Tavi Costa: Gold's Next Catalyst, Silver's Path to US$50, Copper Opportunity
Summary
Gold Market Dynamics: Gold has been consolidating after a significant rise, with investors now exploring higher-risk assets as they become comfortable with gold's stability.
Silver and Other Metals: Silver has outperformed gold recently, and there is a strong belief that it will reach new highs, potentially breaking the $50 mark in the next year.
US Dollar and Interest Rates: A long-term decline in the US dollar is anticipated due to fiscal and trade deficits, which could catalyze a rise in gold prices and benefit emerging markets.
Inflationary Pressures: The confrontation between the Fed and the US administration may lead to lower interest rates, despite inflationary pressures, which could further impact the dollar and hard assets.
Gold Revaluation: There is speculation about a potential revaluation of gold to address fiscal issues, although it would only provide short-term relief.
Mining Sector Outlook: The mining sector is experiencing a "golden age" with high margins, leading to increased investor interest and potential M&A activity as companies seek to replenish reserves.
Copper and Infrastructure: Copper remains a critical metal with strong long-term demand due to infrastructure needs and onshoring trends, despite short-term tariff concerns.
Investment Strategy: Investors are advised to focus on sectors likely to benefit from increased spending, such as energy, infrastructure, and raw materials, as part of the AI-driven economic transformation.
Transcript
[Music] I'm Charlotte Mloud with investingnews.com and here today with me is Tabby Costa, macro strategist at Crescuit Capital. Thank you so much for being here. Great to have you as always. Thanks for having me again and looking forward to this conversation. Really good to be catching up. I think our last conversation was all the way back in March at PDAC. So, a lot has happened since then. Of course, we've had the gold price move higher since then, but for the last few months, it's really been kind of consolidating. So, I wanted to begin there, ask for your take on gold's price activity. Is this consolidation phase that we're seeing right now is something that we needed to have after the big move? How are you looking at it? Yeah, I do. I I think that would be a normal behavior of the metal. We've had, you know, gold really leading the pack of precious metals and hard assets for some time now here, especially in the commodities space. And I think investors that understand the commodities um uh you know sector very well will appreciate the fact that that there is a rotational dynamic that usually happens where a commodity will take the lead versus uh another uh at certain times. And I'm not here to claim that gold is necessarily a commodity. I do view it as as a currency, but it acts as a commodity in that in that in that case. And I think I think gold has been signaling that for some time now that we've seen finally the beginning of a long-term cycle in this whole industry and we're now what seems to be the beginning of other uh metals and other derivatives of the gold related uh trade or investment uh starting to outperform gold itself. You know, if you look at the gold price all the way back to just April 21st when right after the whole situation with tariffs and so forth, the liberation days which happened in the 7th, but uh gold really peaked in the twin 21st. Um we've seen gold basically go sideways and at the same time we saw the TSX venture which marks a lot of the especially if you look into the the subgroup of of of uh of precious metals that whole space was up about 30 plus% during the same time that gold was basically flat. So you know certainly uh there has been an exercise that I call of um the acceptance of risk occurring across investors that are looking for the next thing after gold. That doesn't mean gold is going to go away as a trade. But it means that investors are so comfortable with the gold idea that they're starting to go down uh or go up on the risk curve and go down on the liquidity curve uh in order to hopefully capture more returns. And I do think that's going to be the case. And so, um, you know, I'm paying attention to that cuz silver has also, um, outperformed gold since, you know, silver's up double digits since gold has been basically flat and down, in fact, since April 21st. So, all these things are really interesting, and I think that's the beginning of other metals catching up uh, to gold prices uh, finally. nice overview of where we're at with gold right now and I'll follow you down many of those different directions as we move along. But a little bit more on the gold price right now just before we do that. I think a lot of people are are looking at the move and they're seeing that sideways direction that we've been having as you mentioned for the past few months here and wondering okay when it comes to the gold price what is the the next trigger for it to move higher. So what are you looking at there? Um, if I would point out to something, I think we're going to see some volatility given the fact there's a short-term and a no long-term teases here. Short-term, I would say that inflation data has been reacelerating and we looked at the probability of the Fed cutting rates today at about still today as as of now is about 83 84%. I think that's too high and I think I can see the Fed taking a either political or inflationbased view that we should not be lowering rates and we should actually be keeping rates where they are and that will not be necessarily positive for um hard assets in the near term. But if you take a longer term view of which I think is what you asking me um then clearly Trump is in his process to get majority of the governors and of the fed as as supporters of his agenda and he's got no option but to lower rates despite where inflation is and so I think that is where will likely catalyst the next movement. So, I' I've been saying and I do think that the 2-year yield is going to fall substantially from where it is. And along with that, long rates or short rates being diminished substantially will also likely be aligned with a very significant drop in the US dollar. I think we've had a big decline of the US dollar year to date was one of the largest in history. And a lot of investors that see that, especially more technical investors and um future traders, tend to look at the positioning and say, so it's been sort of a very large decline. It's unlikely that we'll see more of this. And this is one of those times that actually I think that that move should not be faded. I think we're going to see a beginning of a long-term decline in the US dollar versus other currencies, uh i.e. The DXY index to be very specific in my view is on the verge of a major collapse from a resistance or um or I should say a support line that goes back all the way to the global financial crisis. If we break that of which I think we will um it will in my view really uh unleash uh what it could be the beginning of a long-term decline for the dollar that will unleash a movement in the gold price most likely but also um other things that have been sort of waiting to see the you know how this is going to be um working out and you know investors you can act ahead of that or you can wait to see the confirmation. You know, the real money is made prior to the move, not after. And so I am given my views that I think that it's inevitable uh that the dollar will decline versus other currencies. Uh and I can expand on that as well. I do think that the emerging markets would be a huge winner of that of that whole movement as well. That is another derivative of the gold trade that is starting to capture inflows but is not yet to the degree that we saw in other times. Similar to the junior markets in in the mining industry as well. It's starting to see some inflows but it hasn't been right that whole flood of inflows that we tend to see in real bull markets. But I do think we're going to get there and the dollar kind of holds the key for that, you know, capital to start flowing into this industry in a large way. Definitely. I I would ask you to expand there. So, what's coming for the dollar? You said it unleashes gold. It unleashes emerging markets. Anything else on there that you are looking at that would be unleashed in that scenario for the dollar? It's important to understand maybe why it's likely to be uh the case that the dollar could be entering a multi-year decline. And it has most to do with the fact that we're facing two real deficits. Not just the fiscal side, but also the trade balance. The trade balance alone is one of the worst deficits we've seen if you go back over a century that maybe since um 1800s. Yes, we did briefly see that back in the global financial crisis, but the reason for it was because GDP was falling. Today, that's not the case. GDP continues to rise, but the imports are larger than exports. And you know this is different because 1800s would we were sort of an emerging economy receiving a lot of inflows from all over the world and also um capturing a lot of imports and we were running at a 47% of GDP deficit on the trade balance alone. So if you compare with the 1940s and 1970s and so forth, it you know the situation we're facing today is far worse because it's not just the deficit on the fiscal side or the debt problem itself but really is also the trade balance and you have to think of this as a as a as a as a company of which generates revenue. So a country has really two forms of generating revenues essentially. One of them is collecting taxes more than what they spend of which we all know that we have a spending problem as well which is causing us to not collect enough taxes. So we have a deficit on that front. The second side of it is how much you export versus you import and that's where you get part of your revenues in a huge way. We're also running a very steep deficit on that front. So looking at both in aggregate, we're running at about 12% of GDP on what we call the twin deficit. When you're running a twin deficit of this degree, you don't fix that with a strong dollar. And it happens to be the case that the dollar is also at one of its most expensive levels in history relative to other fiat currencies. And so if you see that those two things align have to be one of the things have to be escape valve and I believe that that the dollar would be that and so we're probably going to see policies that will try to really enforce that the dollar needs to devalue versus other currencies. And you can pay attention to things like Scott Basson you know commenting on the Japanese economy saying that they're behind the curve on inflation. I mean really behind the curve on inflation. So they have to raise rates. Why do you think they're saying that? It's because if they raise rates, it would support the Japanese yen versus the