The Real Reason Gold Price Is Surging & Silver Still Lags

Craig Hemke (00:00)
I'm your host, Craig Hemke, and joining me is Bob Thompson. Bob is a senior portfolio manager at Raymond James in Vancouver. He's an old friend of Eric Sprott and gee, Bob, we've known each other long enough now we can say we're old friends too.

Bob Thompson (00:55)
So you a long time, Craig. I have two small kids at home, what do they say? The days are long, but the years are short. I'm not sure about that right now, but anyway.

Craig Hemke (01:04)
That's right.

That also explains why your hair is a little more white than mine. Anyways, we'll try to wrap up this crazy month here in a second. Again, just use a reminder. I mean, this all comes to you from Sprott Money. They are the ones footing the bill to get this onto the internet so that you can enjoy it and learn from it. So please thank them one way or the other with a like or a subscribe or visit SprottMoney.com.

Bob Thompson (01:07)
There you go.

Craig Hemke (01:29)
Get yourself some physical metal dollar cost average in anything is always a good strategy So it doesn't matter, know price is high or you think the price is too low Whatever you think go to sprop money.com. Check out all of the deals They'll ship it to you insured and guaranteed if you buy more than 500 bucks. That's a pretty good deal, too Again sprop money.com. All right, bob What a what a month this has been, you know, we were cooking and then Trump comes out with his tariffs and then we just absolutely fall apart for a few days. I mean, then gold goes soaring back. You know, we have four days of $100 gains in two weeks. So as we put it all together, what are your thoughts as we get the end of the month of April?

Bob Thompson (02:15)
Well, never fails to amaze me that, you know, markets always do that when they get some existential shock. Everything collapses, gold, silver, it doesn't matter. Babies, bath water, the whole deal. And the reason for that happening is because everybody's always over-leveraged at the top. We saw it in 08, we saw it so many times along the way. know, Charlie Munger said, the only thing that destroys your financial future is liquor and leverage.

Craig Hemke (02:30)
Mm-hmm.

Bob Thompson (02:45)
All right. And then there was another L in there, but we won't say that one. So, ⁓ you know, it's always this leverage, right? So this deleveraging event caused everything to collapse. Gold, silver, collapsed in value, not as bad as the others because it was pretty under owned, but it did, right? So now once we get that kind of deleveraging event that happens, then things start to straighten out and what's supposed to go up starts to go up and what is going to continue down.

Craig Hemke (03:10)
Mm-hmm.

Bob Thompson (03:12)
But a lot of times these are kind of once in 10 years sort of events and what leads us out on the other side is something different than what led us in to the bubble. So I think we're going to start to see that. The whole AI, I don't want to say bubble, probably is, but it's going to change the world, but you probably won't make a lot of money there because a lot of that was already priced in, right?

Same thing happened with the internet bubble, but we need that sort of thing to happen in gold and silver for this money to reallocate to other sectors, right? Because if you're a portfolio manager and you're underperforming your index because all the AI stocks are going up, you're going to be buying those. You don't care whether the gold's undervalued or not. You're going to be buying what's hot, right? So once that rolls over, it doesn't start to do well, you start to look for other areas, and that's when the money starts to flow into our sector. So from a macro perspective,

You know, I think we're going to have a lot of uncertainty going forward here, but that's going to create a pretty good opportunity in our space.

Craig Hemke (04:16)
You know, under the surface, Bob, we've had that, you everyone knows we've had this great start to the year in gold, you know, whatever up 25 % year to date or something like that. But, you know, the dollar index peaked out north of 110 in early January and then hit a low last week in 98. I mean, that's a more than 10 % drop. Of course, gold is going to go up in a situation like that. You think all commodities would go up, right? That's got to be good for the sector.

Bob Thompson (04:20)
Mm-hmm. Yeah.

Right. Yeah. You know, I, I once heard, um, which I thought was fantastic. You know, somebody said, if he said, if you really want to get these decade long investment pieces, correct, you know, forgetting about the ups and downs in the short run, but this, a decade long thesis, they said, all you need to do is get the direction of the US dollar, right? Cause that pretty much affects everything. Right. So back in the late nineties, the US dollar DXY peaked at 120, right? 2022, was 114.

And then it peaked again, you know, 110 recently. So yeah, we've had this peaking process in the last couple of years. And I think the US dollar's in decline for a relatively long period of time. There'll be rebounds. But in that environment, the first out of the gate is always gold, right? That's the first out of the gate. Then we start to do the catch up with silver and copper and oil and all the other commodities along the way, because they're all priced in US dollars. So really, when the US dollar drops a lot,

Commodities have no choice but to go up. And that starts a commodity boom. I think we've started that. And that's why I've been talking about so much how this is very similar to that 2000 to 2002 time frame from 25 years ago. I went on some shows last year. And people thought I was crazy because I said, you know, I can see an environment where the TSX is going to start to outperform the S &P for quite a period of time.

