Summary
➡ The Sprott Physical Trust experienced a high demand for physical silver, leading to a shortage in various cities. This highlighted an imbalance between the physical and paper silver markets, with more silver transactions happening in the paper market than the physical. The silver squeeze, a market event where investors tried to increase silver prices, didn’t have the expected outcome due to a lack of persistence and the use of margin. The future of the silver market depends on the continued demand and the conversion of informal silver to formal silver, which is already happening in places like China.
➡ The article discusses the dynamics of the precious metals market, focusing on gold and silver. It highlights that the market is influenced by factors such as fear, newsflow, and deficits. The article also mentions that the central banks have been buying gold, but not silver, which has affected the market. Lastly, it introduces a gold boot camp for those serious about understanding and investing in gold.
➡ Battle Bank, a new banking alternative, is set to launch in March next year. It aims to offer unique services like loans against physical gold and silver, high yield money market accounts, and the ability to save in 20 different currencies. The bank will also allow customers to invest their IRA funds in various assets like real estate, franchises, private equity, and cryptocurrencies. Battle Bank’s goal is to provide a range of banking services not currently offered by traditional banks.
Transcript
Been a while since we’ve had him on the show, which makes it a great time to catch up with Rick Rule of the New Battle bank and also Rule Investment Media, longtime veteran of the precious metals and resource markets. And Rick, I think it’s been, it was either 2011 or 2012 that we met for the first time. So we’re over a decade now and a pleasure to have you back in here as we round out 2024, which has certainly been an eventful year in gold and silver. But most importantly, how are you doing today, my friend? Life is very good, thank you.
And I’ve, I’ve watched with pleasure the growth, the well deserved growth of your channel. So you haven’t been wasting your time over this last decade. Congratulations. Yeah, we even, well, we’re not back to all the all time high levels in silver yet, but we’re making some progress. And perhaps the first thing, as I mentioned, obviously we’re mid December now, so it’s I guess you can measure depending on the actual start to the end of the year. But really I would say this is the third most significant year in the history of precious metals since we’ve gone to the current system.
We have 1980, 2011. Interesting that we’ve seen this movement this year where again as you remember at the beginning of the year we heard six or seven interest rate cuts which got pushed back. So it wasn’t a case where we got unexpected QE and interest rate cuts. So what do you think led to the move that we’ve seen finally occurring in this particular time? I just think that the market was behind itself. Chris, when people say, Rick, when are the metals price going to move in particular the gold price, I say I think they’re going to move in 2000.
In 2000, gold was 253 bucks an ounce. Now it’s 2,700 bucks. It’s moved at 8% compounded for 24 years. This year was just playing catch up. That’s all it was about, really. Nothing has changed, Chris. The market share of precious metals and precious metals related assets in the United States relative to other savings and investment classes is only 1/2 of 1%, which is to say less than 1/2 of 1% of total savings and investment assets in the United States is denominated in precious metals and precious metals related assets. The four decade mean is 2%. The gold bugs say the treasury market’s going to implode, the dollar’s going to go to zero, gold is going to replace the US Dollars.
That’s all horseshit. That’s all horseshit. And it doesn’t have to happen. If the market share of precious metals reverts to mean, which is what I think is going to happen and I think it’s going to happen over the next five years, demand for the stuff increases fourfold. Fourfold. Now people ask me for price targets. I have no earthly idea and I couldn’t care less about information that’s irrelevant. All I can say is if demand increases fourfold, it’s going to have an impact on price. I can also say in direct answer to your question, I don’t know why, but in prior gold bull markets the market has been led by gold.
At a certain point, when gold establishes the momentum and the generalist investor buys the precious metal narrative leadership switches to silver and silver rises further and faster than gold. When will that occur? I have no earthly idea. Will it occur? I’m 100% confident that it will. Okay, and interesting what you mentioned there. I think you made clear your feelings on whether we’re going to have an implosion of the dollar or something of that nature. What do you see? Perhaps if we went 10 or 20 years out, obviously we have the debt growing. It seems like it’s not going to get repaid.
