Can gold price hit $30,000?

EPISODE 7. Anthony Milewski and Christian Purefoy are joined by special guest Simon Marcotte, President and CEO of Northern Superior Resources, to talk about what's driving the rising price of gold and whether it will reach $30,000.

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Transcript

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Hello everyone, welcome to Boom Bust and BS, with your hosts, Antony Milewski and Christian Purefoy And today we're going to explore whether gold, about $3,000 right now, can hit $30,000. We've got a special guest for it. Anthony! Do you want to do the introductions? Simon, President, CEO, Director. We’re excited today to have Simon on. Simon, of course, is the CEO of Northern Superior, which has a pretty interesting set of gold projects and developing a mining camp in Canada. I think almost 10 or 12 million ounces in the camp now. But before we get into Northern Superior, Simon, I've seen a series of articles and interviews you've done talking about the gold macro environment we're in. You've been talking about $30,000 gold, tariffs and all these things. I would be interested for the audience to just hear your perspective sitting here at $3,200 gold. What's going to happen this year? Where is gold going? Gold's going to go a lot higher. I spent and wasted way too many years of my life reading inflation targeting 2.0 by Ben Bernanke and that sort of thing, not to be able to bank on it at the right time. So now I'm all in gold. Yes, $30,000 gold may sound like frivolous, but it's far from unprecedented. I mean, gold to go to $30,000. It's 10 times from here. Oil did exactly that and then some from 1998, 1999 to 2007, 2008. Aren;t gold and oil a little different, oil is kind of energy and gold sort of currency. Correct. But at the end of the day, it's capital that needs to move in a space to move up the value. And you need a lot less capital to get gold to react the same way. I see. So your kind of thesis is by and large, people don't have a big allocation to gold, like relative to all these other things in the world. And it's just a small percentage of those people decided it was time to buy gold. And gold isn't big enough. And it would inevitably go from, as you say, $30,000 to $30,000 or $20,000. Whatever that number is just by capital allocation shifting into gold. Is that right? The gold has been out of favor and deep out of favor for quite some time. So we have heck of a catch up trade to do. But so all I'm saying is that these type of moves are far from unprecedented. And since we had this big rally in oil, there's been so much liquidity injected into the system that everything now seems to turn into a financial tsunami. And there's plenty of examples of that. So I would think that gold can achieve the same type of tsunami itself. I just think it is the next tsunami to come our way faster than the time frame it took for oil to do the same thing. Now, as far as looking at that type of level, so there's a very, very interesting chart that was put together by Tavi Costa at Crescat Capital, one of the best in the business. And what he did was simply take the reserve of the US in gold, the gold reserves of the US as a percentage to the US debt. And if you look at the last time that you had prolonged period of negative real rates, which is what I think we're going to see again, that takes you back to the 70s. And in today's dynamic, that would be the equivalent of $24,000 gold. But keep in mind that the strength of the institutions and the rule of law was never shaken back then. And right now, it is a question mark, along with a complete global geopolitical, political reshuffle. So I wouldn't be surprised if we see higher levels equivalency than what we've seen in the 70s. And the way I look at that chart that Tavi Costa put together is simple. When we look at share prices, the way companies shares are being valued, it is on today's value of the future earnings of the company. That's when things are going well. But when a company derails and a stock is in freefall, then investors will be quick to forget about the future potential of the earnings and look at the book value of a company or the asset liquidation value of a company in order to establish a floor price. Well, same thing is true for currencies. And the gold reserve of the country is basically the book value of the currency. So when things go well, the currency is valued on the trust of the government that they're not going to print too much, right? When the fiscal house is in order and all that. But when things are not going well, and we're facing a debt crisis, and there's no doubt we're facing one right now, then the book value comes in play. And I think that this is-- we're going to see a repeat of the 70s and then some. So I think this is where we're heading. And I've been talking about reasons why I believe the Trump administration is looking to induce a prolonged period of negative real rates that will get gold to go crazy. I mean, we've seen negative real rates during World War II. We've seen negative real rates during the 70s. And we've seen a very short period of negative real rates at the beginning of COVID. And when we saw that, the gold stocks did perform extremely well, although for a very short period of time. But it shows that the market hasn't forgotten about the gold space. The market hasn't forgotten about gold equities. It's just that as long as you don't see the real rates going down, it doesn't make any sense really to own gold. Gold has been moving up and has decoupled from real rates for the first time. And that's because central banks have been piling on gold like there's no tomorrow in anticipation of what is coming. Yeah, I've noticed that China, like the Chinese government, it would appear as buying large amounts of gold, potentially the Russian government, who knows how accurate or inaccurate these articles are. What do you make of the Chinese government kind of creating this gold reserve? Yeah, I mean, you're right. We don't really know. There's the official reserves of the Chinese government in gold. But going back a few years, remember, the Chinese government actually publicly stated that they encouraged their citizens to buy gold. So those who followed that advice did pretty well. And we also saw recently that the Chinese government has launched a new pilot program and started in February this year. It's a program from their national financial regulatory agency. I forgot the name. But they launched a pilot program where they allowed 10 insurance companies to put 1% of their assets into gold. And just that, 1% of the assets of those 10 companies, that's about $27 billion. 