Top 10 Memorable Moments From Season 1

Podcast Transcript

Stewart Ellis: Welcome to Sprott Gold Talk Radio. This is episode 10, our final episode of the year. Today, we're going to do things a little differently. If you have been listening all season, you may have noticed something has changed already. You're not hearing that soothing voice of our host Ed Coyne. Instead, you've got me. My name is Stewart Ellis and I'm the producer of Sprott Gold Talk Radio and I'll be filling in for Ed today. We're going to have a little fun and look back at our first season. We're going to highlight some of the most memorable and insightful moments from our great lineup of guests. Without any further ado…

Master of Ceremonies: And now The Sprott Gold Talk Radio Top Ten Memorable Moments from Season 1.

Mike DiRienzio: We like to say that silver essentially surrounds us all, and the odds are very good that if it has an on-off switch, silver is contained in that product. It can be anything from automobiles, cell phones, mobile phones, computers, etc. We mention solar panels, modern televisions, as well as the many medical uses that silver has. The white metal is essentially everywhere.

Paul Wong: All you have to do is look at the spending that's going on. The U.S. is under, for lack of a better word, a grand experiment. Fiscal spending and monetary policies are off the charts, literally. To accommodate that, the U.S. debt to GDP is running at about 130%. It's the highest it's been since the Second World War. The only way to accommodate all that debt is U.S. dollar debasement and financial repression.

Right now, the Fed is run with a policy of zero interest rates [ZIRP] and average inflation targeting [AIT]. Those two tools essentially guarantee dollar debasement and financial repression, meaning that the U.S. dollar will go lower and real rates will go deeper negative in the long term.

Shree Kargutkar: The one theme that keeps coming up when I speak with the CEOs of companies engaged in PGM production is just how overwhelming the demand for these metals is, particularly for palladium, and for platinum, in relation to the supply that is available. As long as there are deficits in these metals, I think prices will continue to rise. And when it comes to palladium, for example, the automotive sector is scrambling to secure that metal.

The thing that strikes me is that the investor demand for palladium has been negative, but it's not because the investor demand has gone down for the palladium metal. It is because the metals traders have been raiding the ETFs that hold the metal to secure the supply for the automotive chain. That has been part of the reason why we have seen this parabolic move in palladium. Because of the scarcity of palladium and the increasing emission standards that we see worldwide, the automotive industry is starting to slowly substitute back towards platinum.

Jim Grant: It was purely political. Nixon was running for election in 1972. Imagine yourself as a counselor to the President. "Mr. President, we have two choices. You can reduce federal spending and cut short the war in Vietnam and tell the Federal Reserve to cut back on monetary stimulus and can save the Bretton Woods gold convertibility feature, or you can let the money supply rip and keep spending and get reelected." What do you select? And the President selected option B.

John Hathaway: The first thing is that gold is out of favor and gold mining stocks are even more out of favor. I've been investing as a gold specialist since 1998. I have never seen the values as compelling as they are right now. If you wear your hat as a value investor or as a contrarian, you have to be interested in these stocks, even if you don't take a particularly bullish macro view of the gold price, which I think is another discussion.

We are in a world of overvalued securities, both bonds and stocks. I wrote a paper at the beginning of this year showing that the valuation of the S&P 500 was in the 100 percentile of all historical experience [see One of the Greatest Bubbles in History]. And this can go on for a bit. But it would be hard not to say that the investment consensus is priced for perfection and that we'll probably get less than perfection. Gold mining stocks, which have had a correction going back to last August, have come down to valuation levels where if the broader stock market were to sell off, which I think is a reasonable bet, you would probably have much less risk in gold mining stocks.

Again, if the stock market were to sell off, it seems that it would be bullish for gold because investors would look for defensive strategies to protect capital. Of course, both gold bullion and gold mining stocks, by extension, are part of that defensive strategy.

Ronnie Stoeferle: Well, you know, the title of this year's report or the leitmotif is Monetary Climate Change. Basically, everybody is talking about ESG (environmental, social and governance), SRI (socially responsible investing) and climate change, we want to introduce our readers to our views on another climate change, which is this monetary climate change that is currently happening. From our point of view, this pendulum was swinging over the last couple of months from a rather disinflationary side to the inflationary side. I think the inflationary forces are now really much stronger than the deflationary forces.