dollar. The administration definitely wants that to occur. So it makes the US exports a lot more affordable elsewhere and it fixes the de one side of that deficit issue I was referring to. And when we realign that with also the need for lowering rates because remember while we try to politicize the situation the Fed really and and and Trump are both right. The Fed is right by saying inflation is is seeing a reacelerating factor here certainly happening. And the Trump administration is also right by saying we can't afford these rising this large interest rates relative to how much we're paying in the debt burden that was is really hurting us from a fiscal standpoint. And so at the end of the day, we're probably going to see major declines in interest rates and the dollar. And it's hard to believe that those two factors are not going to drive things like emerging markets to a whole new level in terms of appreciation of share prices and other um emerging marketbased assets that have for a long time been completely neglected. And you can even dive in and say while South America clearly is seeing a lot of political shifts at the same time as this all happens. first was, you know, arguably and I would say Latin America arguably started with Argentina and El Salvador. Now we're seeing Bolivia. Chile is going to his own its own um elections. Brazil, everybody's looking at Lula, not seeing that there's elections in a year from now and Lula could easily be out. And I do think that would be the case. I have an opinion on that, too. And so the whole Latin America region could change drastically on top of what the macro setting could be. So you start playing with probabilities, valuations are not in line with that at all. So yeah, I do think there's a a real big fat pitch to be made as Duck Miller likes to say in emerging markets today. Can definitely see what you mean there. And I want to hone in a little bit more on interest rates in the US. So you mentioned they're coming down. Maybe we don't get that September cut like is so widely expected at the moment. So interested to hear a little bit more about that. And you've talked in the past about how we're entering this new inflationary age as well. So curious about the implications of that moving forward here. Well, it is. I think the confrontation between the Fed and Trump has also been seen as unique and unprecedented, but we have seen that in the past. 1965 is a great example. And maybe LBJ was a good lesson to what happened, what's happening with Trump. President Johnson was basically dealing with the problem where the Federal Reserve of the time believe his name was the Fed chair was Martin his last name he raised or the committee raised rates from four% to 4 and a.5% at that time and he was so angry at that situation which sounds so familiar to now that he went all the way to his ranch in Texas uh meaning the president President Johnson went all the way to uh the Fed chairs range in Texas to complain about that movement and that policy shift. The policy shift remained. He was not able to reverse that and that was a huge problem. President Johnson was well known for very similar to Trump trying to change uh people's views on things and and just enforcing his own views on an agenda on on whatever their roles are. And and it's not political views at all in this by the way. It's just I'm just sharing anecdotes and history so we can maybe try to understand and that pressure under the Fed chair. Yes. allow him to keep rates where it was was or actually where he wanted it to be. However, it also pressure him not to dare raise rates again. And if you recall 1965 and that time the if you read the reports from that period there were a lot of concerns because of the Vietnam war and the amount of deficits we're spending at that time of which pales to look what you know what we're facing today back then of 2% of GDP when today you know we're facing 7% of GDP so how many multiples is that and so what is interesting Interesting about all this is that that concern allow inflation to compete, you know, run freely given the fact that the Fed chair was somewhat um although independent uh having issues to really enforce what he thought was appropriate. And so eventually inflation ran in the system and as we all know and I think Americans have lost this view about inflation but coming from I was born and raised in Brazil and understand inflation perhaps a little bit better than people that were born here in the last few decades and I I think that inflation is really not just a monetary phenomena but it is very reflexive and the longer stays embedded in a in a economy, it it it becomes harder to remove it later at later stages. And I think that really set the stage as well for the 1970s inflationary problem where we we allowed inflation to run more freely than we wanted. And that's really what caused the whole issue. Now, of course, we're facing a way worse problem today. We have a much more overvalued US dollar. We have interest rates that are absurdly high relative to where the debt problem is. And we have deficits that are multiples of the deficit issue we had at that time in both sides, trade and fiscal. And so I do think that's eventually going to drive, you know, a major decline in both things in terms of the dollar and rates. And right now what we're seeing with the Fed chair, it is likely that same, you know, I'm not saying he's going to raise rates here, but I do think he's not going to, you know, there's there's a case to be contrarian. Let's put it that way. He could lower rates and it's in line with markets. Great. Markets is expecting that are expecting that anyways. So, you know, there's not much money to be made, I guess, is what I'm saying, on something that is highly expected. Whereas there's money usually to be made is betting on ideas that are contrarian and not and not appreciated by the market as a possibility of unfolding and at the same time um are cheap and potentially could really change the landscape in the near term that people are not expecting. And so I think that that's one of them. So there's justifications behind taking a contrarian view. It's never the you know being a contrarian for the sake of being one, but rather when there's enough reasons to take that other side of it. And I think there are enough reasons. We saw ISM manufacturing starting to um show you know numbers on prices paid and so forth and especially in service areas which have nothing to do with tariffs starting to reacelerate. We saw the commodities equal weighted index is starting to go higher. It's up double digits in the last 12 months. You can also um look at the money supply uh factor of which we've just reached new highs recently and more importantly financial conditions which continue to fall substantially recently as well despite you know even before the Fed even deciding to lower rates. So we're seeing this big movement on all these these parts and then you can say that the dollar it also adds to the inflation problem too. So, sorry to go long with my answers, but I do think that this is all linked to this thesis that maybe there is a case to be made that the JPAL may not and his committee may not lower rates as the market expects. And um I'm okay taking that side of that trade given the fact that it's so unexpected. Um and again if I'm wrong then there's not much to lose here because market is highly is expecting already the other side of this of my view. So um I like those you know sort of um setups on the macro uh side that offers you that type of asymmetry. I appreciate the detailed explanation because it really is a perspective that I I haven't heard from the people I've been speaking with lately. So good to go into that. And I want to raise another point. So we've got all these issues that are playing out and there's been increasing talk about this goal revaluation idea. So I wanted to get your thoughts on that and ask is this something that could realistically happen and what do you see as the implications there? Yeah. And I love using history for these answers because I think what we're living through now although has its own uniquenesses and you can take first principle methods to analyze markets or you can lose look at historical analoges to help you understand potential trends that could you know play out again today. And I think you as an investor you want to do a little bit of both. So I will try to offer some thoughts on that front. Look given the fact that we have this trade balance issue that is so you know deeply um in terms of the profound implica implications we have with the trade deficit that we haven't seen since the 1800s. really what I think this is important is because in the 1970s Nixon was facing something not as severe but maybe could be a some some level of similarity and I'll explain how he basically you know closed the um well you know removed that tagged with gold with the US dollar which was something that I think a lot of people were caught by surprise. initially and after that what he did was he put tariffs on certain countries that had large surpluses with the US economy and that basically caused these countries including Japan and Germany to allow their currencies to appreciate versus the US dollar. And that was precisely what he wanted to do Nixon uh to fix the trade deficit. In fact, he called it at that time multiple times that we had a balance of payments issue. So we're facing something somewhat similar in the sense that we may see at that time that was a revaluation of gold basically right when we we closed that gold window where the dollar was fully backed by gold. Um and and you know that arguably was a way to revalue gold substantially in terms of the price in the market, not the price in the uh treasury uh balance sheet. But today I feel like we're seeing something some similarities are important to point out. Of course, the imbalances are much worse, but maybe this whole hidden agenda of devaluing the dollar versus other fiat currencies is certainly happening today. As we see that occurring, there is also the need for the Treasury to raise cash from very, you know, different and I should say unique but also um, you know, smart ways, intelligent ways to raise cash for the treasury. One way to do that would be through the revaluation of gold. And it's interesting that the Federal Reserve even had a paper uh in their website regarding that and that was an interesting paper because it basically provided all the accounting mechanisms that would take place to allow that to occur. And the bottom line of that paper was that that doesn't fix the fiscal issue. It's really a short-term relief. And yes, that's absolutely right. And I don't think we'll fix the problem. I just want to be very clear. I do not think that that will fix any issues, but we're in cert in in such a a difficult situation right now that it's hard to believe they're