts to pull back quite sharply. And it does that because first of all, nothing can only bad things can happen as you build a mine. Um, I guess you could bring it on time on budget, but but that's quite unusual. Usually, you know, you have permitting delays and construction delays and cost overruns. And then the real thing that kind of gets you is that everyone knows you have this big equity offering out in the waiting in the future. And so people say, "Well, why would I want to own it ahead of that?" And so they kind of hold back and hold back and hold back. Eventually, you get all the capital that you need and you build the mine and and then at some point presumably the stock rerates into a cash flow story or the anticipation of a cash flow story and you're off to the races and you generate the return that you've been promising investors all these years. And so it was Lasan's observation that it probably makes sense to try to buy it somewhere in that dip, you know, and and you you don't want to fly too close to the sun and get the absolute bottom because you might miss it and it might rerate earlier. That's a bit of market psychology, but where given how bearish people are, uninterested people are in gold stocks, you can get awfully close to the bottom. You know, you don't people aren't trying to frontr run each other to call that bottom. Uh they're they're really waiting until you're kind of at near production. And so I think there's a lot of good benefit uh to to owning those names. And so you can go and look on our website. We're we're pretty uh transparent uh and open in terms of what it is that we hold. But most of our gold stocks at least our larger gold stock positions are either you know companies that have just gone through that and are now sort of the new emerging majors like the agos of this cycle let's say like and I think Alamos fits that quite well uh or you know a little bit earlier um trying to get the bottom of that Land curve I think uh I think the magnitude of that pull down from FID peak to Rate low you know um at different times in the market can be more or less less dramatic and I think right now it's about as dramatic as I've seen. So, it creates a lot of really good value in those troughs. Well, I will I'll add a link to your website so people can go take a look at that if they'd like to. And now that we've talked quite a bit about gold, I want to mention silver as well. So, in our last conversation a few months ago, we talked about how silver tends to lag behind and then stages of catchup when it gets toward the end of a precious metals market rally. So, we do have silver on the move, but it seems like we're not really toward the end of this precious metals bull market. So, what is silver's price move telling us right now? Well, you know, no, I think that's uh I think that's a really, you know, good summary. Um, I think that silver remains quite cheap relative to gold. Uh, it is not as cheap as it was a couple months ago. you know, like you said, silver has been outperforming, but you know, we're not at the those moments, I think, where where you do stage that big swansong gasp where silver kind of rallies higher. Uh, and so then you have to ask yourself, okay, well, do I think that this bull market run is is done? And no, I don't think it is at all. So I don't I still continue to to hold our same view that that likely um gold will continue to outperform or gold will continue to have a strong run and that the silver move lies somewhere out ahead of us. So, I'm just pulling up my charts here, but you know, like the gold to silver ratio in 2021 uh hit hit 60 uh 65, you know, and today, even with today's action, you were at 80 and and you know, a week ago or so, you were at 90. So, so you're still well above that. That was the signal last time. Uh and and you're still, you know, full turn or full full whatever 80 to 60 above that. Okay. So, it's kind of the the ratio that might be more important to watch here versus the actual silver price, I think. So, yeah. No, I I think that that's right. You know, so I'm looking back here, you know, all the way back to 1990, you're still you're one standard deviation above average in terms of the the gold to silver ratio. So, I I think until you get to below average and and is it one standard deviation? you know, you can start to look at the charts and be be your own kind of technical analyst, but I think so long as you're still above uh the long-term average there, I don't think you're in that last moment. Okay. Well, that is good news then for for people who are interested in silver. And while we're talking about precious metals, of course, want to bring up platinum as well. So during that previous conversation we had a few months ago, I think that was kind of toward when platinum was just starting to move and you were saying this is a sector that has all the hallmarks of something that you would want to be in. Your latest commentary goes into market dynamics and mentions the possibility of price breaks price spikes in platinum next year. So I'm wondering if we could take a look at that and and updated thoughts on platinum. Yeah, absolutely. I I think that you know platinum was sort of a a bull market unfolding in in slow motion. Uh and what I mean by that is you know historically platinum always traded at a premium to gold 500 to a,000. It got as high as a $1,200 premium to gold back in 2008 when platinum was 2100 and gold was down below a th000. Um that all began to switch in 2015 or so. And and the narrative that emerged was that the electric vehicle was going to completely displace the internal combustion engine, right? That it was going to um make platinum demand, you know, nearly obsolete, at least in terms of autoc catalyst demand. And we've never agreed with that. Never. You know, I I I always have argued very strongly, Lee and I both, that electric vehicles don't work. um the energy required to make manufacture and power them if you're going to use renewables is so inefficient that it's never going to be a viable replacement for internal combustion engine cars. And if you believe that, then platinum's really far too cheap. Uh you're at the point where, you know, platinum now is 1,500, but it was less than $1,000 uh by the end of 24 into the beginning of of 2025. And you know that's where you know it first hit that level back in 2004 you know so it's basically been completely unchanged. It was that in 15 and it's been that all the way to the end of 24. So of course cost inflation's gone through the roof since then. Um these assets these these platinum mines have gotten older and older. Their costs have gone up and up over and above inflation. So the platinum industry doesn't generate any money. Uh if you you certainly can't incentivize new mines to be built. And in fact, on a on a cash cost basis, it's it's tough to make it work at at $900 platinum. So if you want a platinum industry, you need a higher platinum price. I mean, you're getting to that extreme. We like to talk about unsustainably low prices. What does that mean? At $20 uranium, if you want uranium, you need a higher than $20 price. If you want gold, you need higher than 275 in the late 1990s. It's just it was below the marginal cash cost. And and you were certainly at that level with platinum. Now, what makes it so interesting is that just to prove that we're not, you know, Cassandra about everything and and and you know, pour cold water on things. Uh I think that hybrid vehicles are incredibly robust. Incredibly robust. I think that instead of going IC to EV, we're going to all go ICV to hybrids because it's about as close to a free lunch as you can get in the energy world. All you're doing with a hybrid is you're capturing the wasted energy of the kinetic movement of the car moving forward and then you break it. You know, you break the car to to make it slow down. And when you do that, all that forward motion gets translated into heat energy on the form of the brake pad and it gets dissipated into