You know, lot of bad things happening in Canada here. People are like, you're crazy. The Canadian dollar is going to zero. Well, here we are. The TSX has outperformed the S &P quite a bit over the last little while. I think it's only the start because portfolio managers haven't reallocated yet. So we're in a situation where things are changing.

Craig Hemke (06:09)
I know, wait, that's gonna happen. How far down is the TSX from its highs, from its peak?

Bob Thompson (06:29)
Interestingly enough, back in 2007, the TSX and the DAO were the same, the same level. Today, the Dow is 40,000 and the TSX is 24,000. So, I'm a big reversion to the mean sort of guy, right? Things revert to the mean sooner or later. Will the TSX go back to be what the Dow is equal? Possibly, but it doesn't even have to, right? For the TSX to outperform the Dow pretty substantially. I think we're in that sort of environment. Because the TSX isn't all commodities, but there's substantial net energy in metals and minerals. Gold is about 9.5 % of it. So we're in an environment right now where generalist portfolio managers are going in Canada here saying, my god, I'm underperforming my index. Why am I underperforming my index? Well, because gold's 9 % of it. The gold stocks have had a huge run. And guess what? The average portfolio manager has zero. Zero gold in their portfolios.

Craig Hemke (07:31)
Right, right. Well, I mean, you pay attention to this stuff, Bob. I mean, you're in Vancouver. You focus on the resource sector. But yet, all I read about over the last, at least the last week, is how, yeah, gold is definitely topped, you know, and it's an overcrowded sector, like everybody's, like everybody, the shoeshine guy and the cab driver, everybody's buying gold now. Have you sensed in your office, I mean, are guys, you know, coming up, knocking on your window, hey Bob, I want to start getting into some gold stocks and resource stock. Anybody? Are you like a popular guy yet?

Bob Thompson (08:08)
Zero. Nobody's asking about gold. Nobody cares. Nobody's asking why the stocks haven't gone up. Nobody even cares. Nobody even knows because they're still focused on the videos and all the other stocks that have just done well. you know, the numbers came out the other day, gold outperformed the S &P 500 for 25 years now, Since 2000. And if you say that to most people, they're absolutely completely, completely shocked. But we're still at the beginning.
You know, it's funny. Gold got to $3,500, touched it. Everybody that I saw, and know Twitter is a great place to get sentiment, right? Everybody was saying, oh, gold's way overbought. It's going to correct, go back to the 200 day, 2,700, 2,800, which it might and still be in a great bull market. But when everybody was saying that, I don't know. I highly doubt that today. Gold was down $50 overnight today. Now it's up 1%. So that bid keeps coming in. And I think there's a new whale in the room.
Right? Nobody knows it, right? It's China and it's a billion, you know, over a billion people, not just the government, but retail. And we are not understanding this new whale in the room yet. Right? And I think it's here to stay and, you know, that's going to be a huge driver for this sector. And I think that's one of the reasons why the stocks haven't caught up yet, because in the West here, we're like deer in the headlights. Oh, why is this happening? Right? Gold's not going to stay at $3,000. Why am going to buy a stock if gold's going to go down?

Craig Hemke (09:42)
Well, and you know that, Bob, you're close to that in your daily job. I mean, does it take ⁓ sell side firms kind of catching up and going, you know, I think there's a reason why gold's going up and them upping their forecast for then the individual analysts to start playing along?

Bob Thompson (09:57)
You know, I hate to say this, but I talked to Eric about this a years ago and you know, analysts, it's just the way the industry is done, right? Most analysts are lemmings, they're followers, not leaders, right? Because if you think outside the box a lot and you are right, you get a pat on the back. If you're wrong, you get fired. Right, so risk outweighs reward, right? Our business is all about risk and reward, so nobody's willing to kind of step outside the box too much.
So yeah, you know, when I did my book years ago, one of the portfolio managers, Rohit Sehgal, told me, said the stocks are not going to move until the analysts increase their price deck for the underlying commodity. All right, so when analysts, you know, increase the price deck to 3000 for gold, the stocks will say, wow, you know, people will look and see these stocks are all undervalued for $3,000 gold, but are the stocks undervalued for $2,200 gold? Maybe not, right? 

So I think that's interesting. You've got to get the analysts kind of get caught up and increase the price decks. And when that starts to happen, things will turn around. Because I think that's the thing to focus on. You can't focus on all the headlines. We're stuck in an environment right now where it's going to be for the next few years. I've kind of coined a term that's called calculated chaos. That's kind of where we are right now.