And some flaws in the system. Certainly the degree to which they could paper that over for longer than we think is possible is lesson hopefully we’ve learned the last couple of years. But what do you think ultimately happens with this? Well, I’m 71 years of age now. I’m a very healthy 71 year old. I think I’ll be graced with many more years on earth. And I think the US dollar will be the world’s reserve currency for the rest of my life. I think the hegemony of the US Dollar will be called into question because of the idiotic imposition of US policies, the weaponization of the US currency.
But I think to quote Doug Casey, the dollar is the worst currency in the world, with the sole exception of all the others. So I think the dollar will continue to do well if you measure it against other fiat currencies, which will do less well. But I think for Americans or for foreigners who have chosen to denominate their lives in US dollars, that the maintenance of purchasing power in the US dollar will increasingly be challenged, not relative to the maintenance of purchasing power in Canadian dollars or euros, but in an absolute sense. And I think it’s important for your listeners to understand the reasons why, with the caveat that it might be boring.
It’s arithmetic, not narrative. The measurement that people use in terms of the deterioration of the purchasing power of the US dollar is the cpi. That’s the stated rate of inflation. And it’s fiction. It’s absolute fiction. They suggest to you that CPI as a measure of inflation, and maybe it is defined inflation, but it’s no measure of the decline in purchasing power. Your listeners need to ask themselves, in the last four years since 2000, where the CPI stated rate of inflation has varied between 2.4 and 2.7%. So let’s call it 2.5% compounded. What’s happened to the price of gasoline in four years? How about healthcare and health insurance? Mortgage interest rates have doubled.
The price of groceries is a political issue. And of course the CPI doesn’t include tax. Have your taxes gone up in four years? Chris? Yes, I would suggest to you that for the basket of goods and services consumed by Chris Marcus or Rick Rule that the purchasing power of the US dollar is declining by about seven and a half percent compounded. Here’s the crux for the dollar. If they’re paying you 4.2 in the US 10 year treasury in a currency that’s declining by 7 and a half percent a year, your savings are costing you. It is in circumstances over time where investors are concerned about the maintenance of their purchasing power and fiat instruments that gold does well.
If you look at the period 2000 to 2024, gold has kept pace with the deterioration of the purchasing power of the US dollar. One could say that gold isn’t up from 253 to 2700. One could say that gold hasn’t increased in price sevenfold, but rather that the dollar has deteriorated in terms of purchasing power sevenfold. And I think what you saw this year is the beginning of the realization, just the beginning of the realization of that calculus. Yeah, I think that’s well put, especially the way you phrased it. Where and I agree that the dollar as the reserve Currency probably going to go on a lot longer than many, including myself in the past have said.
Although as it remains that reserve currency, what it’s buying in terms of goods, obviously we know how that’s going to go. So with that said, Rick, there’s something I’ve been wanting to ask you for a while because this actually goes back to the silver squeeze in 2021, amazingly, almost four years ago now, and obviously a lot happened there. Although what I found particularly interesting I. You were running or involved with the PSLV Trust back then, and I heard a couple of interviews where you mentioned that, you know, initially it was more just the retail product that got caught offside on that one weekend.
Yet later, as more money kept coming into PSLV to fill the demands, because you can’t have, well, the metals coming or it’s over here, we’re going to get it. And you talked about how you cleared out a couple of different cities of their silver supply and perhaps we could start there and then I might have a couple questions to tack on. That was an interesting experience. I had anticipated that the silver market was broad enough that it could accommodate our demand in almost any size. And while the silver market is very, very, very broad, the silver market was then, and I would suggest is today, much more liquid or much, pardon me, much less liquid than you believe.
While there’s a lot of supply in places like private ownership by the Indian peasantry, that isn’t good delivery silver. And in the case of the Sprott Physical Trust, we could only buy silver that was in the LBME or in the COMEX good delivery form. And we were having days when there was $50 million of inflow into our physical silver trust. No problem, says Rick. We clean out Toronto. Okay. We go to Montreal. Clean out Montreal. Interesting. Well, no problem. We go to Chicago. We clean out Chicago. Hmm. This is becoming concerning. The market’s frontrunning us. We go to New York, we clean out New York.