the air around you. Uh and with a hybrid, it gets captured. you spin you spin a a dynamo and you charge a battery and that just saves that energy and it results in, you know, 20% fuel efficiency savings in in the cars. It's massive uh for nothing for energy that was otherwise just wasted and bled into the air around you. So that makes a lot of sense. And in fact, if you kind of dissect a lot of the EV statistics, the bright spots in EV sales have really been in hybrids. uh they've been in plug-in hybrids which get lumped in with EVs and then if you look at straight traditional hybrids which are even better because you don't have to build the lithium-ion battery um that those have been the really bright spots and so I think what we're starting to see is a recognition of that straight battery EV sales particularly outside of China have been fairly lackluster and hybrids require twice as much platinum loadings as a traditional internal combustion engine because you keep cycling the engine on and off all the time and when you do that, you need a lot of platinum in in the uh catalytic converter to help uh capture the tailpipe emissions. So the narrative that platinum demand is going away because of EVs and so prices should be low because you don't want to incentivize capital to go into that industry could actually be we're going to have a big surge in demand because we're going to go from internal combustion to hybrids in which case we better get started right away investing in the next generation of platinum mines. So today you have prices up you know 1561 as of today against a gold price at 3860. Uh this is the 1st of October we're recording this. So it's a $2,300 spread between the two. And the all-time spread occurred, you know, a little bit earlier this year at 2350 and we're 2301. So basically relative to gold, platinum's never been cheaper except for once earlier this year, 50 bucks or so. So I think there's a lot of room to run. I think it's still hard for these companies to make much money. Certainly, you know, a little bit of relief on the margin, right? the per ounce margin, but you're not making enough money to invest in massive new platinum mines. So, I think we need to go further and we need to get money back into the space and I think that's all going to happen. And in the interim, platinum and platinum stocks are going to move a lot higher. Right. Right. And these are the circumstances that could potentially bring about price spike scenarios in in next year or so. Yeah. Absolutely. No, we're in a low inventory situation. demand is high and we're seeing some issues at some of the mines and I think you definitely could see a price spike anytime you're in that territory for sure. Yeah. Yeah, we're in in the range there. So, I want to at least briefly look at palladium as well because I'm definitely starting to hear more about platinum, people getting interested in that. Palladium a little bit less so, but I know I know it's one that you cover and look at and the markets and situations sound similar, but they're not exactly the same. So if you were going to pull out the differences there that people should know before they start getting into these sectors, what would you highlight in terms of that? Oh, that's an interesting question. I I think the platinum market's more investable. You you take a lot of South African risk with platinum, but you take a lot of Russian risk with palladium. So I I would take South African risk over Russian risk. Russian risk is probably not possible in most cases. Nurilk is a big palladium producer, but you know, you're not going to go invest in Nurilk. Um, you know, then you have enduse differences between diesel and and gasoline and things like that. I I think ultimately, frankly, both will do well. Uh, and we like to express it on the platinum side of things. Okay. Okay. I think that's that's fair enough. So, you can approach them both. I think we're getting to the end here. We've taken a pretty good look at what's going on in the precious metals, but before I let you go, are there any final thoughts that you would want to leave investors with at this time? Well, look, I think we're in a period certainly this year and I suspect into the next several where we're in a bit of a regime change kind of a mode. We have certainly an administration in the United States that's looking to tear down old edififices and build them differently. Uh we have a massively shifting geopolitical landscape that's happening, you know, almost minute to minute. And I wouldn't dare to guess how this all ends, but it tends to be when you get real assets very dislocated from growth assets like we did in the last few years and like we did in the 20s and 60s and '9s. What you tend to have that breaks all that is this big realignment. Um and that was true obviously through the depression and kind of the end of the preworld war II World War I um world that had been in place for 100 years before that. You know at the end of the 1960s you had the end of the World War post World War II Bretton Woods period major shift in geopolitical realignment and sort of rise of Middle Eastern tensions and conflicts. And then in the late 1990s you had again a wholesale change in how we consider trade uh in the in the global south what they now call the global south and you know the Southeast Asian countries and things of that nature. These these are big changes and they're brought about by major realignments and global monetary and fiscal or monetary uh and financial plumbing and major shifts in trade patterns. And we're seeing all that today. And typically what ends up being the beneficiary are hard assets that can hold value. Things that that are not promised story stocks with high multiples and hydration, but things that you can ring fence that you can pass on price uh and that seem more tangible. And we've certainly underinvested in that part of the economy for quite some time now. And it's time that we bring some capital back and and this tends to always be the catalyst to do that. So while it seems like a very uncertain time, uh I would recommend that people have some kind of diversification and I think real assets are a very good way to do that. Well, I think that's a really nice place to wrap it up. So thank you so much for coming on to give us the lay of the land in precious metals and of course hope to have you back soon. Thank you so much. Of course. And once again, I'm Charlotte Mloud with investingnews.com and this is Adam Rosenwag with Garing and Rosenwag. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts, so leave us a comment below. [Music]
Adam Rozencwajg: Gold's Record Run Not Over Yet, Silver Still Looks Cheap
Summary
Transcript
[Music] I'm Charlotte Mloud with investingnews.com and here today with me is Adam Rosenwag, managing partner at Garing and Rosenwag. Thank you so much for being here. Great to have you back as always. Yeah, wonderful to see you again. Really good to be speaking with you and there's of course plenty to talk about given what's going on with gold and precious metals. So, we'll get into that as we move further into the interview. But where I wanted to start is maybe taking a broader look at current circumstances. I was reading your latest quarterly commentary and you mentioned that the next inflationary surge is due to begin. It's a pretty interesting look at the past going into how US presidents have had conflict with the Fed in the past. And I'm wondering if we can start there and take a look at your outlook for inflation and what history can tell us about what might be coming. No, absolutely. And and I do think it's quite an interesting history. It kind of goes all the way back. I mean, it really goes all the way back to the beginning part of the 20th century. But I think the key takeaway here is for all of the strain on the relationships between uh President Trump and Chairman Powell. Uh we know we hear a lot of talk of the unprecedented nature of um Fed uh government interference in the