In a recent interview with Sprott Money, legendary resource investor Rick Rule delivered a stark warning about the future of fiat currencies and a bullish outlook for precious metals. Drawing upon his five decades of experience in the natural resource sector, Rule laid out a compelling case for why he believes gold prices are on the cusp of a significant and sustained rally, while the purchasing power of the US dollar could plummet by as much as 75% over the next decade.
Rule, a respected voice in the investment community, didn't mince words in his assessment of the current economic landscape. He pointed to the staggering on- and off-balance sheet liabilities of the US government as a fundamental threat to the dollar's stability. "The US government's on balance sheet liabilities exceed $36 trillion," Rule stated, adding that the "much scarier number is the off balance sheet liabilities... that number according to the Congressional budget office exceeds $100 trillion dollars."
According to Rule's analysis, these massive obligations and persistent annual increases are unsustainable. Drawing a parallel to the inflationary decade of the 1970s, he predicted a similar erosion of the dollar's purchasing power. "I believe that over the next 10 years the purchasing power of the US dollar declines by 75% again," Rule asserted, emphasizing that this wasn't an "alarmist Rick Rule number" but a consequence of the government's fiscal challenges.
Gold as a Safe Haven in a Devaluing Currency
Against this backdrop of potential dollar depreciation, Rule presented a strong case for gold as a crucial asset for preserving wealth. He highlighted gold's historical performance during periods of fiat currency debasement. "In the decade of the 1970s... the purchasing power of the US dollar declined by 75% in 10 years," Rule explained. "Not coincidentally, the gold price increased 30 fold."
He argued that the current environment mirrors some of the conditions of the 1970s, suggesting a similar, albeit potentially less dramatic, surge in gold prices. "I believe that the consequence of that [dollar depreciation] is is that the gold price trades not merely higher but much higher," Rule emphasized.
The Unsustainable Nature of Negative Real Interest Rates
Another key element of Rule's analysis was the issue of negative real interest rates. He argued that the officially reported inflation rate (CPI) significantly understates the true erosion of living standards for most Americans. "Any index that doesn't include lunch is of no interest to me at all," Rule quipped, highlighting the exclusion of essential items like food and fuel in some CPI calculations.
More importantly, he stressed that "it doesn't include tax, the most important living expense of most households in the United States." By his calculations, the real depreciation of purchasing power for the average American is closer to 7.5% annually. When compared to the returns on savings instruments like the 10-year Treasury, which yield around 4.5%, investors are effectively losing money in real terms. "You're not making 4.6, you're losing three," Rule stated, warning of the long-term consequences of such negative real returns.
Rule also pointed to the historically low allocation of investment capital to precious metals in the United States. "According to JP Morgan Chase, the market share of precious metals and precious metals-related investments in the United States relative to all the other asset classes that Americans own is only one half of 1%," he revealed. This figure is significantly below the four-decade mean of 2%.
Rule suggested that even a modest return to this historical average could trigger a substantial increase in demand for gold. "If sentiment merely returns to four decades, mean demand for the stuff goes up four-fold," he stated. While he refrained from predicting the exact price impact of such a surge, he implied that it would be significant, given that "prices are set on margin."
Rule's message to investors was clear: Consider increasing exposure to gold as a hedge against potential currency devaluation and economic uncertainty. "If I'm wrong, I don't think you lose much," he advised. "A little bit of gold ownership goes a very long way in terms of hedging the rest of your portfolio."
However, he also cautioned against extreme measures, stating, "I'm not suggesting that people sell their equities, they sell their house, that they sell their bonds and buy gold. I'm suggesting that they take their market allocation to gold... and they add some gold."
While the primary focus of the interview was on the price of gold itself, Rule also touched upon the gold mining sector and broader commodity trends. He noted the underperformance of gold mining stocks relative to the metal but expressed optimism for the future, anticipating increased M&A activity and a narrowing of valuation discrepancies between high-quality and lower-quality companies.
Regarding commodities like copper, Rule highlighted supply deficits and global demand as drivers for higher prices, while also acknowledging the potential risks posed by economic nationalism and the possibility of a recession.
Rick Rule's interview on Sprott Money is a significant commentary on the current economic climate and the potential trajectory of gold prices. His detailed analysis of government debt, inflation, and historical market trends provides a compelling argument for investors to seriously consider the role of precious metals in their portfolios as a safeguard against potential dollar weakness and broader economic uncertainties. While Rule's forecast of a 75% dollar devaluation is a dramatic prediction, his extensive experience and well-articulated reasoning warrant careful consideration by anyone concerned about preserving their wealth in the coming years.
Watch the full interview:
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