It turned out that London was ultimately able to accommodate us, but London wasn’t able to accommodate us overnight, which is what we were used to. We were used to buying silver and having the silver go from somebody else’s pile in a vault through a screen to our pile in a vault. What happened was that we cleaned out all the piles until we ran into the final piles in London and Zurich, which accommodated us. I actually think that the young adherents to the silver squeeze were onto something. I think their problem was that they bought a long term narrative and they took in short term tactics.
I actually believe that there are imbalances in the silver market in particular between the physical market and the paper market. And that’s what we ran into. There’s tons of silver that trades every day in the physical markets. Some days 100 times more silver transacts in the paper market than exists for good delivery in the physicals market. It was our bad fault, it was our bad fortune to run into that literally. Chris said we got through it, but it contributed to my baldness. Oh, you still look good. You got plenty up there. But I think that the people who were interested in the arithmetic around the silver squeeze didn’t understand that they needed to be persistent and tenacious.
In other words, that the unraveling of the dichotomy between the physical market and the paper market could take five years to unwrap. And many of the youngsters who were involved in the silver squeeze had a much more limited timeframe. They wanted to happen in five weeks or six weeks. And I suspect that many of them employed much too much margin. If you’re paying margin interest for five years, if the event that you’re hoping to participate in takes five years and you’re paying 8% a year, you might not be early, you might be wrong if you’re an interest payer.
And I think that’s what some of the youngsters in the silver squeeze ran into. Yeah. And interesting you mentioned not five weeks but five years. We’re almost four years in, so maybe next year will be the year. Although Rick, I remember shortly. Well, remember that, remember that the, that a lot of the retail participation in the silver squeeze abdicated. They haven’t held the silver for five years. When silver didn’t meet their expectation, they liquidated in favor of mean stop meme stocks in favor of bitcoin in favor of some other speculative asset. So five years would have involved them continuing to, in their parlance, stack.
That didn’t happen. They decided to take on the banks and the banks kicked their ass. Let’s get this straight. It doesn’t change the equation. What the silver apes hope to cause to occur will be done by the market in the market’s own time. It will take place likely without the apes. So you still do see that as an event. That, can we say is a matter of when rather than if, a statement. I know you. The disconnect between the futures market and the fiscal market is as broad as it ever was. And the disconnect that we at Sprott faced, which is to say the temporary increase in demand relative to the system’s ability to effectuate good delivery supply is there.
And we weren’t big buyers. You’ll recall that at that point in time, over the course of a year, year and a half, we probably accounted for a billion and a half or $2 billion in demand. We were the players because we were the only instrument that took silver out of circulation. The ETFs ebbed and flowed on a daily basis. When the market replaces Sprott, which will happen, that really, truly changes the equation. Yeah, I could certainly imagine that, because shortly before that happened, let’s say between silver squeeze and that summer, there was a report from the lbma, I think it was in April of that year they mentioned, had the demand continued at that pace, that they were weeks away from running out, which I certainly took notice of that statement.
So, based on what you’re saying, are able to venture any sort of feel for how close do you think back in 2021 when this was happening, you said eventually the in London, they were able to fill what you needed. Are you able to get any idea of how close we actually might have come to a break point back then? Not a clue. If what happened at that point in time would have been accompanied by a liquidity squeeze, a market event like 2008, it would have been game over. If you would have seen credit restricted in the futures market against good delivery failures in the cash market, it would have been game over.
Now understand that you wouldn’t have had a short squeeze like you have in a fair market. The LBMA would have declared something called force majeure and they wouldn’t have demanded settlement in silver. They would have cash settled and the exchange would have determined the cash settlement price just like they did in the tin market. So part of the premise around the silver squeeze, which suggests that we had a fair market in silver, that the exchange isn’t controlled by the dealers in the exchange, is false. That notwithstanding, people would have made a lot of money. Understand too, that the failure to deliver didn’t reflect overall physical inventories in the silver market.
It involved good delivery silver, the silver that is the stuff of the paper futures and the inventory that is required for responsible investment vehicles like Sprott physical silver over time. If institutional demand and retail demand for silver continues, what you will see is a dishoarding of informal silver silver held by living, breathing human beings, the Middle east and in South Asia, and the reintroduction of that silver into the formal system, provided it doesn’t happen all at once, provided it happens over time and I think this process probably accelerates. You’re seeing a conversion of informal silver to formal silver in China as an example.