Fed and things of that nature and certainly you know the rhetoric between the administration and the Federal Reserve uh is quite hot right now. Um there there's you know no um secret as to the president's feeling towards chairman Powell and you know Trump wants lower interest rates and a more accommodative Fed and uh has been very vocal in saying that to the uh extent that everyone is now you know saying well is Fed independence uh at risk and look it might be but it's not like we haven't been here before and the most poignant example would have in in the late 19 uh60s and going into 1970. And what happened then is you had uh Fed Chairman Martin, William McKinley Martin, and he'd been the Fed chairman for 20 years. So, you know, the longest tenure Fed chairman, super um you know, well respected in in in circles and things of that nature. and uh Lynden Johnson became so irate that Martin would not lower interest rates and provide more accommodation to um the administration that if you were to believe the stories and and it's put together quite nicely in a book called The Great Society by AMD Schllay which I would highly recommend but you know LBJ called Martin down to his ranch and actually shoved him against the wall and you know took him by the the the shirt collars and sort of slammed him into the wall and said you know my boys over there in Vietnam dying and you're not giving me the money I need to win the war. Uh and and I think that's such a vivid story for a couple reasons. You know, first of all, while Trump is being very um antagonistic on social media and things like that, to my knowledge, he has not physically assaulted uh Chairman Powell. So, as far as a low water mark, we might not have hit that quite yet. Uh but second, you know, these things do come and go. And I'm not trying to minimize the relationship between government and the Fed. And I'm not trying to minimize the importance of uh Fed independence. I'm not saying that that we're not at a crisis. But uh to say that it's unprecedented is not entirely true. There's another period of time earlier than that, right in the very early days. You know, the Fed was established in 1913 following the crash, the panic of 1907. Uh, and I don't that's a kind of wild story in and of itself. We do our um investor day every year at the uh Morgan Library or we've done it once at the Morgan Library and we're going to continue to do it there. We like that venue quite a lot. And that's actually the site where during the panic of 1907 prefed um the original you know JPont Morgan locked all the New York bank presidents in his library and locked it from the outside took away the key and said you guys figure out who's going to bail out whom. I'm in for this amount of money and I don't I don't remember the amount but it was you know large sum and he said we need another x billion and you guys figure it out and knock three times when you've when you've come to a conclusion and I think it took them you know all the night and maybe taken them a couple days. Um and you know the Fed was established a few years after that largely in response to be kind of the lender of last resort so you wouldn't have to resort to kidnapping your bank presidents anymore. And um by the 1920s, it was still finding its footing, but there was a very uh very powerful Fed uh New York Fed president named Benjamin Strong. And he put forward all these crazy radical proposals, including the first bout of quantitative easing where the US actually printed money. We all think that that was post GFC was actually done in the 1920s. And it resulted, you know, was trying to devalue the dollar and prop up the pound. and it resulted in a huge stock market bubble that we all know about in the late 1920s and no one assaulted him and no one yelled at him on social media or the newspapers or anything like that. Uh but you know it was a very contentious period and Benjamin Strong actually dropped dead um partially you know health issues and likely some of the pressures that he was under as well and and what the first two have in common both Strong and Martin is that you know immediately following this period of maximum pressure the Fed completely changed course. it completely uh pivoted not just in terms of its stances but actually you know fairly major major um changes to how it conducts uh its affairs. And in the case of the late 20s it caused the great depression and a major sector rotation out of stocks and into things like gold and commodity stocks and whatever. And in the late 1960s, it ultimately led to a couple years later, 1971, the US going off of gold and breaking the Bretton Wood standard and putting in place a pure fiat dollar standard. You know, massive wholesale um reshuffleling of global monetary systems and and I guess what we would call a regime change in central banking and how we conduct our monetary affairs. And you know, I wonder if we're not in for the same here. uh you have um Steven Mirren who's you know being put put on the Fed u board now and uh whoever you know the next Fed chairman is is likely going to have very different views from what Chairman Powell has and you know Mirren's talked about like a real major change to how we conduct global monetary systems including a red dollarization a doubling down of the dollar as the reserve currency potentially gold being revalued on the Fed's balance sheet these like major major major changes to the plumbing of global central banking. And that that has always and forever um been kind of the the cue to get this big sector rotation out of growth, out of large cap and back towards resources and and real assets. And I suspect this time will be the same as well. And this time I think has maybe a double parallel to the 1970s not so much the late 20s30s which is to say that inflation is sort of like the big sword you know damicles hanging over everyone's head and and um I think inflationary pressures are are pretty well established in in the economy. I think now the you know the view that the inflation of COVID and 22 was transitory is kind of receding from memory and and I suspect that if we do get you know more accommodative policies or reshuffleling of how things are viewed uh we'll probably have another bout of of inflation very similar to what happened in the 70s. In the 70s you had the first bout in the early '7s. It was kind of squashed. Everyone thought that the the coast was clear. In the in 7374 there was a recession. They cut interest rates and and provided a lot of liquidity and inflation just came ravaging back and that's really when kind of the fireworks started in real assets and I suspect this time will be very similar. Well, thank you for going into all of that. I find the history very fascinating and hopefully everybody else does as well. You're going in, I think, exactly the direction I was hoping. I was going to ask you if we are heading into this new inflationary age. What exactly does that look like? And you mentioned the comparison there to the 1970s. Anything further you would add on what we're heading into there? And maybe if you could talk about the response from the Fed given that we've got all these changes perhaps laying out there and maybe the implications also for the US economy as we head in this direction. Well, you know, I think there's a lot of unknowns and a lot of questions, but I think given the amount of money that we've printed and the amount of debt that's in the system, um the chance for a real sustained inflation is quite high. And we started to see that coming out of CO and really, you know, as bad as things were in terms of dollar to basement, money printing, whatever, post the GFC, you know, CO really put that all to shame, right? you know, the the numbers that we're talking about pre-COVID seem almost quaint uh in terms of budget deficits, in terms of just the sheer size of the Fed's balance sheets and things of that nature. So, there's clearly a lot of uh you know, gunpowder here ready to go off at a moment's notice. And we