Why are top investors betting big on gold, and why do they believe this bull run is just getting started? In this special Wealthion feature, Trey Reik curates powerful insights from his interviews with some of the world’s leading financial minds to reveal why gold (and even Bitcoin) is reclaiming center stage as trust in fiat money and central banks fades.
Featuring:
- Jim Grant (Grant’s Interest Rate Observer)
- Larry Lepard (Equity Management Associates)
- John Hathaway (Sprott Asset Management)
- Dave Iben (CIO, Kopernik Global Investors)
- Rudi Fronk (CEO, Seabridge Gold)
Key topics:
- Why gold outperformed stocks, bonds, and the dollar in 2023, and why the trend may just be starting
- $10,000 gold and $150K Bitcoin? Larry Lepard explains the math behind these forecasts
- Jim Grant on the decline of the “PhD Standard” and the case for gold as real money
- Why gold mining stocks remain deeply undervalued despite record bullion prices
- Dave Iben introduces the powerful concept of optionality in gold equity investing
- Why major miners like Barrick have underperformed gold by 775% over 25 years
- Hathaway explains how Western capital has yet to re-enter the gold trade
- Could the Trump administration reset the gold price as part of a monetary overhaul?
Investment Concerns? Get a free portfolio review with Wealthion’s endorsed financial advisors at https://bit.ly/4ihbxX0
Hard Assets Alliance – The Best Way to Invest in Gold and Silver: https://www.hardassetsalliance.com/?aff=WTH
Trey Reik 0:00
Greetings and welcome to our wealthion show. My name is Trey Reich of Bristol Gold Group, and I’ve dedicated the past 24 years to analysis of global monetary affairs and their impact on the investment landscape, especially with respect to investments in the precious metal space. In the past two months, I’ve had the opportunity to visit with some of the greatest investment minds on gold and gold investing, including Jim Grant, publisher of Grants Interest Rate Observer for the past four decades, Larry Lippard, one of the most vocal and articulate proponents of hard money and managing partner of equity Management Associates, John Hathaway, the recognized dean of gold investing and managing partner at Sprott Asset Management. Dave Ibn, the founder and CEI of co pernic, global investors. And finally, Rudy Frank, founder and CEO of Seabridge gold. Now Taken together, this group of professionals offers unparalleled insight in analysis of global monetary affairs and precious metal markets. So their observations are incredibly time timely and helpful in navigating the uncertainties of the contemporary investment landscape. In this regard, I’d like to share with you some of my favorite highlights of our recent discussions.
We begin our retrospective with my conversation with the legendary Jim Grant on why gold remains the go to monetary asset in uncertain times. Well, in 2024 obviously stocks were up 25% second year of plus 20% performance for only the fourth time, and 150 years of the you know, little bit surprising that with the dollar, you know, a two year highs and 10 year yields up 18% last year. Stock Market strong, that gold outperformed everything you know, being up 27 surprising. Yeah, and you know, is it? Do you think we’re, we’re at the big one for gold in terms of, you know, moving, say, up past 3000 and,
Unknown Speaker 2:30
yeah, okay, okay, here we go. Okay, so I called up bill Fleckenstein last week. You say end of the week? And I said, this week’s be out
Jim Grant 2:45
as the inventor of gold. I’ve been around for what the crypto themes called rug pulls. Lucy, would you hold this football please? I’m practicing my place kick it and just this stuff can break your heart. I mean, 2011 I thought for sure that with the US becoming a split rate of credit, we thought that was gonna be possibility that the world had, at last, figured last, figured out that the United States was running into physical difficulties brought on by itself, and that gold was in the way of becoming a monetary asset in the way it had not been since it was marginalized through malicious intent, say I in the 60s and 70s, and then what you got is a bear market. Rip your face off these gold stocks, and we’re down 99% right? That’s the good ones.