not going to take those extreme um you know types of policies to try to have some sort of short-term relief. And so the longer it takes for the JPAL to lower rates or I shouldn't say JPL but the Fed and the longer it takes that we're spending money to pay down debt in a significant way increasing our fiscal deficit uh drastically. I think that there's also it's increasing the need for us to also raise rate uh raise uh capital from other forms. So the revaluation of gold is becoming probably one of the top priorities. Although they don't say that and in fact they say the opposite of that. I do think that it's it gives even more conviction that that's actually more likely to happen. So how would that happen? You know would it basically an increase of the value of gold would cause a collateral price or a collateral value of the balance sheet to increase. also allowing the government to have more cash in its TGA account or its uh you know cash account that uses for day-to-day operations including buybacks of treasuries. And so where would that come from? most likely come from a revaluation of gold of which could raise substantial amount of capital to allow the treasury to buy back its own treasuries which is you know we can call it different than QE and all sorts of things but these are all types of you know ways that governments and policy makers the Fed the Treasury are going to be using in order to reduce or suppress interest rates and in an environment that's clearly very inflationary with the idea of deleveraging the country really. I mean there's a lot of ways you could do this. In fact Nixon when was faced with the same issue could have fixed the problem at that time in many ways. One of them was austerity reduce government spending and do you know and and take the hard the hard side of that of that alternative. what he ended up choosing was the inflation um alternative which was the easiest although hard also the easiest across all the options he had and that's probably what's going to be the case here inflating our way out of the debt is very likely to be the case so we as investors have to act accordingly we know this and so we should be trying to invest in things that as we inflate our way out of the system, you know, we can also profit or capitalize from those constraints in these macro imbalances that we're facing. I think from the investor angle, I want to go back to that idea of risk acceptance that you mentioned earlier. I had asked you back in March when it comes to the gold stocks, okay, what is the trigger for them to move higher and for investor interest there? And definitely we've seen I think you told me at the time it was they needed to they needed to make money. They needed to pro provide those good results and we've seen that happening. So to what extent now are you seeing people come into the gold stock sector and start moving down the food chain from the big miners to developers and explorers? Yeah. because it's very hard to see the money flow into the juniors when the seniors are just not making money and that needed to happen. And finally, we're seeing what I like to call the golden age of mining mostly because the margins of these companies are just outstanding. And you can see that in many ways especially looking at the gold to oil ratio, the silver to oil ratio and obviously looking at the median cost to produce gold today or silver is drastically uh lower than the actual price of those commodities or those metals. And that's probably I don't know if that's going to be the case for the long haul because I do think energy cost is way cheaper than has ever been relative to metals. And so if you're a producer, you definitely want to be making decisions to hedge energy costs if that's if that's a big issue for you as a minor. I think that's a very important um point to uh you know to hopefully miners will will take that strategy as a as an approach to secure some of those margins over the long long haul. We certainly done that with our own mine uh St. Crystal Ball which is the fourth largest silver mine in the world. We have instructed them to and they have done it basically hatch their energy cost for the three years out and I do think that that's you know eventually we all know what are so we were talking about political constraints let's talk about industrywide constraints one of the largest ones certainly is what we're what we have in terms of the depletion of reserves and no new discoveries coming online. If you think about how many development stores are going to be coming online to become producing assets, it's very small. And also if you look at the exploration budget across most of the major companies and how much they have found in terms of added ounces and it's it's also very small. So the replacement uh reserve is is is actually very low today across most of the majors especially. And as they start making money, it is obvious to me that they're going to start looking at their own uh their own potential pipelines in terms of revenues and seeing that in order to sustain those share prices, they're going to be forced into acquiring new exploration projects so they can show the market that they can keep this going. And so as we see that pressure from investors of which should start very soon that money will start flowing down into the high quality and actually the entire part of that industry. I'm sure higher quality names would be even higher in the list but really I think this is going to be probably one of those bull markets where the entire industry gets lifted. So yeah, it is getting very interesting because I've been participating in the potential acquisition of private mines that are producing assets um and they're becoming very very challenging to acquire right now um because of competition. Uh there's you know there wasn't this level of competition in the past. It was my view that eventually this would be driving the public markets and now we're seeing that. Now, I do think that the next step of that is that we're likely to see lots of miners in a in a smaller early stage side starting to receive most of the inflows. So, we're in that process where we saw the seniors, we saw the royalty companies performing, we saw gold performing. Now, the derivatives of that are going to start performing even better. And that's what really constructs a real bull market in the space. And so, we're yet to see that. That's that's how far we are from, you know, peak levels in this whole industry. Now, remember, this industry is very cyclical. Even within a long-term, you know, uh, bull cycle, we could see major declines, but I do think we're into what I I think it's at least two to three years out of major um, performance for this whole industry uh, going forward. So, it's really exciting. Um, and it's also exciting to see that we're probably in the phase of awareness across institutions starting to really ask questions, deploy capital, and um, you know, we're far from the hands of what I think this is going to get us to in terms of an industry. So, there is there is still time for people to position and potentially do do very well here. I do think that that's the case and um yeah and I'm very focused in the smaller companies and um you know I I think there's different ways to play this like we did see companies that have lower quality in terms of produ production profile in terms of cost and management that have started to attract more capital. So again, people are going up on the risk curve. Even the lower quality names that are producing today are starting to do very well and it's not to pick on them, but Beric is one of them that is receiving that capital. Certainly is not the best, you know, in my view run company in the space. Although it's seen as as, you know, a leading uh company in this industry. Um I I don't think that's the case. Um and so you know it's interesting that they're receiving more capital as well and there are others that are doing the same. Uh and so I would I would pay attention to that because that's you know they are also capital allocators and they're going to be under the same pressure to reduce shareholder friendly. remember a few years back when not too long ago all these miners had to do you know start really paying dividends and and doing buybacks you know in some cases we're looking at buybacks and dividends that we've never seen in the past in terms of the industry in terms of magnitude of that well that's going to transition into M&A that money is going to have to transition into M&A in my opinion because while I've seen in the past CEOs talk about we're not focused on volume watch. They're going to be focused on volume because their shareholders will and they are the ones that force management into those decisions and so I I do think that's coming and so um yeah it's exciting. So I I I don't think anybody is late to the party at all. I think there's plenty to be doing. Um, and uh, yeah, I mean, in fact, I'm I'm super excited about this whole industry. I think we're in the process of seeing climbing a wall of worry in some cases sometimes because we have a a move and, you know, 30% move from, you know, after being down for so many years and everyone's like, well, that's the peak. No, that's, you know, that's not how that works at all. And one of the hardest things as a value investor sometimes is not buying when it's cheap. It's holding it when it's still cheap. And because you get a movement, you're like, well, that's, you know, that's been pretty good. And you may see a 10% decline or a correction and things like that, but the asymmetry on the upside is much larger than the risk of a small correction. So, I don't know, that's the way I'm operating. I could be very wrong and you know but that's I try to work through looking back in history and seeing where we are in terms of valuation capital flows exploration budget depletion of of reserves capex trends and everything points to the M&A M&A amount of M&A that we're seeing everything points to the direction we're just getting started and so I'm happy to be involved in those industries as I do think it's going to be a very exciting few years ahead. That's very good to hear. And so we're seeing that trickle down from the majors down to the juniors in terms of the equities. We're also seeing, I think, interest shift over to silver, especially as the price has been on the move this year, nearly getting through that $40 level. I wanted to check in with you. I know you're bullish on silver and see what you think the next move there is because I know that everybody was excited to to see what's going on this year, but really that $50 level is kind of what people are focused on when it comes to silver. So, what is your outlook looking like? I think we'll see new highs in the next uh 12 months and I think we'll retest the highs in the next six months. So retesting meaning 50 in the next six and then breaking