Gold, Crypto and Surging Demand for Metals: Part 2 With Rick Rule

By Eric Fry

Market Trends

Last week, I shared with you part of my recent conversation with Rick Rule, CEO and president of Sprott U.S. Holdings. I’m sure you enjoyed Rick’s insights as much as I did.

One thing that probably caught your attention was how the first part of our conversation ended with Rick saying he saw a “multiplicity of reasons” precious metals would head higher in 2018.

His reasons were solid, but it occurred to me that there was something critical he was ignoring – specifically an asset class that made a historic splash in 2017.

You’ll see what I’m getting at in my question that starts the second part of our conversation…

Eric Fry: What about bitcoin, Rick? We don’t need gold and silver – at least that’s what the bitcoin crowd seems to believe.

Rick Rule: Well, I think that bitcoin has a place. I’m not sure what that place is. I am a little old. I personally prefer a medium of exchange that’s simultaneously a store of value.

And while I certainly understand the value of the distributed ledger and the potential for very low-cost transactions, my understanding is the energy cost associated with documenting the transactions on bitcoin may take away that part of the advantage.

Now, it’s interesting that you gave me this lead because my parent company, Sprott Inc., has spent 18 months and almost $5 million on a technology that has created a gold-redeemable token backed by physical gold stored at the Royal Canadian Mint.

What we’ve tried to do is utilize the advantages of both the blockchain and the distributed ledger to create a token that vastly simplifies gold trading, gold storage and gold ownership.

It may ultimately combine the advantages that a cryptocurrency would have with the traditional utilization of gold and later silver, both as a medium of exchange and a store of value.

Eric: That’s fascinating. That exists already, correct?

Rick: That exists now, yes.

Eric: Interesting. In addition to the precious metal sector, obviously base metals have had a good run over the last year and a half.

A lot of analysts, including myself, attribute part of that strength to the nascent electric vehicle boom and related activities. Your buddy Robert Friedland calls it “revenge of the miners.”

Do you believe that the electrification of the grid and the EV boom is a game changer for base metals companies?

Rick: I’m not sure it’s a game changer in the near term.

What was the game changer for base metals companies was that they were selling their product for less than the cost of production.

As an example, in the copper space, either the price of copper had to go up so that the industry earned its cost of capital or there wouldn’t be any more copper.

There wouldn’t be any electricity for EVs or anything else. The price of copper went up because the price of copper had to go up.

Looking forward, Eric – and you and I have talked about this for years – there are 2 billion people at the bottom of the demographic pyramid worldwide in emerging markets who would like to live as you and I do. And living as you and I do – they aspire to have shoes.

But for them to live like this, it requires greater consumption of energy, particularly electricity, which means it requires more copper.

I’m not ducking your EV theme. I’m telling you that I think EVs are the icing on the cake of a much broader theme of urbanization and electrification worldwide.

From here, Rick and I discussed the countries where key materials are mined and how the political situations in these countries should influence resources investors.

You’ll see that (and more) in the third and final part of our conversation next weekend!

Good investing,