started to get a little bit of that um in 22 23 and then the Fed responded and to some degree inflation came down. And it's been mostly energy that's driven inflation lower. And we can talk about energy as well because I don't think that's going to be the same uh help for the inflation prints that we've seen in the last couple years. I think the most of that is behind us. And the risk there is probably to the upside. Um and we also now are in the process of of losing the resolve at the Fed to really fight inflation. you know, anyone that spoke to Chairman Powell or knew anything about him um would tell you that that he really wanted to go down as the Paul Vulkar of his generation, meaning the Fed governor, the Fed chairman rather, that was able to break the back of inflation through higher interest rates and through, you know, very strong resolve. um and that he wanted to avoid at all costs being uh Arthur Burns who was the Fed chairman who you know called the coast is clear and um ended up bringing about the massive second inflationary spike in the 1970s and so who who by the way topic for another day is probably unduly criticized. you know, he he had a tough job and was under a huge amount of pressure and was a very very astute economist and Fed chairman, but nevertheless, he probably wins the award for the worst Fed chairman in history just because he was there. It all happened under his watch. So, you know, that's what Powell wants to go down as Vulkar and not as Burns. But there's a third option which I don't think anyone really considered which is that he'll go down as Martin the guy who tried his best and ultimately uh was pressured out and and whose views were were then completely undone in in the chairmanship uh after um not dissimilar to Benjamin Strong also in the 1920s although he he was he was a a president not not a chairman. Um so you know I think that we're about to get a period here very clearly where the we're going to have a more accommodative Fed at a time when uh there's a huge amount of um pent up or or or excess liquidity still in the system where deficits and debts are extraordinary and all of that I think leads to a very very inflationary period until we get the moment where someone can come in and and potentially really begin to write the ship. But I feel that that's quite a ways away. And you know, if you if you read Mirin's stuff and you read between the lines, you know, they they'd like to see a weaker dollar. They would like to see um you know, inflation to try to rightsize the balance sheet a little bit, right? The idea that you you take everything in nominal terms, you just make the value of it less. You know, everybody that listens to your podcast, I'm sure, realizes that when you have an debt level this size, you can either default or you can inflate it away. And I don't think anyone is talking about default. I think the United States remains very central in all geopolitical affairs. So, you know, the idea of the US going by the wayside, I think, is uh certainly overblown, and that really leaves inflating it away. And I I suspect that that's what is is they're going to try. Uh and that's I think what gold's telling you today, making its all-time highs. Well, and just before we move on to talk about what's happening with gold, you mentioned the the energy impact on inflation. So, just briefly, what would you what would you lay out there for investors to know about? Well, we're in a real tough spot on energy because we haven't invested in energy in quite some time. I don't mean us as a firm. We're very invested in energy, but I mean us as a society. Energy today is u 2% 2.8% of the S&P. His long-term average is 14%. Um, and the reason that it's fallen so out of favor has been the massive shale boom which has provided this kind of excess supply into the market now for the better part of 15 years. But that's come to an end. And shale production on the oil side peaked in October of last year. And we predicted that that would happen in 2019. We built all these really sophisticated deep neural network models looking at the geology of the shells. And we said, "Look, they're huge and they're, you know, really I this word gets thrown around too much, but they are almost unprecedented in in their size and scale." And we brought on seven of them within a period of 10 or 12 years. And and it was really transformative for the United States. And you might even be forgiven for thinking that they were infinite because they were so big. But but immense is not the same as infinite. And they come to an end. And we made a stab back then to predict when peak production might hit the shelves. And our best guess said 2025. And so now you look at the monthly data and sure enough in October of 24 shell production peaked. And we're not far off the high but but we haven't made a new high. We've rolled over and unless we can really pull a rabbit out of the hat. Uh it looks like this October when the when the data comes out we'll probably be down year on year. I mean, if by definition the monthly high was last October, then on a year-on-year basis, if we don't make a new monthly high by this October, we'll be down year on year. And anyway, you cut it, the the major growth engine of the shelves has now come uh come to an end. And and it's unclear where where you get the next easily mobilized barrel. Yes, there's OPEC and things of that nature, but history tells us that when the nonopc oil supply group stops growing, OPEC gains pricing power. or they gain market share. And that's not usually a time, in fact, it's never been a time when oil prices fall. It tends to be a time when oil prices rise usually quite sharply. We've had two good examples, the US in the 70s and the North Sea and Gulf of Mexico in the early 2000s. In each case, it was a catalyst for oil prices to move up a lot. And and certainly right now, you know, investors aren't positioned for that. There's very little holding of energy stocks. there's very little capital spending and the commodity traders are not they're pretty pretty short or or very low net length levels. So I think all told you could see a risk to higher oil prices uh in the next 12 to 18 months and and then beyond that. Um and you know the even the IEA who who is the perennial you know this is the big the international energy agency they put out a lot of data on oil markets and they are very uh well followed and kind of the gold standard and very wrong a lot. Um, even they put out and and they've they've in the past couple years they've developed this like super bearish bent all the time. And maybe it's political, you know, maybe it's uh global warming uh political, maybe it's how they really feel. I don't know. I I suspect it's probably political more than anything else. Uh but even the IEA was forced to admit this past month that the base decline and the crude supply is quite high and getting higher because the assets are aging and we're not really spending enough to offset those declines and and to meet new demand. And at the same time as they say that they expect a huge surplus this year and next year. So it it's a really tricky situation. Uh I think most investors are following the headlines and not looking at the data and the data points to a much tighter oil market uh going forward. And when you look at the gold to oil ratio that's at really stretched levels. So a single ounce of gold has bought nearly 60 barrels of oil. That's an all-time record. It's only ever been surpassed I guess not an all-time record. It's only ever been surpassed when oil went negative in CO which made an infinite ratio and as a pass through zero. So leaving that aside, uh it's at a record and there's a lot of room I think for that to normalize uh which which will be tough on inflation and uh and also probably lead to some slightly higher costs for the gold producers. Yeah, that definitely helps me understand how it all fits together and certainly it can be easy to focus on those headlines and not look beneath them. So