out to new highs in the next 12 months. I could be wrong on the timing, but it certainly seems like that that's a very intriguing timeline to follow because of the volume we're seeing of purchases on post days of declines. We're seeing clearly the outperformance of silver even when gold is falling and uh the reaction that even technical analysts that tend to push these movements from a momentum standpoint are beginning to see the probably greatest cup and handle we've seen in history that is still not you know have not ended. you know, we still need to see the other side of that handle uh really break out. And I do think from all technical formations, that is one of the most powerful ones that you tend to see. You know, the you know, if you think of how a cup and handle is formed, initiates with a large movement that is usually unprecedented, which happened in the 70s and then peaked in the 80s. And then you have this complete loss of faith and a peak of a bubble. And that goes on for a long time 20 30 year 20 years or so of which was the case until the late 90s. And after we saw that, that was the very bottom of that market. So, we went all the way up and created the beginning of another cycle, which was the early 2000s, until we retested the highs of of the prior bubble. And so, investors look at those two things and say, well, that looks like, you know, that same issue we had in the past. And so, the selling becomes more pronounced at those levels. And it's normal to see that type of pressure creating another long-term decline. The difference is that this decline wasn't although it was very difficult for those invested in in in this industry. I wasn't involved with the industry personally but I I you know clearly that decline really shaped the industry in a big way as well but it wasn't as deep and steep as we saw in the 80s. So that decline although marked, you know, in a huge way the history of silver, it was it was definitely, you know, much easier to stomach relative to the 80s. And so now, you know, we're seeing another movement to push again to that same level that we saw the peak of the bubble in prior times. The thing is there's so much energy behind this to see the price breaking out. You know, there's a a joke that we say in markets, there's no such thing as triple tops. And there we have it. You know, approaching a triple top. There's going to be maybe a moment where we hit that 50. And nobody knows if that's going to be the case, but there's a very high likelihood that we may hit the 50 and people will say, well, that might be it. We might hit a a peak here. I don't think that will be the case because cup and handles break out. And so, we may see a short-term movement. This is why I said 6 months to get a 50 12 months to go break it through it. But I do think regardless of the timing of how this whole thing will resolve, I think the resolution is we're going to see much higher prices. So if you're investing in the space and you have that view, you can apply that in markets. You know, look at the the the the you know, if you're running a mining company, you can see this. All right. Well, you know, there's there's a clear path that we may see a break of silver prices. What is my biggest risk here? One, that I'm wrong. You could always be wrong, but two, how do I secure my margin? Because that's the biggest thing. That's your biggest treasury. So, this is why I'm urging people in the space to say protect your margin because your biggest risk right now is energy. It's not the stock market, it's energy. And in some cases, investors may have issues with maybe labor cost and others. So, depends on the structure of your cost, but usually energy is about 30% of your of your cost, particularly coming from open pit projects. And so, yeah, that's the way I'm I'm envisioning this whole thing. And as an investor, if you are in that side of the market, then, you know, act act accordingly. you know, think about companies that will be in a great position if prices reach those levels and plan for that. You know, really try to plan for it. And yeah, that's the way I I invest. That's the way I do my things. And uh you know, if things change and plans change and there's a another pandemic or something along those lines come and we have a major change in in markets, sure, I'm allowed to change my views. But having a plan is important. And so that's how I'm trying to approach this as an investor. It makes sense. So have a plan. Of course, you can adjust if the circumstances change. Good to go into what's happening in silver. The other metal I wanted to bring up before I let you go is copper. And I'm sure that we've talked about copper before. It's another one that's been making headlines over the summer because of all the the tariff turmoil. So, we're waiting to see what the the tariffs would be in terms of copper. They came in, I think, less less sweeping than people expected. And I know Copper, the the long-term story is really positive when it comes to the supply demand dynamics. And I'm wondering if you can outline what you're seeing there and talk about if tariffs are important to the copper story or this is more of like a blip in the road here. Look, I don't think that that's not the real story that people should be focused on. And it will happen with silver. It will happen with gold. Copper is is not the only metal and asset that will face these types of movements. And this is where I like to apply a lesson that I've learned in my investing career that I often say to younger people younger than me. Um, and I what I say is is you can borrow my fees as much as you want. Whoa, look, Tabby is really bullish on silver and now I should just go there and buy silver. You're welcome to do that. And that's certainly what happens with a lot of investors, even professional investors sometimes fall in love with someone's fees. The issue with that is that you have not done your homework. And so that doesn't matter when prices are going up. But when you're facing a 15 20% decline or 30 maybe 50% decline, there's going to be two types of investors in that scenario. the one that has done their homework and has high conviction in the thesis that will take advantage of that and will be able to dollar cost average at a much lower average cost while the other investor will probably be in a position where will either be messaging me asking what's going on what what happened with your thesis I said I thought you said it's going to go higher look I still think it's going to go higher but we just have volatility. Short-term volatility is part of the market. I think Warren Buffett often says that if you're not prepared to lose over 50 to 70% of your money on an investment, you shouldn't be investing or Peter Lynch often talks about it as well that you don't have to have a lot of brain power to invest in stocks or invest in general. What you need to have is stomach. It's a different story. And so it's exactly right. And so I you can borrow my thesis as much as you want, but you will never borrow my conviction. And the conviction is what really makes that difference. So applying that here in your question about copper, I would just say that what a great opportunity. You know, I'm I'm very bullish copper. I I think copper is certainly one of the most critical truly critical metals we have. And um Elon Musk often says that we have enough copper in the world and he's not wrong but we have a lot of copper underground not above ground. So this is still structurally extremely bullish for copper and I like to say that in this AI world and often people say things about that in link with copper prices but think about another thing as well that is happening is onshoring. Onshoring will have a major impact on electricity consumption and as we see that need for revamping our infrastructure when it comes to grids and all sorts of things, copper is going to play a major role into that. So yeah, I'm extremely bullish copper. I think there's even a way to branch out even further and say zinc prices also look very attractive. Um but for those that are not much, you know, don't have a lot of I guess um either knowledge or spend a lot of time and conviction on that side of the market, uh maybe you should do some work on it as well because they're usually highly linked. And so yeah, it is a you know what a what a time to be investing at a 15 20% you know discount. So I you know I'm not worried about it. I I do think one to three years from now we're going to be looking back and say what a what a great opportunity that we missed. I think that's a good way of putting it and a lot of good nuggets and of advice in there that you you just laid out. So I I will let you go but uh before I do just any further points that you are watching right now that investors might be missing final thoughts that you would leave people with. Hm. Yeah, I know. I'm in the process of writing a letter right now that it will basically lay out some of this history things that I mentioned, but that's why it's fresh in my mind. But also a world that we're probably entering that I think it's important to point out that has a lot to do with, you know, spenders versus earners. This AI revolution is a real arms race different than the internet, different in the world, rail worlds and all their developments and technological shifts we had in society. I think this is a real arms race of who gets there first across countries which will force construction to a degree that we haven't seen in a very long time. Like today it's about 7% of GDP. We're probably going to see double digits very easily. and you start looking at the balance sheets of the spenders because somebody's going to have to spend that money. Who are going to be the spenders and mag seven magnificent 7 stocks and the large cap technology companies certainly are going to be those and you look at their balance sheets they can leverage that to a degree that we have not seen in a very long time. They barely have debt in their balance sheet. So you start thinking five to 10 years from now that maybe the max 7 are going to have substantially worse um balance sheets that capital is going to you know obviously deteriorate their financial um stability uh and health but also so you can talk about the impact of that on the spenders but you should also consider the fact that those spenders are going to be spending somewhere and there's going to the earners and the earners is where I'm really focused because I would break it down into three sections very quickly. the energy sector, nomad gas, solar, um you can talk about coal industry, nuclear is not going to solve a near-term. Maybe long term, not maybe, it will probably solve long term. And then you have infrastructure is the second pillar, engineering firms, construction and all those things. And then number three, you have the raw materials, mining and so forth. And so I am trying to fit my views into those three categories because I think that's going to be where a lot of capital from the spenders is going to flow into. So yeah, that's what I would leave investors or your audience to think about and I'll write a letter and then probably in a week or two we'll have that out with my own thoughts on this. Okay. Well, that will be something then to look out for. Thank you for for the advanced sharing on those ideas. It was really great to have you as always. Thank you so much. Thanks for having me and look forward to uh other conversations. Yes, me as well. For now, I'm Charlotte Mloud with investingnews.com and this is Tapy Costa with Kreskit Capital. 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]