Right, so there's this constant chaos all the time and that's a calculated factor, right? If you maintain chaos, you can do lots of things that maybe people aren't looking for over the cases. there's an analogy to that. If you're police officer standing at a light looking for people going through a red light, you can catch people going through red light. But if 50 people all go through a red light at the same time, ⁓ you can't do it. You can't catch them all. You can catch one or two and... The rest go through, right? So that's the environment we're in, but keep your head down and pay attention to, I think, what's going on underneath, and that's what's important.

Craig Hemke (12:01)
Yeah, yeah. And you know, if we are in a bull market, bull markets are just simply defined. mean, two steps forward, one step back, higher highs, higher lows. There are always going to be pullbacks. You've shared with me before, I think, is a great analogy of the roller coaster. know, I mean, ⁓ I'll just let you say it, because it's great.

Bob Thompson (12:19)
Well, sure. You know, it's everything in life, right? I mean, we enjoy the journey. The journey is what's important, not the end. It's the journey that's important. So, you know, my analogy is, let's say we wake up tomorrow morning and silver is $250 an ounce, just all of a sudden tomorrow morning. We'd all look at each other and go, ⁓ that's great. ⁓ What do we do now? What do we do now, right? So.

We're in a bull market. It's the journey that's important. Think of yourself on a roller coaster. You're not looking towards the end of the roller coaster ride. The excitement is the roller coaster ride, right? And that's what we're on right now. And it's a pretty big roller coaster, ⁓ lots of ups and downs, but that's what creates the thrill in the ride. So enjoy the journey. We're in a bull market. There's going to be ups, there's going to be downs, but we're going to get to our destination down the road. Just have a plan for when we get to the destination. Do you want to ride the ride again or? Or do you want to get off? It depends on the person, right? So think of that, and enjoy the journey. We're on a great journey here—we're on a roller coaster. It's a lot of fun.

Craig Hemke (13:17)
That's right. That's right. Sure. Bob, the other, I kind of call it Bob's proprietary model is the mining clock. It's time for an update. ⁓ Could you explain that for people who don't know what I'm talking about and then let us know where you think we are?

Bob Thompson (13:41)
Yeah, lots of things to talk about there. The mining clock is basically just a way to reverse engineer where we are in the cycle. So, you know, 12 o'clock being kind of the top of the cycle in the beginning of the bust, ⁓ six o'clock when we're kind of in buy territory, you know, three o'clock when things are awful, that was the end of 2015, ⁓ and then nine or 10 o'clock when you should be saying, this is happening in the market, time to scale back. So we're probably around five or six o'clock right now.

Craig Hemke (14:00)
Mmm.

Bob Thompson (14:10)
Nine o'clock, 10 o'clock is when you start, the junior market starts to rally tremendously. They're raising hundreds of millions of dollars for these projects, which are probably never gonna go into production, but people just want into the sector. The big companies start to pay too much for other big companies because they're rolling in cash. And people are saying, what are you doing with all this cash? So they make imprudent investments. That's nine or 10 o'clock, and that's when you should start to look and say, Oh, we're getting near the end of the cycle. We're nowhere near that part of the cycle yet. And then, know, 11, 1130 is when governments raise taxes, because they're saying, oh, people are making too much money in this sector, so we better raise taxes on it, or they start to nationalize projects or whatever. So we're a long way from that area, but I think it is important, you know, that kind of goes into the next theme, which is...

People are saying, what's wrong with the juniors, right? These junior stocks haven't moved yet. Well, that's a great thing because that's telling you we're not at the end of the cycle. All right. ⁓ That's got to be the last thing to go. Right. That's got to be the last thing to rally dramatically, right? Because money flows downhill. So once it starts to flow into GDX and GDXJ, then it starts to flow downhill. Interesting enough, the number of shares outstanding in GDX and GDXJ has been going like that.

When the gold price has been going like that. And that's crazy. That's craziness really when you think of it. People are still redeeming their gold ⁓ units in the ETFs. So we've got a long way to go. But the market to look at there and see where the flows are going, because you make the most amount of money at the turns, right? That's why I like to look at capitulation, not just gold and silver, but I like to look at anything that's in total capitulation. That might be platinum and palladium right now.
Interesting enough, Sprott Money sells platinum. I doubt if they're selling much platinum right now, but platinum is priced at one third of the price of gold, which is way outside any norms of where platinum is. And palladium's in another area. It's hard to buy palladium, but you know, certainly look at platinum. So those are sectors that are way outside of the norms. So the CSX Venture, interesting enough, this year. There's a lot of mining stocks, junior mining stocks is up 10%. right, DS &P is down 9%. The TSX is kind of flat. So it's starting to outperform and that's telling you that money's starting to go into the juniors. Now the TSX venture back in 2007 was 3,300. Today it's 650. Can you ever imagine if you went back to half of 3,300? What if it went back to 15, 1,600? That's a triple.