great to go into that and I'll let us move over now to gold which I think everybody in our audience is certainly focused on right now. So just looking at again your your latest commentary looking back at gold in Q2. You mentioned that during that quarter gold couldn't really decide if it was in trouble or in charge. And I think for Q3 which we've just wrapped up it's pretty safe to say gold decided it was in charge. So, if we look forward to the rest of 2025 and and beyond, if you'd like, do you see gold staying where it is right now, kind of in charge? Yeah, I I do. I think we're in a real sustained true gold bull market here. Um, and I think there's some very good reasons for that. Uh, the first is, you know, I think when you when you think about gold, I like to separate it into what I call a valuation metric and and and a market structure. if you will. So, if you if you'll bear with me, I'll kind of go through each of them here. From a valuation perspective, the question is, is gold expensive? And that's always a really tricky one. Expensive relative to what? Um, there's certain commodities where it's helpful to look at, for instance, the price of the commodity versus the cost to extract that commodity. uh lots of industries if you're generating really ample margins what usually ends up happening uh is is you have profits and you attract capital and you have more investment and new supply comes online and it kind of balances the market that way. Gold's a little bit different though because if you think about the gold market and you think about all the gold that's above ground throughout all of time uh that's a very large number relative to the amount of new gold that comes into the market. And so if you think about that pool of gold that's all available to transact and you have to think about the marginal elasticity of the buyers and the sellers in that um in in in that pool if you will right so in the oil markets for for instance you have 104 million barrels of both supply and demand give or take uh and you have about 44 days of inventory cover in the gold market if you think of that pool of above ground gold as your inventory. You add 1% for that to that every year in the form of new mine supply. So you have like a 100 years of inventory if you will, right? So the uh and commodity producers are inherently price elastic. I mean they they don't care what the price they care whether they turn the mine on and off and and they're happier when it's higher. But you know an oil company doesn't sit and say, "Well, oil's weak. I'm not going to sell my oil today. I'm going to hold it back and hope for higher prices." I mean they produce and they sell. They are elastic sources of supply but that's a small part of the total gold market and instead you have buyers and sellers both on the financial side you know western speculators you have Indian and Chinese buyers and you have central banks and right now the central banks are the big buyer and they're completely priced in elastic they they they don't care they made a policy decision to diversify out of the dollar and they're buying and so maybe the Chinese pull back a little bit because they don't want to be deemed as the sort of dumb money chasing the gold price and so maybe they pull back a bit and then they come back in. But you know, you're seeing post Russia's invasion of Ukraine where US froze all of Russia's assets, you're seeing countries around the world saying, "I want my reserve assets that sit in my central bank to be completely under my discretion." And so you're seeing diversification on the margin. I don't think that's changing. I don't think that we're kind of settling down on that. So that's going to continue. The Western investors, are they sensitive on price or not? I mean, I would argue that if prices go up, they want more, not less. Uh, they're they're they're trend followers, and they haven't started buying yet. You can look at the holdings of the GLD. You can look at the holdings of gold shares. They've been going down and down and down. So, that's still a huge leg left to go. Uh, and so you put that all together, and to me, that's a recipe for quite a strong um move higher in prices. uh and and gold mine production, you know, which is price elastic supply, if you will. Uh you that's been down the last seven years. It hasn't made a new high. So, and it's small relative to the global trade. So, I think that you're probably in a good spot and I think that gold's going to continue to move higher. The next question is how high can it go? How high is too high? And that's when you have to start considering the valuation side of things and you say to yourself okay um what you know the same way you might say to a currency is it expensive relative to a basket of comparable goods you say okay is gold expensive relative to all the money that's out there is it expensive relative to the size of GDP and if you track that over time gold tends to move uh in these in these waves in these patterns it becomes cheap and out of favor relative to other financial aggregates and then it becomes expensive and and quite high relative to other financial aggregates. And if you look at it on that sense, you're you're well below average. You're probably at this point, you've gone from about two standard deviations below average to about one standard deviation below average. So you certainly can't say that you're expensive. You're still cheap. Uh maybe a little less cheap than you were a year ago, but still cheap. and the market structure, the micro structure of who's buying, uh, to me suggests that that you'll continue to, um, to see prices move higher because they're largely inelastic or trend follower buyers. So, I think that this rally is sustained. Uh, I think that it's going on until I see otherwise. And even though we're making all-time highs in the gold price, um, I think that it has a lot of room to run before. I would consider it overdone either because you've exhausted the sellers and you're bringing in more price sensitive sellers or um or it looks expensive relative to other financial assets. Very good summary there. And just a little bit more on the note of the price. I remember from previous conversations, your long-term gold price target has five figures in it. So is is that still something that you're expecting at this point? It feels like now we're getting into a place where that's even more attainable than it once was. Yeah. I I think that that would make gold expensive. So, just to be clear, right, I I don't I don't think that that's the long-term fair equilibrium price. That that would be, you know, one to two standard deviations too expensive. And we've had that at three or four times uh in or sorry, two times in the last 100 years. We've had we've had four extremes, two highs, two lows. you know in 19 uh 30 late 1930s with war coming to Europe we had a tremendous amount of gold flood its way into the US treasury and that was sterilized. It was not money was not printed on the back of that. So the amount of gold that the US held relative to the amount of dollars it held uh the gold actually was worth nearly two times as much as all the dollars. Um that got as low as 6% uh in 1999. It was about 12% in 1969. So, it goes all the way back down again. It's good when it's down. That's when it's cheap and you want to buy it. You want to avoid it when it's really expensive. You know, from the late 1930s to 1970, the stock market went up like 6,000% and um gold was $35 an ounce, you know. So, revised up a little bit, but not nearly as much clearly. Uh in 1980, we weren't on a gold standard, but the gold price moved up. So, the US wasn't buying more gold. the gold amount was fixed, but the value of that gold went up a lot, up to 800 bucks. And by 1980, believe it or not, you had nearly $2 of gold for every dollar in circulation. The the treasury did. So again, you got back to that late 1930s valuation, at least on that metric, twice. Um, so can you get there again? I suspect you