Economists Uncut

Rick Rule and Maria Smirnova on Main Drivers for Gold & Silver in 2025 (Uncut) 02-02-2025

Rick Rule and Maria Smirnova on Main Drivers for Gold & Silver in 2025

Hello everybody, thank you so much for attending this panel today. It’s been a great VRIC so far and I’m very excited to welcome Rick Rule and Maria Smirnova. We’re going to discuss the precious metals sector in depth, so why don’t we start guys with a quick introduction from each of you for those who might be unfamiliar and Rick we’ll start with you.

 

Rick Rule, 70 something years old, 50 years in the business, starting out here in Vancouver among other things with Jay Martin’s father Joe Martin. Delighted to be here, a former colleague of Maria Smirnova, I tried to resire her, I failed at that but she’s still at Sprott so I’m delighted to be on a panel with her for those of you who don’t know her. Very high quality, very hard-working, very sober analyst, had to work with and for Peter Groskopf, Rick Rule and Eric Sprott which I think says a lot for her courage and tenacity.

 

Rick, this was supposed to be about you, not me. Okay, Maria Smirnova, I’ve been with Sprott Inc. now but Sprott Asset Management really for about 20 years now and I’m a portfolio manager so I work on our active equity side and I’m also the CIO but that’s in minor detail.

 

Excellent, well let’s dive into the current macro setup for gold and silver. I want to start with gold because we hear a lot about the main catalyst driving gold being central bank buying, retail participation in the East, obviously the debt and deficits. I’m wondering what both your thoughts are on what has driven the gold price to all-time highs in 2024 and maybe some things that people aren’t paying attention to when it comes to the catalysts that maybe they should be and Maria I’ll start with you.

 

Well obviously gold has multiple drivers but last year I think what we talked about a lot is the central bank buying and you’ve heard this in other panels at this conference yesterday specifically I heard that talked about and then the other part would be demand from the East so India, China specifically but other emerging economies too and you know the conclusion is these economies, these governments are trying to protect their balance sheets from fiat currency devaluation just like as investors we are trying to do as well and they’re trying to diversify away from the US dollars in their foreign exchange reserves and you know we use terms like weaponization of the dollar. When Russia went to war in Ukraine in 2022 that was and the West froze Russia’s foreign exchange reserves that was a signal to other countries of this world to say hey I don’t want that to happen to me and that’s exactly when we started seeing a big pickup in central bank buying and that trend has continued to stay strong it continued to stay strong from 2022 until last year and probably now as well but the retail demand has been strong as well and particularly in the East like I said and it’s been strong not just in gold we’ll talk about silver separately but it’s been strong in silver as well. Excellent, Rick what are the catalysts you think brought us to all-time highs in 2024 and are we in the early stages of a longer-term precious metals bull market at this point? Well I’m going to push back on all-time highs.

 

All-time high is a nominal value. Yes. And the difference between nominal value and purchasing power is what gold is all about.

 

When people talk about $2,700 in a nominal value they’re talking about a floating abstraction for the denominator and that’s not right. I think it’s really important to recognize that. Gold has done well through history at least in my reading of history but also in my life which is long enough it’s becoming history that I’ve seen that gold does very well when investors and savers are concerned about the maintenance of their purchasing power in fiat instruments.

 

If you believe the US government statistics, I’m a voter I don’t, they will tell you that the destruction of your purchasing power in US dollars is 2.6 percent compounded a year. If there’s any Americans in the audience aside from me, if you look back at the basket of goods and services that you’ve consumed in the period 2020 to 2025 this 2.6 number is fiction. I would suggest that the CPI is the CPI.

 

Look at your health insurance, look at your health costs, look at your rent if you rent, look at your mortgage, look at your gasoline prices, look at your grocery prices and tell me that the purchasing power of your currency has only declined by 2.6 percent compounded. I’m no economist but this is laughable, really truly stupid. I would, well if John Williams were here, shadow stats, he’d say the US inflation is 12% compounded.

 

I’m not going to be that aggressive. I’m going to be a moderate for the first time in my life and say that the inflation, the destruction of the purchasing power of the US dollar is sort of 7.5 percent compounded. That’s bad enough but if you’re concerned about the deterioration of your purchasing power you have to put in one more piece of math.

 

The predominant savings product in the United States, the predominant savings product in the world is the US 10-year Treasury. That pays you 4.5 percent. So if you’re earning 4.5 in a currency where your purchasing power is declining by 7.5, you are guaranteed to lose 3% of your purchasing power a year compounded for 10 years.