Trey Reik 3:52
And I remember the time,
Jim Grant 3:54
it’s vividly, I suppose, for some us. So, you know, I said, we gotta get I said, Bill, we have to get hedged here. And, you know, he said, Yeah, yeah. And I don’t know if Bill did, I dare say he’s a, he’s a professional investor. I am certainly not a professional author and writer, but what I did was to not get hedged because I thought, I thought, you know, first of all, I just didn’t get around to it, meaning that something in my subconscious didn’t want to. Why is that? Well, I believe in gold as a monetary asset. I believe that that the mere talk of the mobilization of what lies in Fort Knox, the somewhat playful. Be careful about musk, because remember the rug pulls he pulled on his fan base on what he was cited at live, got an all bomb Dogecoin then said, Oh, that doesn’t I don’t care anymore with that. So I tried to abstract. From Elon Musk, saying, What exactly is important, I try to extract all that, but focus on the fact that’s the most elegant, functional and efficient and equitable monetary system in the world, with the gold standard, which ended by phases, starting in 1914 supplanted by a system that is incredibly complex. At one point in 2021 and 22 was predicated on the fact that the Fed that inflation is caused by expectations. That was the ruling regime when they got onto the transitory and Fauci bandwagon. So now we have it in we have the PhD standard, which is governed by very intelligent people mobilizing the mathematical models they masturbated in graduate degree programs. And so it’s gone from Elegant, efficient, simplicity to a most inelegant, complex, I would say, inefficiency. So I truly believe in gold as a monetary asset, not as a keepsake, not necessarily as a speculum play thing, although, to be sure, it does serve that function as well, but I believe in it as a as as money that will, if not supplant, then at least, will keep company with present day paper currency, not because Grants Interest Rate Observer or Trey rank, those very persuasive fellows that you really must do this. But because, like all monetary evolutions, it occurs to people spontaneously. What Bitcoin has going for is that people have come to it, that it serves some function to people of the world. Think it’s great. So I, I think, I think the most efficient price of Bitcoin is zero. However, I respect the judgment of people on mass when it comes to money with if they see its money, the window said, Well, yeah, all right, in the eyes of the beholder, yeah, but here we have something with 5000 years of recorded of use case and so anyway, so I guess, does this describe a permeable train?
Trey Reik 7:38
I was focused a little bit more on gold’s action recently, which I must have been, has been as consistent, I think, as I could have imagined. I might even say I’ve been a bit surprised by its resilience. But, oh no, gold, okay, definitely, definitely sending a different signal them. Oh, yeah,
Jim Grant 8:01
you should wake up with the morning. And if it had been up in Asia overnight, it was gonna be down 20 bucks in New York. That was, that was, that was a certain as could be. It was, it was, it was just as frustrating as could be. And now it’s entirely different, entirely. Yeah, I’m not sure what what what emphasis to lay on market action? My old mentor, barons, whom I love dearly, Robert M bleiber. Remember him. There are barons in the old days. I learned a lot, so much from him, and he was a great student of market action and market structure. And I dare say that he might have learned a few things from you trail of your last piece, which talked about structure and expectation and sentiment. But all these things seem seem definitely and what might be even more bullish is the fact that none of these, that none of the the attributes of a of a forming speculative bubble in gold, have yet seemed to exhibit themselves in the American invest in public. Right this, you don’t see it in the houses in GLT, you don’t see it certainly and and in speculative sentiment, or at least, of all the miners, they still, Gd, x is still at what, 4142 where it was, been forever, you know? And that was forever. It has not acted as if gold were at highs. Let me put it that way, it’s really true. Yeah, so the things that in the past told you that things were a little bit getting out of hand, nothing like that. Now
Trey Reik 9:49
next, we were one of the first to speak with Larry Lippard about his new book, The big print, which presents a comprehensive review of what I term. The modern era of unconventional central banking, and explains how gold and Bitcoin can provide portfolio protection against global monetary collapse in this segment, Larry explains why he thinks gold could reach $10,000 an ounce in the not too distant future. Alright, so switching topics to the Fed, one of our favorite mutual topics, you mentioned in the book, this concept of the fourth turning. And I think most people are familiar with that concept in 80 year cycles, and the 20 at the end and the fourth turning, but you sort of get specific, and you mentioned you think 2008 was the beginning of a current fourth turning, and that if it lasts an average of 20 years, you’re sort of looking at 2023 to 2033 all you know rough with, and I’ve heard you personally use the you’ve sort of narrowed it down to, you pick 2030 you think This is going to be resolved, or start to be resolved by 2030 so my question is, what evidence do you see that we’re making progress? Well, you’re seeing,
Larry Lepard 11:09