That's a triple from here, right? You know, that's up 200%. So money's starting to flow into there. The volumes are increasing. The TSX venture, you know, if you're a technical guy, that's a massive 10-year inverse head and shoulders for the TSX venture. That is huge when that thing breaks out, right? And that's gonna be all these junior mining stocks are gonna start to really roll. So I'm pretty excited from that perspective. When the TSX ventures back at 2,500 or 3,000 or whatever the case is, we'll probably be at end of the cycle. But we're nowhere near.

Craig Hemke (17:38)
So look at what has happened to me over the last 15 years, Bob. Do you think getting the TSX can just be reversed if we can reverse?

Bob Thompson (17:45)
Yeah, no diseases in 10 years. heard an AI guy say it a days ago, or a few days ago. So there you go. You look 25 again. You don't look a damn reporting right now.

Craig Hemke (17:49)
Good heavens ⁓ Right

Right All right, Bob. Well, let's let's look ahead as we wrap up again. We're a third of the way through the year Gold's doing great. Silver is just kind of I Mean it's up The gold silver you mentioned the platinum gold ratio being three to one or whatever the gold silver ratios a hundred to one

Bob Thompson (18:18)
So 100 to 1, that's right. When has it ever been at 100 to 1 other than in a crisis, right? So we've only had it two or three times and it doesn't stay at 100 to 1 for long. I think that's really important for people to know. there's the trade right there. It might not happen in the next six weeks, but there's the trade.

Craig Hemke (18:22)
Right, right. So yeah, how do you position yourself and what's your forecast through the summer and into the fall? What are you telling your clients?

Bob Thompson (18:39)
Well, you know, whatever everybody is expecting to happen never happens, right? Because it's already factored into the market and it's interesting right now because we'll sit back and look. We all know gold went parabolic and things are not supposed to go parabolic and it's supposed to pull back and it's supposed to pull back to its 200 day and every single person that I've seen has said that's going to happen. So it probably won't. It might at some point, but it maybe won't right now.

Craig Hemke (18:46)
Yeah, yeah. Probably won't.

Bob Thompson (19:08)
Until everybody believes that it won't. ⁓ But you never know what's going to happen with gold. think it's going to be a long way up from where it is now at end of this cycle. But at 100 to 1, at crisis level, trading patterns for silver, that's the place to be right now. I mean, if you really want to dig down even further than that, the silver stocks, right? Because none of them are forecasting any. Any increase in the price of silver over the next little while. So that's when you get the multiple baggers going forward. that's where I position a lot of my portfolio. And the problem with that is that you just have to be patient. I mean, we talked about the uranium trade a few years ago, kind of loaded up on those back in 2019, 2020. Well, everybody's scratching their heads over uranium stocks right now because nobody's made any money and they're all upset. Well, you

I'm selling my stocks for 400 % greater than they were four years ago, five years ago. And they're down, they're down some, but you just got to be there and be patient for when it happens. And I think that's going to be the case in the silver area right now.

Craig Hemke (20:23)
Yeah, heavens to Betsy Bob to think you can't just double your money in six weeks. Isn't that how it's supposed to work? Bob, I'm sure there are lot of people watching going, Bob Thompson guy, he's pretty sharp. How does somebody reach you? then additionally, if memory serves me right, you've got your own kind of update you send out called the gold digger. You still do that and how can people sign up?

Bob Thompson (20:27)
I know. Crazy. Sure, do the gold digger and yeah, thanks for mentioning that. It's a two-pager so it's nice and easy to read, lots of links in it once a month, but it's key topics in the gold sector, what other people aren't talking about, and it's produced for mining executives and anybody that's very interested obviously in the sector. So Thompson Investments at RaymondJames.ca, ⁓ Thompson Investments at RaymondJames.ca, and we'll certainly send you out. Sends you out to Gold Digger. And we talk about the mining clock a lot in there and these interviews will be in there, et cetera.

Craig Hemke (21:21)
know a certain retiree legend that I know waits to read every word when it comes out so ⁓ if Eric's reading that thing I think everybody else should probably take it under advisement yeah darn right he is well Bob thank you so much ⁓ again I couldn't think of a better guest to help us sum up what has been a wild and wacky month and I hope we can do this again sometime soon

Bob Thompson (21:32)
Yeah, he's on the list. There you go. Sure. Yep, fantastic, Greg, and I really look forward to it.

Craig Hemke (21:49)
Everybody else hit that like or subscribe button we're gonna have a real busy month in May too that's for sure and you don't want to miss anything that Sprout Money puts out you hit that subscribe button you'll be notified as soon as as something hits the wires and you can get in there and read it and listen and do everything else like I said the madness is going to continue that's for sure but for now thank you for watching thank you to Sprout Money for putting all this stuff out and we will have more great content for you on this channel as soon as we get to the month of May.