could. I don't see why not. You did it twice. And people might say, well, you know, gold's not money anymore, but it wasn't money in 1980 either, and you still were able to to get to that extreme high. Uh, and so it's not going to happen under normal circumstances. It's not going to happen, you know, when everything's going great. But by the end of this cycle, will we get there? I I think we probably will. Uh, and another way to look at it is Pierre Lassand, I heard him speak yesterday here in New York at the Grants Conference, and he was out with a chart that looks at the gold to Dowo ratio, and that's actually a chart that that Lee used to uh show at conferences in the 1990s as well. Um, so we we we certainly are quite familiar with it. In fact, might have might have been the people to first put it out in the first place. I think we were um back in back in the 1990s before I was working with Lee, but when Lee was doing his thing. And um you know what it shows is that the Dow and the price of gold every 50 years or so hits one or near one. It hit two at one point. Yeah. But, you know, to to put that in mind with the Dow at 46,000, even if it's 2 to1, that's that's okay. Um and and and again the most recent time it happened was the first time was at the bottom of the depression in 1932 and I think the Dow hit maybe 60 and gold was 35 and then the second time uh was in 1980 when they actually did cross uh at 800 and so today the Dow's at 46,000 or so and um gold is you know high three handle uh on and and so if you get 2 to1 I mean presumably that happens with the Dow falling a lot but even if the Dow fell you know great depression styles which I don't think it it would uh you would have you know you'd have room to go from here so yeah I think you definitely by the end of this cycle with all the fireworks being done um I think five figures on gold is not only possible but likely again really good context to help us understand and if we're talking about gold of course we want to take a look at gold stocks as well. So for the major miners, they've started to reap the benefits of a higher gold price, but looking again at your commentary, you mentioned the interest from investors just really isn't there at this point. So I wondered if we could talk about why that is, why investors aren't as interested as they might be in the gold stocks yet, and what could bring that in investor interest back in. Well, as far as why they're not interested, you know, I think I think a really long, brutal bare market is is kind of the answer there. And that's usually the answer. And that usually, you know, because of market psychology sets up the next bull market because without access to capital, it's hard for these guys to grow. And um we all know how capital intensive the mining business is. And so if investors aren't on your side, uh it's first of all, it's amazing how long they can kind of molder and stick around, but uh it's difficult to really see any kind of robust uh growth. So why aren't investors more enthusiastic right now? I mean, they're not really enthusiastic about gold either, to be perfectly honest. Certainly not US investors. The Swiss tend to always be a little bit more focused on gold. Um but you know, if you look at the holdings of the GLD, uh they haven't done much. If you look at the holdings of the GDX, they've done nothing. I mean, they're at an all-time low. So, people have been selling their holdings of the uh GDX, the gold stock ETFs, as the rally has taken place this year. So, so is there interest? No, there's definitely not interest, that's for sure. Um, we've seen a little bit of an uptick in gold deals. I haven't aggregated what the dollar value in that is, but I certainly feel as though I get more emails every night that a new company's coming to market. I don't know where that capital is coming from. I suspect what's happening is that people are selling other gold stocks and you can see some evidence of that with some other gold stocks being weak the day that a company announces a deal. You might get some of its comparable companies showing weakness the next day. Why would that be? Well, I think they have to sell those to buy this new deal. Um, you know, there's no net money coming in yet to the space. That'll definitely change and the bull market will end in a moment of investor euphoria when there's tremendous amount of money coming in to the space. that's just not even begun uh at this point. What makes investors change their mind and and have the psychology shift positive? Um if I knew that then then I would be a much better market timer than I am. I have absolutely no idea why people can't see this. Uh a year ago I would get questions all the time as to why gold stocks weren't going up. Gold prices were going up. Gold stocks weren't. We gave them an explanation that we thought was quite valid, which was the central banks were buying gold bars, but not gold shares. Give it time, the cash flows will catch up. Cash flows have caught up and the gold stocks have been the best performers of the year and still nobody seems to care. So, what'll do it? I don't know. I guess they have to keep going up more um to to you know, first couple hundred% or so and then maybe people will start paying attention, but they're certainly not now. And I think there's still this pervasive view that gold stocks are toxic after the bare market that they had between 2011 and 2015. Right? And you know the reason I ask that question is because I think in the past I've heard from different people, you know, this is the point where investors will get interested interested again or it's this or it's this and we keep hitting these points and it's still not coming. So yeah, I guess I guess we'll wait and see. And but I'll tell I will tell you one I'll tell you one thing, okay? I if you needed those investors to come in in order to make a return on your gold stock investment that would be frustrating and that to a certain extent that was kind of the case in 24. Gold had a nice run and the gold stocks didn't go up and investors were not interested and the gold stocks didn't go up. So if you held gold stocks that was a frustrating year and I empathize with it all of my you know investing brethren that did that and we did it and we added to it throughout the year. And this year though is a little bit different because you know I don't know what's going to attract the general investor. I don't know what's going to attract money back uh into the gold space. But I don't really know that it matters um right now. You know, we're sitting on really nice nice gains and so can gold stocks go up without people buying them? Yeah, I think they can. Yeah. Yeah. Apparently they can. Speaking a little bit more about the gold companies, this is a little bit on a different note, but I'm wondering if you had any thoughts on the management shakeups we've seen this week at couple of the major miners, Bareric and Newmont. Of course, these are for different reasons, but any any thoughts that you would share there? No, I don't probably have anything, you know, super gerine to add to that. You know, it it's a tough industry and particularly amongst the majors, they have a bit of a challenged asset base. Some of those companies are, you know, sitting on assets that were um developed a long time ago. And if you think about it, I mean, you become a worldclass mining company by having a world-class asset. Uh the problem with a world-class asset is that it can be difficult to replicate it when uh the asset eventually begins to deplete. And you look at some of these companies that have gone through a huge huge huge period of capital rationalization and things like that. And you know, fine, good, kudos to them. But it also means that you haven't been investing in that business. And so, a lot of these guys have a tough situation. Uh, particularly the big super majors. I much prefer the more emerging new majors, if you will, like the we own Alamos is a big gold holding of ours. Um, the