Just one example. Two years ago, there was a cover of Bloomberg BusinessWeek and it said, "Did Capitalism Kill Inflation?" Back then, nobody really saw inflation reappearing. Now, Barron's just had a cover showing "The I Word." So inflation is a topic again, but the big thing is that if you talk to or listen to central bankers nowadays, they will all tell you that it's temporary, it's just the base effect, that it's commodity prices now being up, etc., but that inflation numbers will come back again. Our take is different. We really see a big shift and a fundamental break.

Paul Wong: Here's another interesting tidbit. Since early January 2016, which was the low in the gold equity trade, gold equities have performed in line with the S&P 500 Index. Most people will be shocked to hear that. In the last five years, it's performed inline, it's just at the bottom end of its trade range. Just plot a gold equity index against the S&P 500 Index. Go back to the beginning of January of 2016. You'll see that there are periods when gold equities massively outperform and then they contract, massively outperform and then they contract. And right now we're in the massive contraction phase, and we're actually at the lower end of the channel. There are several reasons why. On a risk-reward basis, if you haven't looked at gold mining equities, there's a good reason to look at it.

Per Jander: I think you start by just looking at global electricity demand and how fast it's been growing. It's been doubling since the year 2000 and it's scheduled to double again by 2040. The world will need electricity regardless of where you go, and especially now, there's a lot of talk of decarbonization. Setting very aggressive targets means eliminating fossil fuels.

We're seeing a rapid expansion in the electrification of the transport sector. Even now, I don't think a day goes by without seeing an electric car on the roads, and I'm located in the Midwest. When you're looking at a place like Norway, for example,  over half of its new cars are electric. There has been a very rapid expansion in that area. We're going to need every source we have.

Renewables are a great way of generating electricity, but we're going to need baseload energy and that's traditionally where we've seen the use of fossil fuels, like coal, oil and gas. They emit greenhouse gases, but with nuclear energy the emissions are very low or none. Nuclear energy has some emissions over the lifecycle view from cradle to grave, but the power stations themselves are zero emissions.

On top of that, the reliability of nuclear power stations is that once you turn them on, they keep running. They run 90-95% of the time. They are only stopped to refuel and turned back on again, so they're very efficient. One little fingertip of a fuel pellet is the same amount of energy content as three barrels of oil or one ton of coal. A uranium fuel pellet is extremely energy dense, which makes transport easier. You don't need a lot of energy to transport the pellets. The mining techniques are also very efficient.

Paul Wong: You need to be a little bit longer term than perhaps you're comfortable with. The old market adage is markets go up on an escalator and come down on an elevator. That happens quite often.

Gold is the opposite. It goes down on an escalator and comes up in the elevator really quickly. If you take a look at a gold price chart, you'll see that it goes through long periods where it doesn't seem to do anything and then all of a sudden, in a span of four to six weeks, it will gap up 30%. That's the history of gold. That's how it trades because gold is a safe haven asset and safe-haven assets, by definition, are mean-reverting type assets. You have to stop thinking about gold in terms of escalator behavior and instead, think about gold's elevator behavior. 

Jim Grant: Gold has a way of disappointing its most devoted adherents. In 2008-09 it broke people's hearts and went down. "This is a crisis!" Gold is an ancient medium that appears in the periodic table. I didn't invent it. Some people think I invented it! It appears in the periodic table, it's an old thing and it takes its sweet time, right. It has a kind of a geological time set, that's its clock: geological. Over the sweep of a reasonable investment horizon, it protects against the depredations of the stewards of our currencies. That's what its purpose is. And that's what it mainly does. Over the course of fiscal quarters and even some years, it will disappoint, but over the course of a reasonable investment, long-term horizon, it will spare you the punishment that our central bankers so willfully are meting out.

Stewart Ellis: Well, there you have it. A big thanks to all our guests. We've certainly enjoyed having them join us and share their wisdom and insights with us. On behalf of everyone at Sprott, we thank you all for your continued support and wish you all the best for the holiday season. We'll be back in the new year with Season 2 of Sprott Gold Talk Radio.