Tavi Costa: Gold's Next Catalyst, Silver's Path to US$50, Copper Opportunity
Summary
Transcript
[Music] I'm Charlotte Mloud with investingnews.com and here today with me is Tabby Costa, macro strategist at Crescuit Capital. Thank you so much for being here. Great to have you as always. Thanks for having me again and looking forward to this conversation. Really good to be catching up. I think our last conversation was all the way back in March at PDAC. So, a lot has happened since then. Of course, we've had the gold price move higher since then, but for the last few months, it's really been kind of consolidating. So, I wanted to begin there, ask for your take on gold's price activity. Is this consolidation phase that we're seeing right now is something that we needed to have after the big move? How are you looking at it? Yeah, I do. I I think that would be a normal behavior of the metal. We've had, you know, gold really leading the pack of precious metals and hard assets for some time now here, especially in the commodities space. And I think investors that understand the commodities um uh you know sector very well will appreciate the fact that that there is a rotational dynamic that usually happens where a commodity will take the lead versus uh another uh at certain times. And I'm not here to claim that gold is necessarily a commodity. I do view it as as a currency, but it acts as a commodity in that in that in that case. And I think I think gold has been signaling that for some time now that we've seen finally the beginning of a long-term cycle in this whole industry and we're now what seems to be the beginning of other uh metals and other derivatives of the gold related uh trade or investment uh starting to outperform gold itself. You know, if you look at the gold price all the way back to just April 21st when right after the whole situation with tariffs and so forth, the liberation days which happened in the 7th, but uh gold really peaked in the twin 21st. Um we've seen gold basically go sideways and at the same time we saw the TSX venture which marks a lot of the especially if you look into the the subgroup of of of uh of precious metals that whole space was up about 30 plus% during the same time that gold was basically flat. So you know certainly uh there has been an exercise that I call of um the acceptance of risk occurring across investors that are looking for the next thing after gold. That doesn't mean gold is going to go away as a trade. But it means that investors are so comfortable with the gold idea that they're starting to go down uh or go up on the risk curve and go down on the liquidity curve uh in order to hopefully capture more returns. And I do think that's going to be the case. And so, um, you know, I'm paying attention to that cuz silver has also, um, outperformed gold since, you know, silver's up double digits since gold has been basically flat and down, in fact, since April 21st. So, all these things are really interesting, and I think that's the beginning of other metals catching up uh, to gold prices uh, finally. nice overview of where we're at with gold right now and I'll follow you down many of those different directions as we move along. But a little bit more on the gold price right now just before we do that. I think a lot of people are are looking at the move and they're seeing that sideways direction that we've been having as you mentioned for the past few months here and wondering okay when it comes to the gold price what is the the next trigger for it to move higher. So what are you looking at there? Um, if I would point out to something, I think we're going to see some volatility given the fact there's a short-term and a no long-term teases here. Short-term, I would say that inflation data has been reacelerating and we looked at the probability of the Fed cutting rates today at about still today as as of now is about 83 84%. I think that's too high and I think I can see the Fed taking a either political or inflationbased view that we should not be lowering rates and we should actually be keeping rates where they are and that will not be necessarily positive for um hard assets in the near term. But if you take a longer term view of which I think is what you asking me um then clearly Trump is in his process to get majority of the governors and of the fed as as supporters of his agenda and he's got no option but to lower rates despite where inflation is and so I think that is where will likely catalyst the next movement. So, I' I've been saying and I do think that the 2-year yield is going to fall substantially from where it is. And along with that, long rates or short rates being diminished substantially will also likely be aligned with a very significant drop in the US dollar. I think we've had a big decline of the US dollar year to date was one of the largest in history. And a lot of investors that see that, especially more technical investors and um future traders, tend to look at the positioning and say, so it's been sort of a very large decline. It's unlikely that we'll see more of this. And this is one of those times that actually I think that that move should not be faded. I think we're going to see a beginning of a long-term decline in the US dollar versus other currencies, uh i.e. The DXY index to be very specific in my view is on the verge of a major collapse from a resistance or um or I should say a support line that goes back all the way to the global financial crisis. If we break that of which I think we will um it will in my view really uh unleash uh what it could be the beginning of a long-term decline for the dollar that will unleash a movement in the gold price most likely but also um other things that have been sort of waiting to see the you know how this is going to be um working out and you know investors you can act ahead of that or you can wait to see the confirmation. You know, the real money is made prior to the move, not after. And so I am given my views that I think that it's inevitable uh that the dollar will decline versus other currencies. Uh and I can expand on that as well. I do think that the emerging markets would be a huge winner of that of that whole movement as well. That is another derivative of the gold trade that is starting to capture inflows but is not yet to the degree that we saw in other times. Similar to the junior markets in in the mining industry as well. It's starting to see some inflows but it hasn't been right that whole flood of inflows that we tend to see in real bull markets. But I do think we're going to get there and the dollar kind of holds the key for that, you know, capital to start flowing into this industry in a large way. Definitely. I I would ask you to expand there. So, what's coming for the dollar? You said it unleashes gold. It unleashes emerging markets. Anything else on there that you are looking at that would be unleashed in that scenario for the dollar? It's important to understand maybe why it's likely to be uh the case that the dollar could be entering a multi-year decline. And it has most to do with the fact that we're facing two real deficits. Not just the fiscal side, but also the trade balance. The trade balance alone is one of the worst deficits we've seen if you go back over a century that maybe since um 1800s. Yes, we did briefly see that back in the global financial crisis, but the reason for it was because GDP was falling. Today, that's not the case. GDP continues to rise, but the imports are larger than exports. And you know this is different because 1800s would we were sort of an emerging economy receiving a lot of inflows from all over the world and also um capturing a lot of imports and we were running at a 47% of GDP deficit on the trade balance alone. So if you compare with the 1940s and 1970s and so forth, it you know the situation we're facing today is far worse because it's not just the deficit on the fiscal side or the debt problem itself but really is also the trade balance and you have to think of this as a as a as a as a company of which generates revenue. So a country has really two forms of generating revenues essentially. One of them is collecting taxes more than what they spend of which we all know that we have a spending problem as well which is causing us to not collect enough taxes. So we have a deficit on that front. The second side of it is how much you export versus you import and that's where you get part of your revenues in a huge way. We're also running a very steep deficit on that front. So looking at both in aggregate, we're running at about 12% of GDP on what we call the twin deficit. When you're running a twin deficit of this degree, you don't fix that with a strong dollar. And it happens to be the case that the dollar is also at one of its most expensive levels in history relative to other fiat currencies. And so if you see that those two things align have to be one of the things have to be escape valve and I believe that that the dollar would be that and so we're probably going to see policies that will try to really enforce that the dollar needs to devalue versus other currencies. And you can pay attention to things like Scott Basson you know commenting on the Japanese economy saying that they're behind the curve on inflation. I mean really behind the curve on inflation. So they have to raise rates. Why do you think they're saying that? It's because if they raise rates, it would support the Japanese yen versus the dollar. The administration definitely wants that to occur. So it makes the US exports a lot more affordable elsewhere and it fixes the de one side of that deficit issue I was referring to. And when we realign that with also the need for lowering rates because remember while we try to politicize the situation the Fed really and and and Trump are both right. The Fed is right by saying inflation is is seeing a reacelerating factor here certainly happening. And the Trump administration is also right by saying we can't afford these rising this large interest rates relative to how much we're paying in the debt burden that was is really hurting us from a fiscal standpoint. And so at the end of the day, we're probably going to see major