companies at the bottom of the so-called land curve that have, you know, developed their project and are just waiting for them to come online. I think there's some really good opportunities there in some of the big old legacy mining houses. I mean, there's a lot of historical baggage and institutional baggage that that makes that a very difficult job. So, I don't know that I have anything, you know, particularly unique or insightful to add about these management changes, but but that's that's a hard job. Yeah. Yeah, fair enough. For sure. It definitely seems like for them there's there's a lot of focus on trying not to repeat those mistakes of the past, but maybe just a little bit more on where you would focus right now on those maybe smaller types of companies. Anything you would add there? Well, like like I said, you know, for those unfamiliar, the Land curve, which which I don't claim that we had anything to do with that was all that was all pure Land. Uh but it was an observation that he made years ago that said, you know, the life cycle of a gold company. Um this is my editorial, but it starts out worthless and it ends up worthless, but lots of fun stuff happens in the middle. And you know, you make the discovery and the stock rockets higher and uh the it grows and you delineate it and you make your final investment decision to move forward and then the stock starts to pull back quite sharply. And it does that because first of all, nothing can only bad things can happen as you build a mine. Um, I guess you could bring it on time on budget, but but that's quite unusual. Usually, you know, you have permitting delays and construction delays and cost overruns. And then the real thing that kind of gets you is that everyone knows you have this big equity offering out in the waiting in the future. And so people say, "Well, why would I want to own it ahead of that?" And so they kind of hold back and hold back and hold back. Eventually, you get all the capital that you need and you build the mine and and then at some point presumably the stock rerates into a cash flow story or the anticipation of a cash flow story and you're off to the races and you generate the return that you've been promising investors all these years. And so it was Lasan's observation that it probably makes sense to try to buy it somewhere in that dip, you know, and and you you don't want to fly too close to the sun and get the absolute bottom because you might miss it and it might rerate earlier. That's a bit of market psychology, but where given how bearish people are, uninterested people are in gold stocks, you can get awfully close to the bottom. You know, you don't people aren't trying to frontr run each other to call that bottom. Uh they're they're really waiting until you're kind of at near production. And so I think there's a lot of good benefit uh to to owning those names. And so you can go and look on our website. We're we're pretty uh transparent uh and open in terms of what it is that we hold. But most of our gold stocks at least our larger gold stock positions are either you know companies that have just gone through that and are now sort of the new emerging majors like the agos of this cycle let's say like and I think Alamos fits that quite well uh or you know a little bit earlier um trying to get the bottom of that Land curve I think uh I think the magnitude of that pull down from FID peak to Rate low you know um at different times in the market can be more or less less dramatic and I think right now it's about as dramatic as I've seen. So, it creates a lot of really good value in those troughs. Well, I will I'll add a link to your website so people can go take a look at that if they'd like to. And now that we've talked quite a bit about gold, I want to mention silver as well. So, in our last conversation a few months ago, we talked about how silver tends to lag behind and then stages of catchup when it gets toward the end of a precious metals market rally. So, we do have silver on the move, but it seems like we're not really toward the end of this precious metals bull market. So, what is silver's price move telling us right now? Well, you know, no, I think that's uh I think that's a really, you know, good summary. Um, I think that silver remains quite cheap relative to gold. Uh, it is not as cheap as it was a couple months ago. you know, like you said, silver has been outperforming, but you know, we're not at the those moments, I think, where where you do stage that big swansong gasp where silver kind of rallies higher. Uh, and so then you have to ask yourself, okay, well, do I think that this bull market run is is done? And no, I don't think it is at all. So I don't I still continue to to hold our same view that that likely um gold will continue to outperform or gold will continue to have a strong run and that the silver move lies somewhere out ahead of us. So, I'm just pulling up my charts here, but you know, like the gold to silver ratio in 2021 uh hit hit 60 uh 65, you know, and today, even with today's action, you were at 80 and and you know, a week ago or so, you were at 90. So, so you're still well above that. That was the signal last time. Uh and and you're still, you know, full turn or full full whatever 80 to 60 above that. Okay. So, it's kind of the the ratio that might be more important to watch here versus the actual silver price, I think. So, yeah. No, I I think that that's right. You know, so I'm looking back here, you know, all the way back to 1990, you're still you're one standard deviation above average in terms of the the gold to silver ratio. So, I I think until you get to below average and and is it one standard deviation? you know, you can start to look at the charts and be be your own kind of technical analyst, but I think so long as you're still above uh the long-term average there, I don't think you're in that last moment. Okay. Well, that is good news then for for people who are interested in silver. And while we're talking about precious metals, of course, want to bring up platinum as well. So during that previous conversation we had a few months ago, I think that was kind of toward when platinum was just starting to move and you were saying this is a sector that has all the hallmarks of something that you would want to be in. Your latest commentary goes into market dynamics and mentions the possibility of price breaks price spikes in platinum next year. So I'm wondering if we could take a look at that and and updated thoughts on platinum. Yeah, absolutely. I I think that you know platinum was sort of a a bull market unfolding in in slow motion. Uh and what I mean by that is you know historically platinum always traded at a premium to gold 500 to a,000. It got as high as a $1,200 premium to gold back in 2008 when platinum was 2100 and gold was down below a th000. Um that all began to switch in 2015 or so. And and the narrative that emerged was that the electric vehicle was going to completely displace the internal combustion engine, right? That it was going to um make platinum demand, you know, nearly obsolete, at least in terms of autoc catalyst demand. And we've never agreed with that. Never. You know, I I I always have argued very strongly, Lee and I both, that electric vehicles don't work. um the energy required to make manufacture and power them if you're going to use renewables is so inefficient that it's never going to be a viable replacement for internal combustion engine cars. And if you believe that, then platinum's really far too cheap. Uh you're at the point where, you know, platinum now is 1,500, but it was less than $1,000 uh by the end of 24 into the beginning of of 2025. And you know that's where you know it first hit that level back in 2004 you know so it's basically been completely unchanged. It was that in 15 and it's been that all the way to the end of 24. So of course cost inflation's gone through the roof since then. Um these assets these these platinum mines have gotten older and older. Their costs