Sprott Asset Management's Rick Rule is one of the smartest guys in the
resource investing world -- and one of the most reasonable -- which has made
his interviews of the past few years a little disconcerting. Along with the
obligatory positive thoughts on the long-term value of gold and silver and
the resulting bright future for the best precious metals miners, he always
points out that the sector hasn't yet endured a capitulation, where everyone
just gives up and sells at any price, tanking prices and setting the stage
for the next bull market.
Knowing that this kind of existential crisis is still out there has taken
the fun out of buying ever-cheaper mining stocks, which of course has been
Rule's point. Just because something is cheap doesn't mean it can't get a lot
cheaper before its bear market is done.
Some representative quotes from late in 2014:
Henry Bonner of Sprott's Thoughts spoke to Rick Rule,
chairman of Sprott US Holdings, to find out whether gold stocks' recent
problems are the result of capitulation "or just a particularly nasty
sell-off."
As quoted in the market news:
In a complete capitulation, stocks melt down dramatically and some stocks
just go 'no bid.' That hasn't happened yet, which means that we may be
witnessing a very nasty sell-off, but not complete capitulation.
'For those of you fond of surf,' Rick explained at our San Diego office,
'capitulation is sort of like getting caught under a particularly big wave.
You get pummeled and tumbled around under water. Capitulation in 2000 only
lasted for about two weeks. Just like when you're stuck underwater and
struggling to come back up, a short amount of time can seem like an
eternity.'
The most important thing to do now? Prepare yourself psychologically.
'Abandon your 'hope stocks' - the ones where there is no catalyst, asset,
or enough cash to do anything important. Get rid of the stocks you own that
have no reason to go up, and get into ones that do,' Rick advises. In a
complete sell-off, you may find that just a few investors will make the
difference as to whether a particular stock survives, which means you must be
willing to be one of those investors if the market gets much worse.
Which brings us to the last few days' crash in gold and silver prices.
Both metals are now below the production cost of most miners, whose shares
are cratering on the prospect of some truly horrendous operating results in
the coming year. Which sounds a lot like what Rule is describing.
One vote in favor of a near-term bottom (followed by a nice run to record
prices) comes from Ned Schmidt, publisher of the Value View Gold newsletter,
who in a report titled $GOLD:
Prelude to a Double notes that based on historical measures of investor
sentiment and equity prices to gold we're just about there: "Last time
the Street was as bearish on $Gold was 2007 when the price closed out the
year at $830. $Gold went on to more than double."