declines in interest rates and the dollar. And it's hard to believe that those two factors are not going to drive things like emerging markets to a whole new level in terms of appreciation of share prices and other um emerging marketbased assets that have for a long time been completely neglected. And you can even dive in and say while South America clearly is seeing a lot of political shifts at the same time as this all happens. first was, you know, arguably and I would say Latin America arguably started with Argentina and El Salvador. Now we're seeing Bolivia. Chile is going to his own its own um elections. Brazil, everybody's looking at Lula, not seeing that there's elections in a year from now and Lula could easily be out. And I do think that would be the case. I have an opinion on that, too. And so the whole Latin America region could change drastically on top of what the macro setting could be. So you start playing with probabilities, valuations are not in line with that at all. So yeah, I do think there's a a real big fat pitch to be made as Duck Miller likes to say in emerging markets today. Can definitely see what you mean there. And I want to hone in a little bit more on interest rates in the US. So you mentioned they're coming down. Maybe we don't get that September cut like is so widely expected at the moment. So interested to hear a little bit more about that. And you've talked in the past about how we're entering this new inflationary age as well. So curious about the implications of that moving forward here. Well, it is. I think the confrontation between the Fed and Trump has also been seen as unique and unprecedented, but we have seen that in the past. 1965 is a great example. And maybe LBJ was a good lesson to what happened, what's happening with Trump. President Johnson was basically dealing with the problem where the Federal Reserve of the time believe his name was the Fed chair was Martin his last name he raised or the committee raised rates from four% to 4 and a.5% at that time and he was so angry at that situation which sounds so familiar to now that he went all the way to his ranch in Texas uh meaning the president President Johnson went all the way to uh the Fed chairs range in Texas to complain about that movement and that policy shift. The policy shift remained. He was not able to reverse that and that was a huge problem. President Johnson was well known for very similar to Trump trying to change uh people's views on things and and just enforcing his own views on an agenda on on whatever their roles are. And and it's not political views at all in this by the way. It's just I'm just sharing anecdotes and history so we can maybe try to understand and that pressure under the Fed chair. Yes. allow him to keep rates where it was was or actually where he wanted it to be. However, it also pressure him not to dare raise rates again. And if you recall 1965 and that time the if you read the reports from that period there were a lot of concerns because of the Vietnam war and the amount of deficits we're spending at that time of which pales to look what you know what we're facing today back then of 2% of GDP when today you know we're facing 7% of GDP so how many multiples is that and so what is interesting Interesting about all this is that that concern allow inflation to compete, you know, run freely given the fact that the Fed chair was somewhat um although independent uh having issues to really enforce what he thought was appropriate. And so eventually inflation ran in the system and as we all know and I think Americans have lost this view about inflation but coming from I was born and raised in Brazil and understand inflation perhaps a little bit better than people that were born here in the last few decades and I I think that inflation is really not just a monetary phenomena but it is very reflexive and the longer stays embedded in a in a economy, it it it becomes harder to remove it later at later stages. And I think that really set the stage as well for the 1970s inflationary problem where we we allowed inflation to run more freely than we wanted. And that's really what caused the whole issue. Now, of course, we're facing a way worse problem today. We have a much more overvalued US dollar. We have interest rates that are absurdly high relative to where the debt problem is. And we have deficits that are multiples of the deficit issue we had at that time in both sides, trade and fiscal. And so I do think that's eventually going to drive, you know, a major decline in both things in terms of the dollar and rates. And right now what we're seeing with the Fed chair, it is likely that same, you know, I'm not saying he's going to raise rates here, but I do think he's not going to, you know, there's there's a case to be contrarian. Let's put it that way. He could lower rates and it's in line with markets. Great. Markets is expecting that are expecting that anyways. So, you know, there's not much money to be made, I guess, is what I'm saying, on something that is highly expected. Whereas there's money usually to be made is betting on ideas that are contrarian and not and not appreciated by the market as a possibility of unfolding and at the same time um are cheap and potentially could really change the landscape in the near term that people are not expecting. And so I think that that's one of them. So there's justifications behind taking a contrarian view. It's never the you know being a contrarian for the sake of being one, but rather when there's enough reasons to take that other side of it. And I think there are enough reasons. We saw ISM manufacturing starting to um show you know numbers on prices paid and so forth and especially in service areas which have nothing to do with tariffs starting to reacelerate. We saw the commodities equal weighted index is starting to go higher. It's up double digits in the last 12 months. You can also um look at the money supply uh factor of which we've just reached new highs recently and more importantly financial conditions which continue to fall substantially recently as well despite you know even before the Fed even deciding to lower rates. So we're seeing this big movement on all these these parts and then you can say that the dollar it also adds to the inflation problem too. So, sorry to go long with my answers, but I do think that this is all linked to this thesis that maybe there is a case to be made that the JPAL may not and his committee may not lower rates as the market expects. And um I'm okay taking that side of that trade given the fact that it's so unexpected. Um and again if I'm wrong then there's not much to lose here because market is highly is expecting already the other side of this of my view. So um I like those you know sort of um setups on the macro uh side that offers you that type of asymmetry. I appreciate the detailed explanation because it really is a perspective that I I haven't heard from the people I've been speaking with lately. So good to go into that. And I want to raise another point. So we've got all these issues that are playing out and there's been increasing talk about this goal revaluation idea. So I wanted to get your thoughts on that and ask is this something that could realistically happen and what do you see as the implications there? Yeah. And I love using history for these answers because I think what we're living through now although has its own uniquenesses and you can take first principle methods to analyze markets or you can lose look at historical analoges to help you understand potential trends that could you know play out again today. And I think you as an investor you want to do a little bit of both. So I will try to offer some thoughts on that front. Look given the fact that we have this trade balance issue that is so you know deeply um in terms of the profound implica implications we have with the trade deficit that we haven't seen since the 1800s. really what I think this is important is because in the 1970s Nixon was facing something not as severe but maybe could be a some some level of similarity and I'll explain how he basically you know closed the um well you know removed that tagged with gold with the US dollar which was something that I think a lot of people were caught by surprise. initially and after that what he did was he put tariffs on certain countries that had large surpluses with the US economy and that basically caused these countries including Japan and Germany to allow their currencies to appreciate versus the US dollar. And that was precisely what he wanted to do Nixon uh to fix the trade deficit. In fact, he called it at that time multiple times that we had a balance of payments issue. So we're facing something somewhat similar in the sense that we may see at that time that was a revaluation of gold basically right when we we closed that gold window where the dollar was fully backed by gold. Um and and you know that arguably was a way to revalue gold substantially in terms of the price in the market, not the price in the uh treasury uh balance sheet. But today I feel like we're seeing something some similarities are important to point out. Of course, the imbalances are much worse, but maybe this whole hidden agenda of devaluing the dollar versus other fiat currencies is certainly happening today. As we see that occurring, there is also the need for the Treasury to raise cash from very, you know, different and I should say unique but also um, you know, smart ways, intelligent ways to raise cash for the treasury. One way to do that would be through the revaluation of gold. And it's interesting that the Federal Reserve even had a paper uh in their website regarding that and that was an interesting paper because it basically provided all the accounting mechanisms that would take place to allow that to occur. And the bottom line of that paper was that that doesn't fix the fiscal issue. It's really a short-term relief. And yes, that's absolutely right. And I don't think we'll fix the problem. I just want to be very clear. I do not think that that will fix any issues, but we're in cert in in such a a difficult situation right now that it's hard to believe they're not going to take those extreme um you know types of policies to try to have some sort of short-term relief. And so the longer it takes for the JPAL to lower rates or I shouldn't say JPL but the Fed and the longer it takes that we're spending money to pay down debt in a significant way increasing our fiscal deficit uh drastically. I think that there's also it's increasing the need for us to also raise rate uh raise uh capital from other forms. So the revaluation of gold is becoming probably one of the top priorities. Although they don't say that and in fact they say the opposite of that. I do think that it's it gives even more conviction that that's actually more likely to happen. So how would that happen? You know would it