1% is $27 billion. That's just shy of 300 tons of gold. That's 10% of the official Chinese reserves of gold. It's 3-4% of the US reserves. And that's just a pilot program which they could expand. Why would all these moves in gold? Which it's crazy if you think about how recently gold was 1,200 and 1,400 and everyone's PFS and FFAT, if feasibility studies all had $1,200 and $1,400 gold. Like with all of this interest in physical gold and buying that's happening globally, why haven't-- stocks gone up five times, 10 times. Why haven't we seen a corresponding move in the equities in your view? Because gold shouldn't be where it is right now. If you are a fund manager, you will be interested in gold when the real rates go down. And you will go heavily in gold if the real rates turn negative. We have not seen that at all. So the gold has been going up because central banks have been buying. Gold has been going up because Asian retail investors have been buying. For what I said about the Chinese government statements, they're also were looking to head against Chinese real estate. I can't help but to think that anybody in Asia in the last couple of years, when they saw the yen fall off a cliff, thought, hey, something is happening here and they bought gold. But generally speaking, where the money is, the Western investors, Europe and the United States, have not moved into gold because gold shouldn't be where it is. So if gold shouldn't be where it is, why would you pay up for the cash flow that you're going to see a few years down the road? So that's why. And now there's no real-- there hasn't been any incentives for fund managers to challenge this idea. Has there been any reason for fund managers to go, you know what, even if gold shouldn't be where it is, gold is where it is, and I'm going to assume is going to keep going. You don't really have an incentive to think like that because the rest of the equity market has been doing spectacularly well. But when that turns and when real rate starts to go down, especially if it happens at the same period that the equity market doesn't perform as well, now it will make sense for gold to be moving up. And I think you're going to see a spectacular catch-up trade where the gold stocks will start paying for the current gold price. But at the same time, if real rates are starting to go down and going negative, gold is going to accelerate very quickly. So at the same time, you're going to see the gold stocks play catch-up to that value. Interestingly enough, that same thing happened with oil stocks. So if you go back to 1998, 1999, the oil stocks were extremely cheap because fund managers did not believe that gold was sustainable at 12. If you go back to 10 years before that, and during the 90s, oil was going from, you know, 10 to 12 to 10 to 12. So don't wait to just still let down. So I just want to understand. So it's the capital flows that went into oil that moved it up. And so in that same way when gold becomes more wildly allocated to, then there could be this big move up. Is that a right way to think about it for our audience? Yes. OK. And what are the catalysts right now that are going to move that? You're using to be suggesting it's going to happen quite soon. Yeah. So I mean, I think it's already happening. And that's why we were seeing gold going up. Now, so gold, like actual demand, I can think of, obviously, central banks are not going to move away. The Asian buyers are not going to go away. I was just talking about the insurance companies in China that are buying. There's another important point that is evolving, which is the implementation of Basel 3. So Basel 3 is an international standard that was put in place after the events of 2008. And it says, basically, it's physical gold, not paper gold, but physical gold can now be valued on the banks' balance sheets at 100% of its value, right? Because right now, and that changes-- did that used to not be the case? No, it used to be discounted. It still is, but that changes in July. The banks, that own gold, when it comes the time to run stress tests and you value the balance sheet, according to the Basel 3 standards, that physical gold is being discounted by 50%. So even if a bank goes, I'm very bullish on gold, I want to own it. They don't really have an incentive to do that because they're losing half of that capital overnight, when it comes to value their balance sheet. That changes. Now, the gold that they're going to own, or that they own now, will be valued at 100% of its value in the evaluation of the high quality liquid assets. That's all they call it. So it'll kind of be valued almost as like a market to market security. That's right. So that's a big change, right? Because if you're a bank, right, you are inevitably looking at what the central banks in the world are doing. And those, if you're the CEO of Bank of America or something like that, or the board of Bank of America, you look at this, you go, something's going on here. And all the central banks are buying gold. Maybe we should do the same with our assets. And you go, we can't because that's going to be only value that 50%. Now, this is changing now, right? And that can have a pretty big impact. Because if you take only the six largest banks in the US, altogether, they have about 2 trillion of high quality liquid assets, right? So 2 trillion. So if those banks go, you know what, we want to own 5% of those assets in gold just like the central banks have, that's $100 billion.