you’re seeing, you know, bessent talking about maybe some kind of a Bretton Woods sort of event. I mean, I think you’re seeing guys like Ray Dalio saying we’ve got a sovereign debt crisis. We’ve got to address it. I mean, it’s coming into the mainstream conversation, admittedly slowly. I think the probably the biggest driving thing, Trey. The reason why I think it’s going to happen is just the relentless math and some of the charts in the book that show look at the US, Federal Interest expense. It’s gone from 300 billion to 1.4 trillion run rate. You know, look at the debt. I mean, we added as much debt in the last 11 years as we added in the first 200 and something of the of the Republic. You know what I mean? I mean, it’s kind of, anyone who’s mathematically inclined and sits with a calculator and does compounding recognizes that if you keep compounding something at a fast enough rate, eventually the line goes vertical, and we’re kind of in that phase right now. And so people say to me, Well, come on, Larry, you know, they’ve kicked the can this far. They’re going to be able to kick it for another 30 or 40 years. And I’m kind of like, well, yeah, I’m sympathetic to that. I hear that argument, but I think the math is caught up with them. I mean, I, you know, I think, and we’re seeing, you know, I mean, witness the way that Powell had to create, you know, twice as much money in half the time, in 2020, versus, oh, eight, you know? I mean, so it’s, think of it as kind of like it’s childbirth, birth, like the contractions are getting quicker and they’re getting more painful for the woman. So, so it just kind of feels, to me, that’s just, it’s just a gut feeling trait. I could be dead ass wrong. I mean, as you know, in 2008 I was absolutely convinced that was it, and I was dead ass wrong. So, you know, there’s no way to know and predict this, but just think of it in terms of the way it’s coming into the conversation, though. I mean, I talk about in the book. I mean, I hope you enjoyed the part about, you know, Chris Leonard’s book, you know, hurting the Fed. I mean, here’s a guy who’s a New York Times reporter, and he was extremely critical of the Federal Reserve. I mean, it was, he was saying some of the stuff Ron Paul’s been saying for years. So, I mean, I think people are kind of starting to realize that something’s wrong with the Federal Reserve and the monetary system. I mean, you know, when you print 40% of the money in two years. And I mean, the one that just blows my mind. I I do a lot of my grocery shopping, grocery shopping because my wife doesn’t like to do it as much. And I just can’t believe how expensive stuff is, right? The grocery I just, I cannot believe it, you know,
Trey Reik 13:33
so So looking for progress in 2024 we had unemployment at 4.1 we had, you know, GDP at 3.1 we had CPI at 2.4 and yet, the Fed initiated a rate cut cycle in September with a 50 basis point cut and cut rates 100 basis points in three months since that time through mid January, the 10 year treasury yield rose 120 basis points according to Goldman Sachs, that’s the steepest increase in history of long rates after an initial Fed rate cut, they’ve come down a little bit before 50. But what does that tell you?
Larry Lepard 14:15
What it tells me is that the bond market is awake and waking up to the underlying problem. And you know, I mean, we look at, I know you agree with me, at a larger level, we are in a sovereign debt crisis. And there are three indicators that are screaming it loud and clear, Bitcoin is at or near record high. Gold just made some more record highs, right at 2900 and the US bond market is not healthy, although recently it’s backed off of that high that you just described, you know, and I think that’s because people think there might be economic weakness. But those three things tell me that, you know, the market for money. You know, underlying what is money? The dollar is, it’s, it’s a question mark, and becoming more of a question. Mark in everybody’s mind, right? And I think, you know, as you and I both know, I mean, we think, I mean, gold’s not stopping at 3000 gold’s going to 10,000
Trey Reik 15:07
that was going to be another question. What’s your 7 million per gold? Oh, absolutely.
Larry Lepard 15:13
Yeah, no. I mean, look, if bitcoin goes to the high, as high as I think gold is going to go multiples of today’s price as well. I mean, they both, you know, they’re both sound money. I mean, I think I’ve used this in the past. I’ll do it here. It’s just, you know, gold is analog sound money. It’s great. 8000 years, huge Lindy effect. And, you know, Bitcoin is digital sound money, much newer, riskier, harder to understand. A lot of people aren’t in it yet, but they’re coming, you
Trey Reik 15:36
know. So in a corollary to that, last year we the S P was up 25% it was one of my favorite aspects of last year. Is in December of 23 Bloomberg annual strategist survey, the average prediction for the S P in 24 was an increase of 1.4% which was the most bearish in the 25 years of the survey. But now that we’re up 25% the December 24 survey was predicting 11.6% which was the most bullish
Larry Lepard 16:10
for right. Well, and as and as your brilliant letter, which I subscribe to and others should subscribe to, wrote, you know, look at how the earnings projections are going down too. I mean, earnings growth is clearly slowing, right?
Trey Reik 16:21
But even with that, with the record 58% in two years on stocks, we had an 18% increase in the 10 year yield last year from, you know, sort of 360, to 480, and and and the dollar index at two year highs, we still gold outperformed all of them, yeah, 27% so doesn’t that mean, you know, doesn’t that mean we’re getting close? I
Larry Lepard 16:49
think it does. I mean, the part we can go, we may go here next, but the part that blew my mind, I’m sure it did yours as well. Gold was, I mean, and I don’t think I’ve ever seen this Trey, you would know better, because you look at history, more gold was up 27% last year, the GDX was up nine Well, that’s backwards,
Trey Reik 17:03
yeah, right. That was going to be my last question, which is, yeah, right. It’s like, what’s wrong with these gold stocks? You go back to mid October, that was going to be my question. In mid October, the GDX was up 44% and the GD XJ was up like 46% this was in mid October. And one of the things that I think I’ve decided in the last year or two, I think gold stocks have gotten incredibly sensitive to rising real rates. So when Trump was elected, you know, gold did its knee jerk reaction down, but the stocks really took it. And I think, you know, from the from the middle of October to the end of the year, the GDX went from being up 44% to being up 10. So right now, we’ve made up a lot of that in the first quarter. You know, the GDX of 20% or so couple months here, yeah, three on the S, P. But don’t you think that presents, I was, that was going to be sort of my last question. Don’t you think that presents an incredible opportunity here? Absolutely.