I think really the possibility for a cataclysmic break really has to do with how rapidly the market would be challenged. We were a catalyst that challenged that market, Chris, and to be honest with you, a fairly small catalyst. The fact that a billion and a half or $2 billion in net buying had that dramatic an impact on the physical good delivery silver market. Let me know just how leveraged the futures market was. Yep. And you mentioned in there that at some point you could foresee silver coming from private holders and then going into industrial uses. We’ve actually had reports from a couple bullion dealers this year that that is already beginning.
I’m guessing you might be aware that there’s been a lot of retail selling in silver over this past year and a half. So seeing that to some degree, and I guess the question that this all leads to is that given what you just described, what was happening then and in the past couple years we’ve had the Silver Institute report deficits for three to five years, depending if you count the ETFs or not, reporting another large deficit on track for this year. So I’ve wondered if we were that close and maybe it. And you touched on how sometimes there’s a matter of you don’t have silver in a certain form versus silver exists somewhere that could be refined into that form.
So I guess, Jess, if you could put it all together with what you described and that we see deficits reported, if you have any comment and whether you have a different feel for whether there is a deficit or not, but there is, there is certainly a deficit. Understand that the fabricators, the, the people who are making silver panels don’t need lbma, good delivery silver. They could care less. They are not fiduciaries storing it on behalf of third party investors. They are people who are using metal for its reflective property. And to my knowledge, there is no major fabricator that is experiencing delivery failures.
The supplies of industrial grade silver and silver alloys relative to the industrial demand is very much intact. That’s still a very robust market. I think that you’re seeing leakage from retail holders because retail holders are bored. They don’t need it to make mirrors. And I suspect until you have seen sufficient momentum established by the gold market, that generalist money comes in the silver space, that that circumstance continues. It will continue until it doesn’t. I realize that that doesn’t make a very good Internet headline. You know, for a video. But that doesn’t matter much. Your viewers need to understand that precious metals markets are very much intact.
That traditionally a precious metals bull market has the momentum established by the fear buyer, the gold buyer. And at some point in time when the narrative establishes itself, either because of newsflow or some other reason that silver replaces gold, as market leaders, I don’t know where we are in the market. Nobody else does either, although some people pretend to know. I just know that this is a question where the answer begins with when, not if. And if that answer isn’t sufficient, people should do something else with their money. I think that’s fair enough. And I guess the other thing that wanted to touch on is that we have a deficit.
We’ve seen the known inventories come down over the past three years. I don’t, as you pointed out, I wouldn’t say we’re in code red territory where they’re scrambling for the last bar by any means, but obviously you’re very involved in the equity side. And we’ve talked to miners, talked to analysts, fund managers, and there’s not a lot of money going in there. Even had a couple spurts this year from my perspective, where a couple times you had gold or silver up, you know, a good percentage on few days in a row and money came in, but we’re not having capital go in to address this deficit.
It’s almost like you have a deficit and rather than working things over time, getting permits done quickly, we’re seeing the opposite of that. Is it possible we get to the point where there is some sort of shortage on the industrial side? Or how do you see that all fitting together? I think the deficit is bigger than we think it is because I think the informal supply was bigger than we thought it was. If you, I mean, I remember all the way back to the middle part of the decade of the 80s when Buffett suddenly reported to the world that he owned 15% of the world’s above ground supplies of silver, that is to say reported supplies, and the silver price just shot.
That’s before you were in the racket. I think the silver price just shot up and then it collapsed. And of course all the silver bugs said manipulation, manipulation. That’s wrong. What happened is that the Indian rupiah fell by 50% in US dollar terms and the price of silver went up by 200% in US dollar terms. So from the point of view of the Indian peasantry, the price of their silver went up by 400%. And that that occurred in conjunction with a bad Harvest in India, where the Indian peasants had a choice between keeping their silver and feeding their kids.
Well, that was pretty straightforward. And a whole bunch of silver came out of inventory from a place that we didn’t know it had been in inventory. The understanding that I have, and it’s a very informal understanding, but the understanding that I have with the Gujarati precious metals trading community, an informal community, I call them traders, their government calls them smugglers, is that there has been substantial physical disording of silver that has accompanied the reduction in the exchange rate between the Indian rupiah and the US Dollar. And I think that the offtake of physical silver from informal hoarders in emerging markets in favor of industrial application has been greater than we believe it is.
