LAWRIE WILLIAMS: Rule on gold price manipulation, inflation, Fed policy, Russian stocks and more
This article draws heavily on some viewpoints expressed by respected commentator and analyst Rick Rule in an interview with Kitco.com’s Michelle Makori. I have known Rick for many years and not always agreed with his opinions, but in the main he’s been pretty accurate in his forecasts, if sometimes a little premature as with his views on the uranium price. He has been a strong proponent of much higher uranium prices for many years, but it has taken until relatively recently for his forecasts to come about, as they have done quite dramatically. He is currently the founder of RuleInvestmentMedia, after a spell as CEO and President of Sprott U.S. Holdings.
By the way, if you are attending a conference at which Rule is a speaker, do take the time to listen to what he has to say. His presentations are always informative and entertaining and well worth your presence.
In the interview with Makori, Rule expressed his strongly held views on gold price suppression and manipulation. He avers there is no actual evidence of any vast conspiracy by governments and the bullion banks to orchestrate any long term suppression of the gold price, whatever evidence organisations like GATA may present to the contrary. However, he does suggest there is the strong likelihood of short term manipulation by traders as there is in almost any market. He comments that if enormous markets like LIBOR can be so manipulated, gold and the other precious metals markets, as much smaller entities, would be relatively easy prey for such price manipulations.
Rule is among the growing number of commentators who feel that the U.S. Fed will have to back down from its tightening and interest rate raising programmes before the year end, despite the Fed’s own seemingly increasingly hawkish predictions. He feels there is a question of the inherent truth behind such statements here. Once markets are seen to be turning down sharply with the implementation of higher rates which he sees as inevitable Fed policy in the short term at least, and with the threat of more to come, together with the reduction in the Fed’s balance sheet, the government will put pressure on the central bank to hold back – particularly with midterm elections coming up towards the year end. Political expediency may well win out over financial reality. Rule therefore thinks interest rates should continue to rise to fight inflation, but he fears Powell and the Fed will be persuaded to backtrack before the year end.
“The political superstructure in the country will react to the problem that the voters see today, which is the interest charge that they pay on their first mortgage, and the interest charge that they pay on credit cards." Rule is quoted as saying. "I think they [the Fed] could raise the interest rate by 50 or 75 basis points (in the short term). I think if they do that, the equities markets continue to decline. I think that the long-term debt market gets decimated. I think that the broad economy begins to suffer," he goes on to say. And when the investment public comes to the conclusion that ever-rising inflation, much of which is outside the Fed’s attempts to control it, is continuing to be a major problem for the economy and for their wealth preservation, they may then well turn to gold as the ultimate wealth protector.
Rule comments that he sees Russian stocks as being bargain counters at this point in time, although not without risks – also one suspects that investing in these might even be considered ‘unAmerican’. Nevertheless he comments that he has personally invested in some Russian equities as they have been artificially decimated in value by sanctions and should recover once these sanctions are ultimately withdrawn. From our point of view we do look particularly favourably on Russian gold miners and other commodity producers, assuming there is a market for their product (and for gold there is always a market). With market capitalisations at a fraction of what they were before the Ukraine war, surely there are some huge, albeit risky, bargains in evidence?
We have commented recently too on the possibility of Russia and China coming up with a gold-backed alternative to the U.S. dollar as a global reserve currency, and Rule hinted at something like this as well. "What will actually occur, I think, is a series of formalized bilateral agreements in currencies, outside the U.S. dollar, so that the U.S. dollar can't be formally weaponized," he is reported as commenting. An alternative to the U.S. dollar which has continually lost value over the years might well find a global following, particularly if it has a value stabilizing base of a gold or commodities backing.
He also advised holding cash in a downturn as we are seeing at present, although to our minds the wisdom of so doing is somewhat lessened by raging inflation which is continually depleting its purchasing power. Maybe holding a wealth-protecting asset like gold offers a greater chance of surviving the storm which looks increasingly like lying ahead.