Rick Rule, a veteran investor and president and CEO of Rule Investment Media, says the only way the U.S. can get out of its current debt crisis is through inflation, as happened in the 1970s. This dynamic creates a bullish case for commodities such as precious metals, uranium and copper, and energy is also expected to benefit under the new presidential administration.
Under the rules, the U.S. will ultimately meet its debt obligations in nominal terms, but will allow inflation to erode its real value, as it did in the 1970s.
“In the 1970s, we faced the same situation, albeit less dire,” Rule said in an interview on the sidelines of an investment conference in New Orleans. “We will honor the nominal amount of our debt, but we will inflate the net present value of the debt.”
Rule emphasized the troubling size of the U.S. debt, noting that the deficit has grown by $1 trillion since a few months ago.
Rule said, “The last time we faced this situation was in the decade of the 1970s, when the purchasing power of the dollar fell by 75 percent. Not coincidentally, the price of gold rose from $35 an ounce to $850 an ounce during that period. Yes, these two things are related.” . “As far as I can tell, the only way we’re going to get out of the debt crisis is inflation.”
Rule said that while the U.S. economy appears healthy on the surface, this is largely due to easy access to credit. “If you have access to credit and understand how to use it,” he said, ”then this economy is amazing.” . However, he warns that this economic model is unsustainable and is leaving many people behind.
The notion of eliminating debt through inflation will push up the price of gold, just as the precious metal soared from $35 to $850 per ounce between 1970-1980.
While gold has performed well in recent years, Rule believes the price will rise further. He notes that the U.S. market share for precious metals is well below the historical average, which suggests significant potential for demand growth.
Rule notes that gold is ignored by 99.5% of the U.S. market as an investment and savings mechanism. He explains, “Gold doesn’t need to hit the dollar; gold doesn’t need to break the Treasury market. All it has to do is regress to the mean. Then the U.S. market quadrupled its market share.” . “Can you imagine what a fourfold increase in demand for gold and gold stocks would do to the price of gold? I don’t own gold because it could go from $2,600 to $3,000. I own it because I fear it will go to $10,000.”
These Are the Surprising Commodity Winners of the Next Boom
Rule has responded to this prospect by increasing his exposure to energy, particularly Canadian oil and gas producers. He believes the sector is likely to benefit from the new government’s deregulation, which he expects will boost LNG production and exports. Watch the video above for insights.
In addition, uranium is uniquely attractive in the current market. Unlike other commodities, producers have access to long-term contracts with fixed prices, providing certainty and making financing more readily available. According to Rule, this makes investment in uranium companies particularly attractive.
Copper also has a bullish path for next year, driven by supply constraints and growing demand, especially from developing countries seeking to expand their power supplies.
“It looks to me like the world’s copper mines …… are past our prime,” Rule said. That looming supply shortage, coupled with growing demand, could drive copper prices sharply higher in the coming years unless a global recession or depression dampens demand.