We can observe it in official sectors. We can observe dis hoarding from industrial refiners like Englehart. What we don’t see is the informal dishoarding that’s taken place. And I suspect that the informal dishoarding has been much greater than we believe. And I think that the consequence of that will be that if I’m right about the direction of precious metals prices, that the adjustment, if that’s the right word, between the paper market and the physical market could be, maybe not will be, but could be much more dramatic than we believe. Okay, that makes a lot of sense.
And perhaps the last one for you here today, you touched on this a little bit before when you were mentioning. We were talking about the amount of silver that’s been sold back, but looking at it a different way, I’d say in the past five years, we’ve seen a shift in gold where if you told people five years ago, hey, central banks are going to be buying in the amounts they are, and we’re going to see governments and central banks start to look at things differently. So we’ve seen a shift in gold. We’ve. I don’t know that I would say we’ve seen that in silver.
Certainly within the precious metals community, there have been new people who have come in yet. If my mom didn’t know me, she wouldn’t be close to picking up the phone to buy silver yet. Do you still expect that, that we’ll see? You make the most. You make the most important of all of all points, which is to say that the strength in gold is not retail strength. The retail has not been buying it. The central banks have been buying it. If you measure popular sentiment around gold with cash inflows to the ETFs, you only saw five months of positive flow into ETFs.
Right now you’re selling retail selling of gold and retail selling of silver. Why did gold respond and silver not? Well, that’s simple. Central banks buy gold. With the exception of stated intentions by the Russians, central banks don’t buy silver. So a market that moves as a consequence of the participation of one buyer probably doesn’t move in a sector where that buyer isn’t focused. I believe that the motivations for central bank buying, one being the weaponization of the US Dollar and the extraterritorial imposition of US will, has been partially responsible for central bank buying of gold. I also believe that the calculus around the US Dollar, which we talked about earlier, a currency where they pay you 4.2%, where the real purchasing power of the currency is declining by 7.5%, has also led to the selling of US treasuries and the buying of gold by foreign countries.
And when that simple calculus becomes apparent to retail on a global basis, then I think you see a real precious metals bull market. When you see continued central bank buying, continued official sector buying, and you see net inflows to the gold ETFs, then the market gets legs. Of course, everybody wants to ask an old man like me when that’s going to occur. And an old man that’s been on earth as long as I have has the good sense not to answer that question. Because the truth of the matter is I don’t nor does anyone else know.
A wise policy in precious metals. Although man, I should have said 2024 and here he would have been right. Although Rick, well said and really appreciate everything you shared here. And perhaps just in wrapping up, I know you have a gold boot camp coming up as well as a few other things going on and perhaps you let people know about that. Thank you for the opportunity. Our boot camps, for those of your listeners who don’t know, occur quarterly. They’re eight hour long, very deep dive sessions. Don’t come to the boot camp if you’re a tourist. If you’re coming for entertainment amusement, don’t do it.
We’re going to work your behind off for eight hours. In fact, we’re going to give you so much information that to get your money’s worth, you’re going to have to replay the tapes a couple times. So if you’re not really, you’re not really prepared to do 24 hours worth of work, don’t come. We will have the World Gold Council. We’ll have great participants who describe the gold market the way it is and describe too the ways that you can participate in the market. Many, many, many ways. We’ll talk about investment and investment quality gold stocks. We’ll talk about speculating in the juniors.
We’ll talk about physical gold ownership and the surrogates ETF or the trust ownerships. If you really care about gold as a topic, if gold is important to your future and your family’s future, by all means come. Like every other educational product I’ve offered up in the last 30 years, if you come, if you work hard and you don’t feel you got your money’s worth, there’s a 100% no questions asked money back guarantee. The financial risk is all mine, but you’ll never get back the eight hours of your life. So if you weren’t serious about gold, please don’t come.