$100 billion, it's about 1,000 tons of gold. Well, that's about half of the Chinese reserves. It's more than 10% of the American gold reserves. Don't tell me that's not going to have an impact. And now, what if the central banks increase their gold allocation, which is clearly a trend that we are seeing? And what if the central banks go from 5% of their reserves in gold to 20% or like we've seen in the past? I mean, this is-- this can have a major impact. So if the banks-- But then, so does that have any meaning? Let's pretend gold is at 15,000 just to pick a number, right? 30,000, 10,000. Like some kind of five times higher than today. What does that mean about the buying power of the euro, or the US dollar, or the Canadian dollar, the Australian dollar, or the Yuan? Does that have implications for currencies or not, not particularly? I mean, this is-- I don't think I have a direct impact, right? It's not because gold trades at $15,000 to more morning that the price of your big Mac is going to change. But clearly, if gold's going up is because we are seeing a period of financial repression, as you can call it, where inflation will be higher than the rates that you're getting by investing in the bond market, for example. So that is typically a period where you do have inflation. So if you don't have inflation, it'll be because the economy is very weak. So I don't think we need to predict the rate of inflation you're going to see in the economy. Because it's either you're going to get inflation or you're going to have a very lower rates because of a slowing economy. It is the real rates that matters. And those are going down. And the video that I've been discussing a bit more in details were more about tools that I would even say draconian tools that the Trump administration is looking to deploy to lower yields. And that mixed with inflationary policies is the perfect storm to see the real rates going down. And I even think they're going to go negative for an extended period of time. Just to get back slightly, what if Trump's policies are extremely volatile? So they don't go down the sort of, OK, we're going to lift all the tariffs. We're going to pump the markets. All of this sort of stuff. And that might create a bit of a flip side to your thesis. Or is that no, that just pays straight back into it again? And you're going to see the same problem. President Trump seems to be volatile in those policies. But if you go through the paper published by Stephen Marin, who is now chairman of President Trump's economic council, council of economic advisors, you're going to see that this blueprint is being followed to the letter. So this blueprint was saying, start by telegraphing tariffs, which explains the big narrative. We're going to put tariffs. We're going to take them off. We're going to put them on. So we talked about tariffs for a long time before implementing them. Then they planned on putting tariffs that were very too high, which they did. And then the plan is to negotiate lower tariffs by saying, well, if you want to enjoy our protection or defense, you're going to need to play ball. And to play ball means if we lower tariffs, you are going to take measures on your side to boost up the value of your currency. So instead of being a global plaza accord that we've seen in the '80s, Japan would never sign this accord ever again. So the US know that. So they need to deal one country with one country by country. So this is where they're at in that process, where they're exchanging lower tariffs for measures to boost the strength of the foreign currencies. But then the plan doesn't stop there. It talks about very draconian tools in order to influence rates and the dollar. For example, it talks about a user fee where if you're in Japan and you own a US treasury bond, and you have a coupon of 4%, we'll pay you three, and we'll keep 1% as a user fee. So that is a default in all but name. So they're talking about forcing foreign owner of bonds to extend the maturity of those bonds, which forces the foreign country to carry a lot more risk on behalf of the US. So those are really draconian tools. And just the fact that they are being discussed in a blueprint like this is probably one of the key reasons why you have central banks globally piling on gold. So clearly they are to me looking to induce wartime financial conditions in order to remanufacture the United States. Which by the way, I think has merit. Oh, and sorry, just to be clear, I mean, he's reduced the tariffs to China, but they're still well over 50%. It's a huge number. Yeah, exactly. So they are currently in those negotiations, right? Because let's not forget. So during a gold standard that Anthony was talking about. So in a gold standard, when you do international business, if a country exports more to the other one, then gold goes the other way, right? Goods will go on the way, gold will go the other way. So at some point, that's going to force a rebalancing of the trades, right? And normally in a fiat system like we have now, the US exports a lot, then it creates a good economy in the other country. Let's check China for the obvious example. If the US buys a lot from China, it booms the economy in China, and it creates jobs. And this normally would put upward pressure on the currency of China, which would normally stabilize things, and now make the goods in the US cheaper, and the Chinese would start to buy, right? But that's in theory only, because what happens in practice, in practice, the Chinese are selling