basically an increase of the value of gold would cause a collateral price or a collateral value of the balance sheet to increase. also allowing the government to have more cash in its TGA account or its uh you know cash account that uses for day-to-day operations including buybacks of treasuries. And so where would that come from? most likely come from a revaluation of gold of which could raise substantial amount of capital to allow the treasury to buy back its own treasuries which is you know we can call it different than QE and all sorts of things but these are all types of you know ways that governments and policy makers the Fed the Treasury are going to be using in order to reduce or suppress interest rates and in an environment that's clearly very inflationary with the idea of deleveraging the country really. I mean there's a lot of ways you could do this. In fact Nixon when was faced with the same issue could have fixed the problem at that time in many ways. One of them was austerity reduce government spending and do you know and and take the hard the hard side of that of that alternative. what he ended up choosing was the inflation um alternative which was the easiest although hard also the easiest across all the options he had and that's probably what's going to be the case here inflating our way out of the debt is very likely to be the case so we as investors have to act accordingly we know this and so we should be trying to invest in things that as we inflate our way out of the system, you know, we can also profit or capitalize from those constraints in these macro imbalances that we're facing. I think from the investor angle, I want to go back to that idea of risk acceptance that you mentioned earlier. I had asked you back in March when it comes to the gold stocks, okay, what is the trigger for them to move higher and for investor interest there? And definitely we've seen I think you told me at the time it was they needed to they needed to make money. They needed to pro provide those good results and we've seen that happening. So to what extent now are you seeing people come into the gold stock sector and start moving down the food chain from the big miners to developers and explorers? Yeah. because it's very hard to see the money flow into the juniors when the seniors are just not making money and that needed to happen. And finally, we're seeing what I like to call the golden age of mining mostly because the margins of these companies are just outstanding. And you can see that in many ways especially looking at the gold to oil ratio, the silver to oil ratio and obviously looking at the median cost to produce gold today or silver is drastically uh lower than the actual price of those commodities or those metals. And that's probably I don't know if that's going to be the case for the long haul because I do think energy cost is way cheaper than has ever been relative to metals. And so if you're a producer, you definitely want to be making decisions to hedge energy costs if that's if that's a big issue for you as a minor. I think that's a very important um point to uh you know to hopefully miners will will take that strategy as a as an approach to secure some of those margins over the long long haul. We certainly done that with our own mine uh St. Crystal Ball which is the fourth largest silver mine in the world. We have instructed them to and they have done it basically hatch their energy cost for the three years out and I do think that that's you know eventually we all know what are so we were talking about political constraints let's talk about industrywide constraints one of the largest ones certainly is what we're what we have in terms of the depletion of reserves and no new discoveries coming online. If you think about how many development stores are going to be coming online to become producing assets, it's very small. And also if you look at the exploration budget across most of the major companies and how much they have found in terms of added ounces and it's it's also very small. So the replacement uh reserve is is is actually very low today across most of the majors especially. And as they start making money, it is obvious to me that they're going to start looking at their own uh their own potential pipelines in terms of revenues and seeing that in order to sustain those share prices, they're going to be forced into acquiring new exploration projects so they can show the market that they can keep this going. And so as we see that pressure from investors of which should start very soon that money will start flowing down into the high quality and actually the entire part of that industry. I'm sure higher quality names would be even higher in the list but really I think this is going to be probably one of those bull markets where the entire industry gets lifted. So yeah, it is getting very interesting because I've been participating in the potential acquisition of private mines that are producing assets um and they're becoming very very challenging to acquire right now um because of competition. Uh there's you know there wasn't this level of competition in the past. It was my view that eventually this would be driving the public markets and now we're seeing that. Now, I do think that the next step of that is that we're likely to see lots of miners in a in a smaller early stage side starting to receive most of the inflows. So, we're in that process where we saw the seniors, we saw the royalty companies performing, we saw gold performing. Now, the derivatives of that are going to start performing even better. And that's what really constructs a real bull market in the space. And so, we're yet to see that. That's that's how far we are from, you know, peak levels in this whole industry. Now, remember, this industry is very cyclical. Even within a long-term, you know, uh, bull cycle, we could see major declines, but I do think we're into what I I think it's at least two to three years out of major um, performance for this whole industry uh, going forward. So, it's really exciting. Um, and it's also exciting to see that we're probably in the phase of awareness across institutions starting to really ask questions, deploy capital, and um, you know, we're far from the hands of what I think this is going to get us to in terms of an industry. So, there is there is still time for people to position and potentially do do very well here. I do think that that's the case and um yeah and I'm very focused in the smaller companies and um you know I I think there's different ways to play this like we did see companies that have lower quality in terms of produ production profile in terms of cost and management that have started to attract more capital. So again, people are going up on the risk curve. Even the lower quality names that are producing today are starting to do very well and it's not to pick on them, but Beric is one of them that is receiving that capital. Certainly is not the best, you know, in my view run company in the space. Although it's seen as as, you know, a leading uh company in this industry. Um I I don't think that's the case. Um and so you know it's interesting that they're receiving more capital as well and there are others that are doing the same. Uh and so I would I would pay attention to that because that's you know they are also capital allocators and they're going to be under the same pressure to reduce shareholder friendly. remember a few years back when not too long ago all these miners had to do you know start really paying dividends and and doing buybacks you know in some cases we're looking at buybacks and dividends that we've never seen in the past in terms of the industry in terms of magnitude of that well that's going to transition into M&A that money is going to have to transition into M&A in my opinion because while I've seen in the past CEOs talk about we're not focused on volume watch. They're going to be focused on volume because their shareholders will and they are the ones that force management into those decisions and so I I do think that's coming and so um yeah it's exciting. So I I I don't think anybody is late to the party at all. I think there's plenty to be doing. Um, and uh, yeah, I mean, in fact, I'm I'm super excited about this whole industry. I think we're in the process of seeing climbing a wall of worry in some cases sometimes because we have a a move and, you know, 30% move from, you know, after being down for so many years and everyone's like, well, that's the peak. No, that's, you know, that's not how that works at all. And one of the hardest things as a value investor sometimes is not buying when it's cheap. It's holding it when it's still cheap. And because you get a movement, you're like, well, that's, you know, that's been pretty good. And you may see a 10% decline or a correction and things like that, but the asymmetry on the upside is much larger than the risk of a small correction. So, I don't know, that's the way I'm operating. I could be very wrong and you know but that's I try to work through looking back in history and seeing where we are in terms of valuation capital flows exploration budget depletion of of reserves capex trends and everything points to the M&A M&A amount of M&A that we're seeing everything points to the direction we're just getting started and so I'm happy to be involved in those industries as I do think it's going to be a very exciting few years ahead. That's very good to hear. And so we're seeing that trickle down from the majors down to the juniors in terms of the equities. We're also seeing, I think, interest shift over to silver, especially as the price has been on the move this year, nearly getting through that $40 level. I wanted to check in with you. I know you're bullish on silver and see what you think the next move there is because I know that everybody was excited to to see what's going on this year, but really that $50 level is kind of what people are focused on when it comes to silver. So, what is your outlook looking like? I think we'll see new highs in the next uh 12 months and I think we'll retest the highs in the next six months. So retesting meaning 50 in the next six and then breaking out to new highs in the next 12 months. I could be wrong on the timing, but it certainly seems like that that's a very intriguing timeline to follow because of the volume we're seeing of purchases on post days of declines. We're seeing clearly the outperformance of silver even when gold is falling and uh the reaction that even technical analysts that tend to push these movements from a momentum standpoint are beginning to see the probably greatest cup and handle we've seen in history that is still not you know have not ended. you know, we still need to see the other side of that handle uh really break out. And I do think from all technical formations, that is one of the most powerful ones that you tend to see. You know, the