 

Think about that. You give the US government your money for 10 years and they absolutely solemnly swear to give you 35 or 36 percent less purchasing power after 10 years. The first of their promises by the way in my life that I believe and that’s why I think gold is going to do well right there.

 

And I would say also not just in the US. In Canada we have the same situation. In Europe we have the same situation.

 

I try Maria not to insult governments that I don’t vote for. It’s difficult when I’m in Canada because I pay tax here. Well let’s talk about silver because obviously it’s a hybrid metal.

 

It has a ton of industrial uses. I don’t think people truly appreciate how much silver is used in so many different industrial purposes and then of course it also is a monetary metal with a history dating back thousands of years. However central banks don’t accumulate it and I would like to know what your thoughts are on its value as a monetary metal today.

 

Does it play the same role as gold in that sense? And on the industrial side we’re hearing a lot about the energy transition and how silver is needed for photovoltaic solar panels. Is that something that you really take into account when you look at the silver picture as the growth of demand for that is actually going to drive the silver price? So Maria I’ll start with you. The monetary side and then the industrial side.

 

Well there’s a lot to unpack with silver right to your point. I think the question about monetary value depends where you live. So if I live in India my monetary value of silver is much much higher than if I live in Canada.

 

I think right because we have a lot of demand for you know investment type purposes of silver out in the east and there’s certain cultures that have more affinity to it. I mean obviously in the US we have Silver Eagles, we have coins and bars in Canada and in the West too but that demand is not necessarily as strong. But it is wildly fluctuating throughout the years.

 

The the monetary kind of demand has been up and down throughout time okay and it depends on where we are in the economic cycle also right. On the industrial demand and I also say that industrial demand has been becoming more and more important. It’s been growing and it’s been growing because of solar, because of EVs, because of medicine uses, anything to do with industry right.

 

And I always say it’s a great silver is a great metal because it has great electroconductivity properties and great light reflectivity properties. Those two things and it’s very malleable that’s the third one. So those three properties make it a great metal to use in cars, in TVs, in phones, in so many different applications.

 

Obviously solar panels which are huge. Last year solar panels consumed 20% of supply of silver or more. That’s a big use of silver right.

 

So that’s become, that’s been the backbone of demand but it’s been growing at a rapid pace and that has led in the last four years in supply-demand deficit. And just as you know to put things in perspective we produce about a million, a billion ounces a year of silver between scrap and mine. In the last four years the deficit, the cumulative deficit has been 750 million ounces.

 

So three-quarters of an annual production. Those are big numbers and that’s just it. The metal isn’t a fundamental deficit and that’s going to stay that way.

 

And that’s partly why I’m so, that’s why I’m so bullish on the metal. Rick your thoughts on the silver market at present? You’re talking to a woman who used to be Eric Spratt’s silver analyst. Still am.

 

Yeah I mean I’m not gonna get that part of the discussion. She knows, she’s forgotten more about silver than I, than I, than I’m ever gonna know. This is what I can tell you just from observation viewpoint.

 

Precious metals bull markets are led by gold. The first buyer is a fear buyer. I get that one.

 

At some point in time when the narrative achieves enough currency with generalist investors that the generalist money comes in the precious metal space, leadership changes from gold to silver. I’ve been trying to figure out for 50 years why and I don’t know. So I’ll just say I don’t know.

 

I don’t know why, I just know that. And when that transition happens, silver moves much faster than gold. And the last asset class in the continuum is a silver stocks.

 

There’s a small enough market cap of the high quality stocks that three times in my career when the generalist money comes in the space, the silo, the combined market capitalizations of the silver stocks can’t handle the money that comes in. Now the Canadian dealer network fixes that after three or four years. They print more phony certificates than anybody could possibly buy.

 

But at the beginning of that, I mean you see moves like silver standard, 78 cents to 45 bucks. Pan American silver, 50 cents to 45 bucks. When I was a kid, Coeur d’Alene, 10 cents to 65 bucks.

 

It’s truly spectacular. Ask her why and just ask me to give you an old man’s reflection on what. Fantastic.

 

Well I do want to talk about retail participation for both gold and silver. Maria, you touched on China and India being large drivers in terms of retail buying there because those cultures have a much bigger affinity for gold and silver. They see it more as money.

 

Whereas here in the West, that doesn’t seem to be common knowledge or the common opinion of your average investor. So I’m wondering, I spoke to Lee Gehring and Adam Rosenzweig recently and they both said they saw signs that retail participation is starting to pick up in the West and that they think this is the next big driver for gold is going to be gold’s return to the West and more Western buyers coming into the market. So I wonder what your thoughts are there.