stuff to Americans. So they receive US dollars. So then the government of China prints its money, right? To buy those US dollars. So it artificially keeps a lid on its currency. And then it accumulates this big pile of US dollars, which it puts back into the United States, in order to be able to own a yield, a return on that money. So they buy a treasury, which then allows the US to consistently run big deficit, because they can finance it with the Chinese that put the money back in, right? So this situation is not sustainable forever. Now, it could have kept going for 100 years, could have kept going for two years, could have kept going for 500 years, we're never going to know, right? Because now they decided that it was enough. But this is the situation that created a big increase into the economy of the foreign countries, and back home, and in the US it created the asset bubbles, right? So we've seen asset bubbles in real estate in the stock market, that's why, right? Because all that money always comes back in. So if we're going to attack the trades and look to rebalance the trades, that has a huge implication because you can burst this big, big bubble that we're in. And that's a problem, because then it inevitably triggers a recession if not a depression. So we're dealing with very risky stuff at the moment. So we're over $3,000 per ounce now. You know, you're forecasting 30,000, that's 10 times. What kind of timeframes are you thinking of for this? It'll be on Tuesday, right after the close. That's one. No, that's what I was saying, right? So oil went through the same pattern going from 1998 to 2008, right? It took about nine years, call it. So yeah, I think within nine years we're going to see that. But I think we can see it faster. You're not necessarily, but you're not necessarily losing the corresponding currency value, right? So it's more like the asset, like oil goes up, gold goes up with the asset allocation. But if it goes up 30 times, it doesn't mean, as you say, I'm well-masking the question, actually. Like let's pretend a big, I think a big Mac is probably $7, $6, now, right? I don't know. It doesn't mean that a big Mac becomes $70, doesn't it? No, I don't think it does. Like most of the money supplies not back ed by gold. It's not. Now it'll be even less. So, you know, probably like, you know, most of the money supply is not back by gold, probably like 99% is not back by gold. So now it'll be like 99.5% not back by gold. So I don't think that gold moving up, you know, people when people look at, oh, gold 30,000, well, I mean, the world's over, right? No, it doesn't mean the world's over, right? At all. When back in the late '90s, people were saying, well, we've learned the world, the economy, the world cannot function with oil above 10. So it's unsustainable at 12. Well, it went to 140 and we're still running, right? So I don't buy these arguments that if gold goes up, then we're just shutting down the entire world and going, oh, I don't think that's the case. But that'd be good for junior minors. Oh, for sure. And of course, of course, the implication is, I mean, actually, it would just be phenomenal because if you're saying that the currency is not going to appreciate in the same way. So you have $30,000 gold, $20,000 gold. And you have all these deposits. They don't only need a $1,400 gold to break even. Maybe they need, let's say there's some inflation, $2,800 gold. But $20,000 gold, junior minors and gold minors in generally are going to be an insane value proposition. I mean, they'll generate cash flow. And obviously, at some point, they would re-rate. I mean, I'm going to just be spectacular for the equities. Yeah. I mean, that's coming. Like as soon as the real rate starts falling, you're going to see-- Did you think it matters where they are? Like, do you think that these gold mines have to be in the US and Canada? Or do you think-- because a lot of historic mining has been in Africa. There's been a lot of great deposits. Or do you think it's going to matter where the gold comes from? Or it's going to be easier or higher value to have a Canadian or an American gold company? I think they'll have more value here. Historically, it hasn't been the case. So the way I've looked at it so currently, because especially the junior space, you are a rock bottom valuation. I don't see the need to take geo-political risk and go invest into Africa. You're playing the cycle. You're going to get just as much torque here. To me, you go into Africa when you're at the top of the cycle. And you still need kind of dig to search for alpha or for value. So I don't see a need to go into those jurisdictions, especially not in the junior space. Because if you look at the junior space, let's face it. We're exploring. We find deposits. We advance those deposits. We make them bigger. We derisk them with economic studies. But ultimately, we want to sell them to our larger company who's going to build those mines. So if you advance a project in Africa, the amount of buyers of big companies looking to acquire projects in Africa is a pretty shallow pool. A lot of the majors have been moving away from Africa. And that's because of Chinese control, most of the African continent now. So I think especially in the junior space, you're much better off looking at Canada and the US right now. Makes sense. Well, look, I mean, it's been great to have you on. I think people are really interested to hear what you have to say about this. Because everyone is watching gold every day that an article is about gold. It's performed spectacularly. The equities haven't yet. And I think people are trying to understand it and make sense of it. And they haven't followed gold for a decade. And so people are just kind of coming back to gold now and really trying to understand it. It's wonderful. Thank you very much. Everyone, don't forget to subscribe. Thanks for having me, guys.