Thursday, May 8, 2014

Heads I Win, Tails I Win, Gold Going Higher

"My gut feeling is that we will get through this in the same fashion we got through it in the 1970s. The shocks we take will be severe but survivable. If you look out at the landscape and ask, ‘What happened to the system in 2008?’ -- well, what happened to the system in 2008 was, of course the mortgage bubble bursting.

You had an asset bubble come apart and it provided its own form of a stress test on the largest financial institutions in the world. Are there other overvalued assets all over bank balance sheets? Yes, of course. Sovereign debt, student loans, municipal finance, junk corporates, etc.

And if you look at things that way, you think that the situation is absolutely hopeless. But if you look at the narrative for the next 5 years or 10 years, it’s almost definitely ‘heads I win, tails I win’ as an investor in high-quality natural resource stocks.

If we go into a period of hyperinflation -- in other words if we go into global default via the depreciation of the purchasing power because we can’t possibly fund our obligations -- then the nominal value of resources like gold and silver will go up very much as they went up in the 1970s.

If, by contrast, quantitative easing, also known as counterfeiting, works and the world goes back into a boom, then natural resources do well because demand recovers and supply is still constrained because of two or three decades of underinvesting. Right now I feel like I’m sitting in a situation where I flip the coin and as I said it’s ‘heads I win, tails I win.’ That’s a wonderful place for natural resource investors around the world."

- Rick Rule of Sprott Asset Management via a recent King World news Interview