 

What do you think it will take to bring more Western buyers into the market, retail investors, and are you seeing those same signs as well? So I guess I’m not as close to the coin market as they are, but if that is happening I’m very encouraged by that. What would have to happen, I mean in the past, what has happened to bring that demand spike to Rick’s point is either a crisis or a market crash. I mean the issue partly we’ve been dealing with the last few years is that the S&P continues to reach new highs and is, by the way, it’s doubly valued than gold and silver stocks, you know, much more overvalued.

 

So I think investors have had cryptocurrency and the max seven and all these things that they can invest in and kind of gold and silver have been left a little bit behind. But you know, there are things that could happen that would change that in a hurry. Well, let’s also discuss that gap in valuation between gold and the gold miners and also retail participation in the mining sector, which does not seem to be very high at the moment, particularly when you look at gold in nominal all-time high terms.

 

And yet people have not piled into the gold stocks as was expected. People see the gold stocks as a levered play on the price of gold. Why aren’t they doing that? That’s a big question that’s out there.

 

I’ve heard a lot of theories on this. I’d like to hear from both of you why you think the retail buying hasn’t come into the mining stocks like people expected. Rick.

 

Well, the disconnect in the move between the metal and the miners is easy to explain. The metal has moved because central banks have been buying the metal and the central banks don’t buy mining stocks. They’re related markets but they’re not the same markets.

 

You know, I’m looking out here and I was looking around for any central bankers and it seems they’re missing. So, the idea that there’s two different buyers classes in a related asset class explains most of the difference. The rest of the answer is not so pretty, frankly.

 

If you dial the precious metals equities market back to the year 2000, in the period 2000 to 2010, the gold price increased sevenfold and the free cash flow per share of the major miners decreased. It took real skill to turn a sevenfold increase in the selling price of your product into reduced free cash flow per share. So, industry investors and generalist investors, let’s just say they’ve had low expectations around the efficiency of the mining industry.

 

I believe that investors, at least for next two or three years, will hold the industry into account. The third circumstance is that as the gold price increased, the price of inputs, or the cost of inputs, increased too. So, that the margin expansion that some investors expected the gold industry to show in the last three years didn’t occur.

 

Maria and I have the advantage of having been around a while and we understand. And just looking very recently at the quarters that you saw to Lundin Gold, Alamos, Agnico Eagle, what you’re starting to see just now is gold companies that aren’t beating their quarterly forecasts. They’re murdering them.

 

They’re clobbering them. In other words, to say, I think that’s going to follow, but I want also to answer your previous question. Actually, anyway, the math that’s important to me around future participation in this market is that the market share in the United States of precious metals and precious metals related securities, relative to other savings and investment classes, is less than one half of one percent.

 

JPMorgan Chase suggests that precious metals and precious metals related securities comprise less than one half of one percent of all savings and investment assets in the United States. This is very important because they estimate that the 40-year mean market share was two percent. So gold doesn’t have to, you know all these gold bug things, gold doesn’t have to win the war against the US dollar.

 

Gold doesn’t have to supplant the US 10-year Treasury. All it has to do is revert to mean. If the market share reverts to mean, demand for this asset class, precious metals and precious metals securities, increases fourfold in a market that right now is 23% of the world’s savings and investment assets.

 

That’s all it has to do. That’s precisely what it’s going to do. I can’t give you a gold price target because I’m not that smart.

 

All I can try to say is that if an asset class where you can’t increase supply very much goes from a half a percent market share to a two percent market share, it has a potential to do absurd things to price. Can I go back to the idea of, I actually agree with you about you know mining companies not always being the best stewards of capital. We talk about that a lot but I’m actually a little more optimistic.

 

I think we’re seeing good signs right now in the industry that at least on the producer side, companies are making free cash flow as you mentioned and it’s not just those three companies. Lots of companies are actually making money. Lots of companies are starting to pay dividend or buy back shares and that’s very encouraging and in terms of the margin expansion, yes gold price for once last year moved faster than the inflation moved.

 

So there are signs again that make us optimistic to say that hopefully if this continues, if this trend continues, capital should be returning to the sector. Well when looking across the spectrum of the gold and silver mining sector, first of all where are you seeing the value at present in terms of all the way from exploration to development production, royalty streaming companies and maybe a few tidbits if you could about how both of you evaluate gold and or silver mining companies. Any sort of actionable words of wisdom that maybe the audience could take away.

 

Rick. Well the last question requires a lot of work and investors have to be willing to do that. The first question really involves who the investor is, what their outlook is.