Larry Lepard 18:08
I mean, I just absolutely, I’m I actually think that in the next six months, my gold stock fund is going to vastly outperform Bitcoin. I mean, because it’s just so damn cheap right now, and you know the reason, as you and I have discussed this in the past, the reason why the gold stocks are so beaten up. It was simple. You go to Bloomberg, and you look at the projections that you know, the consensus projections for the price of gold. And as you know, gold broke out of 2070 in kind of March of last year, and it squirted up to 2500 2600 and but the consensus was that that was that that was an anomaly and it was going to come back down. And as you also know, that average, sustaining, all in sustaining, cost of pulling it out of the ground has gone up with inflation, of course. And so people were thinking, Well, yeah, you’re getting bigger margins now, but they won’t last. And that’s why the stocks didn’t move. And I think that what’s going to happen is there’s going to be a reawakening, and people are going to realize, oh, you know what? This 2600 is not going down to 2070 we’re actually going to 29 and then we’re going to 32 and then we’re going to 36 and, yeah, the Asics are going up. But boy, that, you know, I mean, right now, as I’m sure you’re aware, I’ve got companies in my portfolio that they’re, you know, they’re printing 50 and 60% gross profit margins. I mean, on the price of the gold they sell versus the cost of taking an ounce out of the ground. Now they got to pay for the capex and capital costs, but, but that’s a huge margin. I mean, there’s almost no other industry that makes that much money on a per unit basis.
Trey Reik 19:33
So your what’s your outlook for 2025 with respect to sort of Bitcoin Gold and Gold shares? Yeah, sure. So I
Larry Lepard 19:43
think, I think Bitcoin is going to continue to trend up. I think it could be, easily be as high as, you know, 150 maybe even higher, in kind of a blow off. And then I think we’re going to get a correction like we’ve had in the past. And so that’s why I say people have to understand the volatility I expect. Old to go easily touch 3000 hell, we’re almost there. You know, maybe 3500 or 4000 and I expect the gold stocks to go up 100% I mean, my my fund is an interesting fund. It’s heavily into the gold stocks, and I’m very aggressive in the names I pick. So when I get it right, like 2019 the fund went up 99% one year. And then 2020 the fund went up 122% one year. So in two years, I in two years, I’ve given people 4x their money, then I proceeded to turn around and lose the money for four years. Because, you know, the stuff I’m in is aggressive, and Powell started tightening rates, and liquidity got tighter, and m2 shrank, and all that other stuff. So, you know, I think I look at my portfolio right now, and I sincerely believe that, you know, everything in there could double or triple, and it still wouldn’t be expensive. So I think gold stocks are going to be a very good place to be for the next year. Finally, it’s been, I got to tell you, Trey, it’s, it’s been a really tough slog, and even I, whom a big, huge believer in this whole category, have been discouraged. And so anyone who’s in the gold stocks, and has been discouraged. I totally get it, but I would just say, don’t, don’t sell now, because we’re, you know, the light is just starting, you know, the sun is just starting to rise, and this stuff’s starting to work. Um, yeah. So the other, the other wild card here, we haven’t talked much about it, but I want to make people aware of it, is, is this potential gold reset? I mean, people need to read. Go to my Twitter feed, read the merma can letter on the basin and myrnan letter talking about, basically how there’s discussion. Look, the Trump administration realizes the monetary system is a mess, and they’re trying to figure out a way to solve it, and one of the ways to solve it is to reset gold at a higher price. So that’s being discussed, and if that occurs, think of the implications on these gold stocks. I mean, they’re finally Trey going to see some love
Trey Reik 21:47
in my conversation with John Hathaway, John delivers his typically intriguing insights into the nuances between the paper gold trade and physical bullion itself. John also shares the reasons he believes gold could be heading as high as $8,000 per ounce sooner rather than later.
John Hathaway 22:11
There arose among risk margin clerks, compliance risk managers at bullion banks a thought that, gee, maybe we should lighten up on these rehypothecated paper trades and gold and we, and we need to get square. We need to have physical gold here in the US to to so that we can settle these, these trades. What that? What that revealed, and it was similar to what happened under COVID, when there was this panicky move to get physical metal back to the US is that the float that underlies paper trading, which is centered, really, in London, and I guess come actually, those two would be the big ones. The float of physical metal backing it, relative to the notional amount of trades outstanding, is tiny and, and there’s a, there’s a huge amount of risk, if, if, if there’s a run on, on that, that bank. So I think anything that, and so connecting that with the idea that we may, as a country, as the US may revalue gold, may upgrade its status as a monetary asset. Caused this panic to cover shorts is very telling, and in my mind, it it suggests that there’s much more upside if there’s better price discover, anything that anything that diminishes the the paper, gold trade, in my mind, will lead to price discovery, better price discovery. And in my mind, much higher gold prices than where we are today. Got it so,
Trey Reik 24:31
you know, not to interrupt, but the the central bank buying of gold has certainly been, you know, a big factor in the past three years, really. And, you know, I think we, all you know, have a tendency to explain gold price movements. We tend to focus on the easiest things there are to follow. And central bank gold buying, you know, definitely very transparent, or some of it is great. Transparent. But I, you know, at the interests of of challenging that concept a bit in 23 and 22 you know, central bank gold buying was over 1000 tons in each of those years, which was, you know, 100% higher than the average in the prior 10 years. But gold didn’t break out of that $400 trading range where 2000 was sort of the top limit. And then last year, we actually had a slight decline in the annual amount of central bank gold buying, but gold shot up 27% so I, you know, I’m sort of a fan of the concept that, you know, finally, after all the work that we put into the gold trade for the past two decades, there’s certainly the possibility that it’s rising, you know, for the right reasons, which would be that global, you know, investment grade capital is seeking refuge from, you know, anti dollar sentiment and the US deficit and fading cred fed credibility. Do you think I’m dreaming, or do you think some of that’s happening here in 24 and 25 No,
John Hathaway 26:21
I think that is happening. The central bank buying is, as I said, it’s a component. It’s not, it’s not the it’s, it’s, it’s one of the easier things to point to, to say, Gee, the trust in the US dollar is shifting, and that’s exhibited by Central Bank purchasing. But you know, as to, as to, you know, what else could be a factor. I think it’s, I think it’s very important that this move in gold has, has been without a lot of capital flows from Western investors. Gold is still very under owned, and you can see that in the in the asset AUM of GLD and gold backed ETFs in general, they have, you know, if you go back three or four years, maybe go back to COVID, they’ve actually declined. The value of the looking at GLD, has gone up, because the gold price has gone up, but if you look at the ounces that are in it GLD, they’ve actually declined. I don’t have a number, but it is and recently there has been a little bit of an uptick. But if you take a five year look at that, it’s gone down. So just imagine what would happen if Western capital, which has been dormant and disinterested in in what we’ve talked about, if people suddenly said to their financial advisors that you know, pick any one of the big firms. Today that I want to have more gold in my in my account, just of, just a shift of that sort, maybe adding from, you know, maybe 1% which is where we are, to two or 3% that would, that would drive tremendous demand for physical gold, because these ETFs are backed by physical gold, as I say, price discovery, I think you could easily tack on another couple of $1,000 on the Gold price, and then you have to ask and say, you know, why would people do that? And in my mind, the number one, I have two, two reasons. Number one is that the stock market bubble in these, these, these, AI stocks, Magnificent Seven is starting to starting to pop COVID
Trey Reik 29:24
Nick’s Dave Ivan possesses the rare combination of high IQ and iron clad discipline, which always seemed to make investing seem so easy. Dave is one of the most talented and accomplished value investors on the planet, and in our conversation, Dave and I dig into the current market perception about gold and other precious metals such as silver and platinum. Dave also explains why he believes most gold investors get equity valuation models totally wrong, and he advises HOW TO. Avoid these pitfalls. Finally, Dave shares some of copernics largest gold investments in looking at extremes and also reading your mentions of Nebuchadnezzar, poly metallic statue. I noticed that you know you, you, you have an you guys look at precious metals as a group, platinum, silver, gold, and I noticed you are more exposed in Platinum than I have seen in the past. So my guess is that platinum you are looking at is fairly undervalued here, or relatively undervalued, yeah,
Speaker 1 30:43
and if you let’s start with gold and migrate to platinum. Okay, so gold is scarce and it doesn’t corrode, and it’s divisible, you know, unlike a work of art or a diamond. If you cut it in half, those halves are worth the same there’s it’s attractive. There’s a lot of reasons why it’s been money for 1000s of years. Platinum is scarcer than gold. It’s beautiful. It’s used in jewelry. It’s divisible, it, for the most part, doesn’t corrode or have these problems. The reason it hasn’t also been money over time, I believe, is because it was very hard to deal with. You didn’t have the technologies to work with. Something that’s not as easy to work with, but because it’s scarce and beautiful and nice, it’s sold at a premium to gold for many, many years. You’ll notice, whether you’re talking an American Express credit cards or the airlines, silver, gold, platinum. And so one can say gold’s better, one can say is platinum is better. But back to this concept of extremes. Platinum now is at such an extreme low that if the price tripled tomorrow, it would sell below gold. Yeah, that’s that’s bizarre for something that used to sell at a premium, right? And so we like that. And so we’re talking, you know, another speaker, his statue, you know, going migrating from gold. So gold quickly gone from 2000 to closer to 3000 we’ll make a case that it’s worth a lot more. But yeah, I
Trey Reik 32:40
was just going to say with your monetary view of the world, which is a big, at least, philosophy of what I think you know, you believe, of how to look at the world, doesn’t that keep gold in sort of its own class and make it in terms of gold miners, given your expectations for the gold price, aren’t they sort of a permanent holding, yeah,
Speaker 1 33:00
so I mean, nothing’s permanent. And if you look back, we had a lot of gold from 2008 through 2010 and in 10 and 11, we sold a lot of it, and majority of it was gone by late 2011 early 12, then a few years later, too early. With hindsight, we started buying it back. So I guess as long as it’s trading below what we think it’s worth, which is another concept, it will be a big part of the portfolio. Now it continues to be a big part of the portfolio, and we continue to like it. But given this migration, gold’s gone up, and deserve to go up. Gold stocks have not gone up, and so I think they deserve so we’re in the past. One might have preferred gold bullion to gold stocks. It’s the same element we suggest, if over from the peak in 11, gold’s up over 50% and the GD xj is down over 50% Some of that’s deserved that, we would say not all of it. So we like gold, but we like gold miners more. We like gold, but we’re starting to like platinum more, and also in 2020 and again, now we start to say is the gap between gold and oil, or gold and natural gas or gold and nickel to extended. So whereas we continue like gold, maybe it’s time to migrate into other things that are useful, needed scarce and and for 100 years, have had a relationship to the price of gold that seems to be an extreme right now.
Trey Reik 34:50
Yeah, and gold has had a good run, no question about it. I certainly wouldn’t have predicted the gold price would be where it was in 2024 if you told me you. The dollar would be at, you know, two year highs, 10 year yield would rise 18% and the s, p would set a new record every day. That was not something that would have yielded. I think gold was up 27% last year, so it has had a good run as as a segue, I know I looked at your gold holdings, and as we all know, there’s really 60 that matter. So if you’ve been following gold stocks as long as we have, you know, we have a fairly good opinion of just about everyone. But you guys own Seabridge and you own northern dynasty, and on the other hand, you own Newmont and you own barrack, and they couldn’t, you know, be sort of more at the opposite ends of the spectrum. So I think I know the answer. But what led you to, how do you rate gold miners and decide which one should be in the portfolio?
Speaker 1 35:52
Yeah, to your earlier point that if somebody had told you where the dollar was, you wouldn’t have predicted gold would be whereas if somebody had told you a year ago where gold was going to be, I think you or I know I would have missed badly on where gold stocks would be. Definitely, no question. They are famously very operationally leveraged to the price of gold. And the price of gold is going to go up 27 when you think the stocks would go 234, times that amount, instead of, for the most part, missed it all together. No,
Trey Reik 36:25
I do worry that the stocks, just on that point are signaling gold’s gonna come down, but that’s just from my years of facial ticks of being in the gold business.
Speaker 1 36:35
Yeah. Well, a quick side note, for the last dozen years, every time that’s been the case, it has been the stocks coming back down, just like every time the NASDAQ corrects, it goes right back up again. And maybe this is yet another HUD sake on both fronts, but maybe it’s not because things are changing, but when it comes to gold stocks, as I pointed out, the element above ground versus the element below that ground, you need to adjust for the cost of extracting and you need to adjust for the cost of risk. We adjust for those things. And it thinks too extreme. But what has us really excited is that we believe that most everybody is analyzing these things wrong, and I’m talking buy side, sell side, and the companies themselves, with the exception of Robert Friedman, who kind of gives the same speech I’m Giving is and we got there completely independently. But in this industry, Nirvana is a long live reserve. You know, if these things are scarce, people aren’t finding them anymore. If every five years, your mind runs dry, you have to replace it. You know, life’s tough on you. Good luck with that. SO LONG LIVE reserves or nirvana. How does the industry analyze these things? They discount it, and they don’t discount cash flow so much as they actually discount gold or copper or gold, or every other industry analysts will say, we expect volume to go up 3% and price to go up 4% and that’s 7% and we’ll discount that at five or whatever. Only in commodities do people say, Well, if gold is 2200 and believe it or not, they’re still using 2200 the industry a price that’s a long, long way away from 2900 but they say if we pull out of the ground tomorrow, it’s worth 2200 if we pull it out of the ground a year from now, it’s worth 5% less if we pull it out of the ground 10 years from now, it’s 2200 times point nine, five to the 10th Power, ie not worth pulling out of the ground. And so the longer lives of reserves, the worse it’s less, the less it’s worth. And so, but if somebody used an optionality model, saying, well, because of fundamentals, whether it’s inflation or money printing, if it’s because of scarcity, because of demand. There’s various reasons why commodities might go up in price. If they deserve to go up in price, and you have an option, they must go up in price next week. You’re probably not that interested. A year that options were something 10 years, it’s worth a lot. And so actually, people should be giving a higher value to Long live mines, not lower. And so we said, well, on a 20 year time frame, the value of something being discounted at 5% is down 73% I think it is. But the option of a 20 year option versus a one year option is, I think, seven times. Or something like that. And so if commodities do what they’ve done through time, and that’s hold their time value, you don’t need to discount for time value. Yeah, you do for risk, but we do that in different ways,
Trey Reik 40:15
the optionality of fascinating concept, because I’ve never hurt anyone on on the sell or buy side before you wrote it up. Look at it that way. My question that came to mind, of course, is, how do you properly develop the optionality model? Do you just what? How do you know? And
Speaker 1 40:35
on a side note, I think I’ve talked to 200 more more and more people, I’m not exaggerating at all. And not a single person who said, Nope, you’re you’re wrong, Dave, about what you’re saying, right? I agree it’s right. But have any of them changed how they’re doing it? No. And so we think optionality is a a concept that’s important and ought to be put into the analysis, but we’re cheap, we’re we’re value investors. We’re not even doing that. We are saying we are not going to give it any option value, but we’re also not going to assume that time destroys the value.