you know, if you think of how a cup and handle is formed, initiates with a large movement that is usually unprecedented, which happened in the 70s and then peaked in the 80s. And then you have this complete loss of faith and a peak of a bubble. And that goes on for a long time 20 30 year 20 years or so of which was the case until the late 90s. And after we saw that, that was the very bottom of that market. So, we went all the way up and created the beginning of another cycle, which was the early 2000s, until we retested the highs of of the prior bubble. And so, investors look at those two things and say, well, that looks like, you know, that same issue we had in the past. And so, the selling becomes more pronounced at those levels. And it's normal to see that type of pressure creating another long-term decline. The difference is that this decline wasn't although it was very difficult for those invested in in in this industry. I wasn't involved with the industry personally but I I you know clearly that decline really shaped the industry in a big way as well but it wasn't as deep and steep as we saw in the 80s. So that decline although marked, you know, in a huge way the history of silver, it was it was definitely, you know, much easier to stomach relative to the 80s. And so now, you know, we're seeing another movement to push again to that same level that we saw the peak of the bubble in prior times. The thing is there's so much energy behind this to see the price breaking out. You know, there's a a joke that we say in markets, there's no such thing as triple tops. And there we have it. You know, approaching a triple top. There's going to be maybe a moment where we hit that 50. And nobody knows if that's going to be the case, but there's a very high likelihood that we may hit the 50 and people will say, well, that might be it. We might hit a a peak here. I don't think that will be the case because cup and handles break out. And so, we may see a short-term movement. This is why I said 6 months to get a 50 12 months to go break it through it. But I do think regardless of the timing of how this whole thing will resolve, I think the resolution is we're going to see much higher prices. So if you're investing in the space and you have that view, you can apply that in markets. You know, look at the the the the you know, if you're running a mining company, you can see this. All right. Well, you know, there's there's a clear path that we may see a break of silver prices. What is my biggest risk here? One, that I'm wrong. You could always be wrong, but two, how do I secure my margin? Because that's the biggest thing. That's your biggest treasury. So, this is why I'm urging people in the space to say protect your margin because your biggest risk right now is energy. It's not the stock market, it's energy. And in some cases, investors may have issues with maybe labor cost and others. So, depends on the structure of your cost, but usually energy is about 30% of your of your cost, particularly coming from open pit projects. And so, yeah, that's the way I'm I'm envisioning this whole thing. And as an investor, if you are in that side of the market, then, you know, act act accordingly. you know, think about companies that will be in a great position if prices reach those levels and plan for that. You know, really try to plan for it. And yeah, that's the way I I invest. That's the way I do my things. And uh you know, if things change and plans change and there's a another pandemic or something along those lines come and we have a major change in in markets, sure, I'm allowed to change my views. But having a plan is important. And so that's how I'm trying to approach this as an investor. It makes sense. So have a plan. Of course, you can adjust if the circumstances change. Good to go into what's happening in silver. The other metal I wanted to bring up before I let you go is copper. And I'm sure that we've talked about copper before. It's another one that's been making headlines over the summer because of all the the tariff turmoil. So, we're waiting to see what the the tariffs would be in terms of copper. They came in, I think, less less sweeping than people expected. And I know Copper, the the long-term story is really positive when it comes to the supply demand dynamics. And I'm wondering if you can outline what you're seeing there and talk about if tariffs are important to the copper story or this is more of like a blip in the road here. Look, I don't think that that's not the real story that people should be focused on. And it will happen with silver. It will happen with gold. Copper is is not the only metal and asset that will face these types of movements. And this is where I like to apply a lesson that I've learned in my investing career that I often say to younger people younger than me. Um, and I what I say is is you can borrow my fees as much as you want. Whoa, look, Tabby is really bullish on silver and now I should just go there and buy silver. You're welcome to do that. And that's certainly what happens with a lot of investors, even professional investors sometimes fall in love with someone's fees. The issue with that is that you have not done your homework. And so that doesn't matter when prices are going up. But when you're facing a 15 20% decline or 30 maybe 50% decline, there's going to be two types of investors in that scenario. the one that has done their homework and has high conviction in the thesis that will take advantage of that and will be able to dollar cost average at a much lower average cost while the other investor will probably be in a position where will either be messaging me asking what's going on what what happened with your thesis I said I thought you said it's going to go higher look I still think it's going to go higher but we just have volatility. Short-term volatility is part of the market. I think Warren Buffett often says that if you're not prepared to lose over 50 to 70% of your money on an investment, you shouldn't be investing or Peter Lynch often talks about it as well that you don't have to have a lot of brain power to invest in stocks or invest in general. What you need to have is stomach. It's a different story. And so it's exactly right. And so I you can borrow my thesis as much as you want, but you will never borrow my conviction. And the conviction is what really makes that difference. So applying that here in your question about copper, I would just say that what a great opportunity. You know, I'm I'm very bullish copper. I I think copper is certainly one of the most critical truly critical metals we have. And um Elon Musk often says that we have enough copper in the world and he's not wrong but we have a lot of copper underground not above ground. So this is still structurally extremely bullish for copper and I like to say that in this AI world and often people say things about that in link with copper prices but think about another thing as well that is happening is onshoring. Onshoring will have a major impact on electricity consumption and as we see that need for revamping our infrastructure when it comes to grids and all sorts of things, copper is going to play a major role into that. So yeah, I'm extremely bullish copper. I think there's even a way to branch out even further and say zinc prices also look very attractive. Um but for those that are not much, you know, don't have a lot of I guess um either knowledge or spend a lot of time and conviction on that side of the market, uh maybe you should do some work on it as well because they're usually highly linked. And so yeah, it is a you know what a what a time to be investing at a 15 20% you know discount. So I you know I'm not worried about it. I I do think one to three years from now we're going to be looking back and say what a what a great opportunity that we missed. I think that's a good way of putting it and a lot of good nuggets and of advice in there that you you just laid out. So I I will let you go but uh before I do just any further points that you are watching right now that investors might be missing final thoughts that you would leave people with. Hm. Yeah, I know. I'm in the process of writing a letter right now that it will basically lay out some of this history things that I mentioned, but that's why it's fresh in my mind. But also a world that we're probably entering that I think it's important to point out that has a lot to do with, you know, spenders versus earners. This AI revolution is a real arms race different than the internet, different in the world, rail worlds and all their developments and technological shifts we had in society. I think this is a real arms race of who gets there first across countries which will force construction to a degree that we haven't seen in a very long time. Like today it's about 7% of GDP. We're probably going to see double digits very easily. and you start looking at the balance sheets of the spenders because somebody's going to have to spend that money. Who are going to be the spenders and mag seven magnificent 7 stocks and the large cap technology companies certainly are going to be those and you look at their balance sheets they can leverage that to a degree that we have not seen in a very long time. They barely have debt in their balance sheet. So you start thinking five to 10 years from now that maybe the max 7 are going to have substantially worse um balance sheets that capital is going to you know obviously deteriorate their financial um stability uh and health but also so you can talk about the impact of that on the spenders but you should also consider the fact that those spenders are going to be spending somewhere and there's going to the earners and the earners is where I'm really focused because I would break it down into three sections very quickly. the energy sector, nomad gas, solar, um you can talk about coal industry, nuclear is not going to solve a near-term. Maybe long term, not maybe, it will probably solve long term. And then you have infrastructure is the second pillar, engineering firms, construction and all those things. And then number three, you have the raw materials, mining and so forth. And so I am trying to fit my views into those three categories because I think that's going to be where a lot of capital from the spenders is going to flow into. So yeah, that's what I would leave investors or your audience to think about and I'll write a letter and then probably in a week or two we'll have that out with my own thoughts on this. Okay. Well, that will be something then to look out for. Thank you for for the advanced sharing on those ideas. It was really great to have you as always. Thank you so much. Thanks for having me and look forward to uh other conversations. Yes, me as well. For now, I'm Charlotte Mloud with investingnews.com and this is Tapy Costa with Kreskit Capital. 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]