have gone up and up over and above inflation. So the platinum industry doesn't generate any money. Uh if you you certainly can't incentivize new mines to be built. And in fact, on a on a cash cost basis, it's it's tough to make it work at at $900 platinum. So if you want a platinum industry, you need a higher platinum price. I mean, you're getting to that extreme. We like to talk about unsustainably low prices. What does that mean? At $20 uranium, if you want uranium, you need a higher than $20 price. If you want gold, you need higher than 275 in the late 1990s. It's just it was below the marginal cash cost. And and you were certainly at that level with platinum. Now, what makes it so interesting is that just to prove that we're not, you know, Cassandra about everything and and and you know, pour cold water on things. Uh I think that hybrid vehicles are incredibly robust. Incredibly robust. I think that instead of going IC to EV, we're going to all go ICV to hybrids because it's about as close to a free lunch as you can get in the energy world. All you're doing with a hybrid is you're capturing the wasted energy of the kinetic movement of the car moving forward and then you break it. You know, you break the car to to make it slow down. And when you do that, all that forward motion gets translated into heat energy on the form of the brake pad and it gets dissipated into the air around you. Uh and with a hybrid, it gets captured. you spin you spin a a dynamo and you charge a battery and that just saves that energy and it results in, you know, 20% fuel efficiency savings in in the cars. It's massive uh for nothing for energy that was otherwise just wasted and bled into the air around you. So that makes a lot of sense. And in fact, if you kind of dissect a lot of the EV statistics, the bright spots in EV sales have really been in hybrids. uh they've been in plug-in hybrids which get lumped in with EVs and then if you look at straight traditional hybrids which are even better because you don't have to build the lithium-ion battery um that those have been the really bright spots and so I think what we're starting to see is a recognition of that straight battery EV sales particularly outside of China have been fairly lackluster and hybrids require twice as much platinum loadings as a traditional internal combustion engine because you keep cycling the engine on and off all the time and when you do that, you need a lot of platinum in in the uh catalytic converter to help uh capture the tailpipe emissions. So the narrative that platinum demand is going away because of EVs and so prices should be low because you don't want to incentivize capital to go into that industry could actually be we're going to have a big surge in demand because we're going to go from internal combustion to hybrids in which case we better get started right away investing in the next generation of platinum mines. So today you have prices up you know 1561 as of today against a gold price at 3860. Uh this is the 1st of October we're recording this. So it's a $2,300 spread between the two. And the all-time spread occurred, you know, a little bit earlier this year at 2350 and we're 2301. So basically relative to gold, platinum's never been cheaper except for once earlier this year, 50 bucks or so. So I think there's a lot of room to run. I think it's still hard for these companies to make much money. Certainly, you know, a little bit of relief on the margin, right? the per ounce margin, but you're not making enough money to invest in massive new platinum mines. So, I think we need to go further and we need to get money back into the space and I think that's all going to happen. And in the interim, platinum and platinum stocks are going to move a lot higher. Right. Right. And these are the circumstances that could potentially bring about price spike scenarios in in next year or so. Yeah. Absolutely. No, we're in a low inventory situation. demand is high and we're seeing some issues at some of the mines and I think you definitely could see a price spike anytime you're in that territory for sure. Yeah. Yeah, we're in in the range there. So, I want to at least briefly look at palladium as well because I'm definitely starting to hear more about platinum, people getting interested in that. Palladium a little bit less so, but I know I know it's one that you cover and look at and the markets and situations sound similar, but they're not exactly the same. So if you were going to pull out the differences there that people should know before they start getting into these sectors, what would you highlight in terms of that? Oh, that's an interesting question. I I think the platinum market's more investable. You you take a lot of South African risk with platinum, but you take a lot of Russian risk with palladium. So I I would take South African risk over Russian risk. Russian risk is probably not possible in most cases. Nurilk is a big palladium producer, but you know, you're not going to go invest in Nurilk. Um, you know, then you have enduse differences between diesel and and gasoline and things like that. I I think ultimately, frankly, both will do well. Uh, and we like to express it on the platinum side of things. Okay. Okay. I think that's that's fair enough. So, you can approach them both. I think we're getting to the end here. We've taken a pretty good look at what's going on in the precious metals, but before I let you go, are there any final thoughts that you would want to leave investors with at this time? Well, look, I think we're in a period certainly this year and I suspect into the next several where we're in a bit of a regime change kind of a mode. We have certainly an administration in the United States that's looking to tear down old edififices and build them differently. Uh we have a massively shifting geopolitical landscape that's happening, you know, almost minute to minute. And I wouldn't dare to guess how this all ends, but it tends to be when you get real assets very dislocated from growth assets like we did in the last few years and like we did in the 20s and 60s and '9s. What you tend to have that breaks all that is this big realignment. Um and that was true obviously through the depression and kind of the end of the preworld war II World War I um world that had been in place for 100 years before that. You know at the end of the 1960s you had the end of the World War post World War II Bretton Woods period major shift in geopolitical realignment and sort of rise of Middle Eastern tensions and conflicts. And then in the late 1990s you had again a wholesale change in how we consider trade uh in the in the global south what they now call the global south and you know the Southeast Asian countries and things of that nature. These these are big changes and they're brought about by major realignments and global monetary and fiscal or monetary uh and financial plumbing and major shifts in trade patterns. And we're seeing all that today. And typically what ends up being the beneficiary are hard assets that can hold value. Things that that are not promised story stocks with high multiples and hydration, but things that you can ring fence that you can pass on price uh and that seem more tangible. And we've certainly underinvested in that part of the economy for quite some time now. And it's time that we bring some capital back and and this tends to always be the catalyst to do that. So while it seems like a very uncertain time, uh I would recommend that people have some kind of diversification and I think real assets are a very good way to do that. Well, I think that's a really nice place to wrap it up. So thank you so much for coming on to give us the lay of the land in precious metals and of course hope to have you back soon. Thank you so much. Of course. And once again, I'm Charlotte Mloud with investingnews.com and this is Adam Rosenwag with Garing and Rosenwag. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. 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