Trey Reik 41:19
It’s a concept, not a not an equation.
Speaker 1 41:22
Yeah. So what we’re doing is saying we’re going to assume it holds its value. Okay, we’re going to assume, if inflation is 5% this is going to go up by 5% a year. And if it’s deflation of 5% it’ll drop. Well, we’ll just say we’re indifferent between pulling the sounds out of the ground now or three years from now. And you know, because there is risk to time, we do put big discounts when we’re done with the math, but, but we do say, show me two companies that are worth the same but one has the longer life we prefer, the longer life. We’re not paying it up for it. We’re getting we’re getting free optionality, as one person said, we should even say we have non, non decaying optionality, which we think is a positive thing. So since we prefer longer life, and since Wall Street hates longer life, that gives us the ability to to own sea bridge and northern dynasty and things like that, and international Tower Hill. And it’s, you know, it’s worked. You mentioned earlier, we’ve been able to do okay during a tough decade for value. It’s because we were years too early on uranium. But we bought the Long live reserves, the fissions and the next gens and these things. And when uranium finally went up four times, these went up 10 times. And when people were scared of natural gas and hydrocarbons in 2020 The Long live reserves where the range is, and the southwesterns and they went up well. Range went up 20 times off the bottom and back the, you know, the six months of glory for gold back in 2016 and again, in 20 some of these stocks, some of these high optionality stocks went up 10 times. And so those were the sort of things that allowed us to do okay when buy and hold would not have worked on some of these things. And so, so it worked with gold in the past. It worked with natural gas. It worked with uranium, we think, once again, people are getting 40 year reserves, where you’re getting the last 30 years of it for free if you buy these sort of things.
Trey Reik 43:53
And finally, my conversation with Seabridge gold’s Rudy Frank provides a detailed roadmap for successful investing in the exploration and development sector of the gold mining industry, Rudy identifies common pitfalls in investing in the space and explains what to look for so investors can avoid these common errors. I’ve always felt also that for folks investing at home, a portfolio of gold exposure should include some exposure to bullion itself. And I even encourage people to do that first, that you need your gold exposure first, because gold does what gold does, and then you can get into gold mining shares, if you’re if you’re interested in, I think it makes sense to have representation across the spectrum, maybe a senior producer, an emerging producer, and an E and P representation. So it’s important to recognize those are all important in a portfolio, but narrowing in. On the exploration and development part of the portfolio that investors may create. What’s what? What are some of the boxes that need to be checked? What are the important characteristics and fundamentals to look for in an emerging producer?
Speaker 2 45:19
I think it’s first and foremost, once you make a discovery, is the deposit mineable? How is it going to be mined underground or open pit? Once you determine that, is it permittable? Can you get the project permitted or not? And it’s it’s a challenge today in any part of the world to get big projects permitted, and then, is it buildable? Do you have local support around you that you actually can go in and build a mine, and then, last but least is it financeable, and there are a lot of boxes you do have to check along the way, like jurisdiction, to me, is a critical factor. When I look at some of these projects around the world today that are being talked about or being built by the majors, I scratch my head, what could possibly go wrong in a jurisdiction like Pakistan, local support is critical for projects. If you don’t have the support of the indigenous and local communities around you, you don’t stand a snowball’s chance in hell on getting your project proved through the permitting process. By
Trey Reik 46:13
the way, for our viewers, where are sea bridges projects located? We didn’t establish that earlier.