If you are serious about gold, please do come. This is a topic that almost nobody understands. 1/2 of 1% of the savings and investment assets of Americans are tied up in precious metals and precious metals securities. This is stupidly low and we hope to be able to address that. We’ve done it in other topics like uranium and silver. We’ve had 3,400 people show up at our boot camps. We hope that we can approach that number in the gold boot camp. Well, I could imagine it’ll be exciting, especially coming up the beginning of the year as people are getting ready for their new allocations.
I guess that’s beginning now as well, but that is January 11, 8 to 4pm Pacific time. And Rick, perhaps you could just give us a quick update on how things are coming along with Battle bank as well before we wrap up. Yeah, I mean, for all your listeners who are unhappy with the current bank, which I suspect is all your listeners, we’re creating an alternative called Battle Bank. We have attempted to come in through the front door for a long time through the regulatory process that’s getting more crowded. So what we’ve decided to do now is buy an existing licensed chartered bank, shortcutting most of the regulatory process.
We would anticipate being open for business in March of next year with some certainty because we’re paying too much for an existing bank and ours will be a different bank. We will, as an example, establish a margin loan for you for your physical gold and silver so that you can have access to the liquidity that you have tied up in your gold and silver without having to sell your gold and silver. We will have one simple deposit product, US dollar deposit product, a high yield money market account where we will pay you in the best quartile of interest payers nationwide, including paying you on your checking account.
We will also allow you, if you think it’s appropriate, to save in 20 different currencies, not just the US dollar. Importantly too Chris and you’ll love this. At our bank, your IRA will be your ira. It won’t merely be a receptacle for annuities and mutual funds offered up by the big financial services conglomerates. Want to buy an owner operated duplex in your ira? No problem. Triplex do that too. Buy a franchise? Absolutely. Invest in private equity? Sure. Invest in crypto? No problem. At our bank, our checkbook IRA allows you to allocate the capital in your IRA as you see fit.
I am really excited about this product. At our last bank, EverBank, over 14 years, we started from scratch and built a bank with 270,000 customers, $28 billion in assets. Our customers were like you, self actualized, aspiring people who wanted a range of goods and services from the banking community that wasn’t on offer. We’re just doing it again. We’d love your business. Go to battlebank.com or go to Rural Investment Media in the question and comment section. Just write bank and I’ll send you the information associated with Battle Bank. And speaking of Rural Investment media, Chris, for any of your listeners who like what I have to say about precious metals investing or natural resource investing, if you go to RuralInvestmentMedia.com and list your natural resource stocks for free for no obligation, I’ll personally rank them.
Understand that my rankings are conservative, so don’t have your feelings hurt, but absolutely list your natural resource stocks. Please no crypto, please no pot stocks, please no tech stocks, natural resource stocks only. I’ll rank them 1 to 10. I’ll comment on issues where I think my comments might have value. Do you still get people writing in asking what you think of Nvidia’s last earnings? And you know, if you offer something for free, people I guess figure what’s my downside in asking. So they’ll ask me questions about cryptocurrencies that I didn’t know exist. They’ll ask me all kinds of stuff about technology.
They’ll ask me about psilocybin stocks and stuff like that. I don’t mind it. I just don’t have anything to add. Well, I hear you and hopefully people will stick to mining stocks and in either case I think people will find this one helpful. I sure enjoyed it and it’s nice to catch up with you as always. So Links to Rule investment media, the Battle bank and also the gold investment boot camp in the description field below. So go check those out. And Rick, thank you as always for joining me. Well, we’ll have to do this again sooner than last time, but great to catch up with you now, Chris.
I look forward to it. Thank you for doing enough work around my work that you asked me good questions. I appreciate that. Well, thank you and we’ll talk to you soon. Bye bye. Well, thank you Rick, for today’s show. Always fun to catch up with him and check in with what he’s seeing and some of the things he’s seen in the gold and silver markets in the time that he has been doing this. So sure hope you enjoyed that at home. And also thank you to for Fortuna Mining who kindly brought us today’s show. And Fortuna did have some drill results out from their Seguela mine on Monday where they extended their Kingfisher deposit with a drill intersect of 4.1 grams per ton gold over 15.3 meters.
And they also averaged 3.3 grams per ton gold 150 meters further along strike. And to find out a bit more about the drill results from Fortuna, well we have a video we posted yesterday gives a brief recap of that and that one is coming your way now.
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