 

I see a lot of value through the space. For me the highest quality producer is Agnico Eagle and I don’t think Agnico Eagle on a net present value basis to enterprise value basis is overpriced. And when I add back in Agnico, this is not by the way a commercial for Agnico Eagle, what I’m trying to say that there’s value even at the top of the specter.

 

When you add back the pipeline and then you add back the culture for intelligent deployment or recycle of capital, even the best of the best is attractively priced. If you come from there down to single asset developers, something that the market usually discounts because they’re afraid of unbalanced completion and they’re afraid of single asset producers relative to multiple asset producers, you’re seeing single asset developers that are selling at 20% of NAV. When you de-risk that, assuming you get no expansion, if you get NAV, you get a five bagger.

 

If then that five bagger gets taken over by a multiple asset producer, that discount goes away. So on top of a five bagger, you get an acquisition bump. You see this type of opportunity, well in my life this is the second time I’ve seen this kind of opportunity when I was old enough and wealthy enough to have the ability to act on it.

 

This is unusual. There’s opportunity, I mean listen, there’s lots of flotsam and jetsam. There’s lots and lots and lots of junk out there.

 

But there’s also lots and lots of companies that have attractive assets, good growth profiles that are either fairly priced or cheap throughout the space. Which ones you choose depends on those people, what they want, not me. And Maria, your thoughts currently on the gold and silver mining space, where you think the value lies? Well we’re traditionally a small to mid-cap investors.

 

We generally don’t buy things like Barrick and Newmont and that has helped us in recent times because the smaller companies, the mid-cap companies, have actually done much much better than the two big ones. And by the way, the indices, equity indices, are skewed towards the big companies. So in times like this it’s quite easy to outperform the indices.

 

But to go back to the valuation question, how do we look at companies, I would say one of the key ingredients is actually the metal price you use. And usually I, you know, the way I’ve kind of been taught by Eric and usually how I see things is, I use the spot price. I don’t try to create a prognosis for the gold price or the silver price.

 

I take the spot and I evaluate the company valuation based on spot. And the one thing about, you know, the mining industry and the sell-side analysts, they don’t do that. And they usually have a forecast of metal prices that go down.

 

And that is actually part of the issue in the industry because they don’t evaluate the companies, in my mind, fairly. Because they’re trying to create, you know, something, right? But if you actually use spot, that gives you a very good kind of across-the-board view of where different companies stand. And if you start using that approach, you become bullish quite quickly.

 

But you have to believe. You have to. Because I believe in gold and silver.

 

So if you believe in the metal, you can start believing in the equities as well, if that makes sense. Yes, absolutely. So let’s end on getting some idea of your work and where people can find you if they’d like to hear more.

 

Maria, tell us about the work you’re doing with Sprott. And is there anywhere people can go online if they want to learn more about your work? So Sprott is a specialist in resources. We offer solutions for investors in physical, in ETFs, and in active equities.

 

And Sprott.com is a wealth of knowledge. We publish regularly. We do articles.

 

We do podcasts. We do webcasts. If you just go on our website, you will see all that we’ve done in terms of marketing.

 

And we write about all kinds of things, not just gold and silver. We write about copper. We write about lithium, uranium.

 

So I would really encourage people to check out our website. There’s lots going on there. Fantastic.

 

And Rick, tell us about Rural Investment Media and anywhere else you’d like to direct people. I’m no longer officer director or employee of Sprott Inc., but I am the largest shareholder. So I would echo what Maria says.

 

There’s a wonderful culture there. Go to Sprott.com. Read the educational materials. Take a look at the investment products.

 

They’re really, really, really good people. As for me, I failed retirement completely. Retired from Sprott.

 

I have a new bank, Battle Bank. Any of you who are uncomfortable with your current bank, I suspect that’s all of you, should check out BattleBank.com. In addition, if you want to learn to be better resource investors, you can go to Rural Classroom, where we have 200 hours of instructional programming, all for free. That comes with a complete money-back guarantee.

 

If you don’t send me money and you study my courses, you don’t think you got your money’s worth, I will give you back all the money that you gave me. On top of that, we have Rural Investment Media. Any of you who want to are invited to go to RuralInvestmentMedia.com. List your natural resource stocks, and I personally will rank them one to ten.

 

One being best, ten being worst. Once again, absolutely free, so an ironclad money-back guarantee. Thank you.

 

Fantastic. Well, thank you so much. This has been a fantastic conversation.

 

A round of applause for Maria Smirnova and Rick Rule.

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