Speaker 2 46:24
My bad on that Western Canada, again, coming out of the Greenstone and having mines expropriated in third world countries, we were not going to go there. So if you look at our big project, KSM, that’s in British Columbia, our next largest project, courageous like it’s in the Northwest Territories, we focused exclusively on North America Gotcha.
Trey Reik 46:41
Sorry to interrupt. So you were you were at jurisdictions, local support, social support, and I think you were heading to the importance of share count.
Speaker 2 46:54
Yes, our industry, the amount of dilution that goes on in our industry is ridiculous. Dollars that are spent on projects that never have a chance of being a mine. You look over the last 20 or 30 years, that’s remarkable how much money has been wasted. Share counts can go from 10s of millions to hundreds of millions to billions of shares outstanding without offsetting that dilution with real value. And that’s one discipline that we have followed from day one at sea bridge. Yes, we’ll we’ll suffer dilution if we can offset that dilution with ounces per share. And over the past 25 years now, we’ve delivered on that concept, continuously growing our ounce count relative to our share count.
Trey Reik 47:34
We have a slide that we’re putting up, which is your comparison of, you know, Barrick and your share count. Magniko Eagle, can you talk a little bit about those numbers? Yep, yeah.
Speaker 2 47:48
People think that the majors don’t dilute their shareholders. They do. If you look, I think over the past. I think the slide we show has, over the past 15 or 16 years, the share counts of the major gold mining companies have more than doubled doing the acquisitions they’ve done over the years, yet they have not grown their reserves in any meaningful way or their production. So if you look at their share counts on a per share basis to reserves or production, they’ve actually destroyed shareholder value, and that’s why, when you look at their share price performance over the past 25 years, they have significantly underperformed the gold price in a meaningful way. Investors buy a gold stock with the expectation that if the gold price is up by 10% the share of the company I’m buying should be up by more than 10% that has not been the case of these major companies over the last quarter century.
Trey Reik 48:38
So you’re you’re wading into one of my other personal assessments of the industry, which is the concept of negative survivorship bias in most industries, whether it’s automobiles or, you know, power plants or software companies, investors tend to gravitate towards the safety of the largest participants in the industry, but gold mining is the rare case where perhaps it’s best to avoid the very largest companies. I call that the negative survivorship bias. Can you comment on that?
Speaker 2 49:16
Yeah, and I think you know the history shows that. I mean, over the past 25 years, the gold price is up by about 800% from 216 ounce to $3,000 today, yet the share price of Barrick is up by 25% gold up 800% Barrick of 25% new month up of think 125% gold up 800% so these big companies have not delivered what they’re supposed to deliver, which is optionality and leverage to rising gold prices they’ve under. Why
Trey Reik 49:46
do you think that’s the case? What are their challenges?
Speaker 2 49:50
I think it’s simply a misallocation of capital replacing reserves. Yeah, and they’re not replacing reserves. They’re reserves for sure. Have gone down precipitously. They’re not growing production. Their production per share has gone down dramatically. The big companies tend to do their big acquisitions at equity tops, where they go in and buy projects around the world and pay a lot for it. You remember Trey that a few years ago I was asked to present at the Jim Grant conference on why has the gold industry not kept pace for the price of gold in terms of valuation? And I pointed specifically to a few acquisitions that were done at the last market, top 2010 2011 Barrett buying la Moana project in Zambia, paying $7.3 billion then eventually writing the whole thing off, Newmont buying Miramar for 1.5 billion, writing the entire thing off, and then Kinross buying red back, a project in Ghana for $7 billion and writing off more than 80% of the value. They’ve shot themselves in the foot. They’ve misallocated capital, and I think that’s why their share prices have not performed the way you would expect them to perform with gold doing what it’s done.
Trey Reik 51:02
So essentially, what you’re pointing out is that if you’re mining five or 6 million ounces a year, it’s almost impossible to replace those ounces as you mine them, unless you start to get aggressive in acquisitions, etc, and that’s where mistakes were made. Is that fair? Absolutely.
Speaker 2 51:22
So at market tops, shareholders are the big companies are demanding growth. The only way you’re going to get growth is to go out and buy things that are probably overpriced to begin with. At market bottoms, you have a completely different set of shareholders, and they want to focus on cash flow per share and and profitability, and that’s where these big companies tend to go out and sell their non core assets for pennies on the dollar and destroy value in the process.
Trey Reik 51:47
I hope listening to all these great minds has given you the data and guidance you need to develop an informed position on gold and its prospects. There are lots and lots of valuable pieces of information in each of these full interviews. So I encourage viewers to click in the description below to take a look at the entire videos. And if you’re interested in investing in gold, please visit our trusted gold partners at hard assets Alliance, and they will help guide you to an appropriate investment you can get in touch with hard asset alliance by clicking the link in the below description, and that’s all we have for today. Thanks for watching you.
