Speculating Before A Narrative Becomes Popular

December 8, 2017

I had the chance to sit down a few weeks ago with Rick Rule, CEO of Sprott U.S. Holdings. It was an interesting discussion as usual, and an item that stood out in particular was Rule's viewpoint on "if" and "when" questions, and speculating in markets before they become popular.

"Most speculators, if they have a flaw (and most of them do)," Rule noted, "look to their upside before they look to their downside. Certainly most speculators speculate in what's popular – you'll notice Bitcoin, as an example, had moved from $400 to $2,000 before anybody cared, and then it gained tremendous [popular] attention, which is normal."

"In the early part of the last decade, when the gold price moved up from $260 to $1,900 an oz.," Rule explained, "gold didn't come to popular attention until it had moved past $1,000 an oz. In other words, it moved from $260 to $1000 before people allowed the fact that the price had gone up to substantiate the narrative.”

"When gold moved from $1,000 to $1,900, people [then] started asking "if" questions. 'If' we began to have sovereign defaults, 'if' there was a trade war between to U.S. and China. All those 'ifs' were there when gold was at $260 – it's just that the recent experience ... has the people ask[ing] the 'if' question, [and] takes away at least half the value, of the 'if' answer."

"If is what captures imagination," Rule added. "If is what, if it comes true, generates 20-to-1 returns. "If" only becomes interesting to people though, when the narrative has begun to play out in the market ..."

Watch Rick Rule's full commentary here: