Bob Thompson on Price of Gold in 2024

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Craig: Happy holidays from Sprott Money News and sprottmoney.com. It is December 2023, and it is time for your monthly "Ask the Expert" segment. I'm your host, Craig Hemke, and joining us this month is an old friend of Sprott Money, and old friend of Eric Sprott, and I've been doing this for so long now, he's an old friend of mine too, Bob Thompson. Bob is a senior portfolio manager at Raymond James, in Vancouver, and it's always fun to have him on for these shows. Bob, good to see you, my friend.

Bob: Great to see you again, Craig, and looking forward to year end here, where we can forget about things for a couple weeks.

Craig: Yeah. We'll see about that. Remind me. I'm thinking, just thinking to myself right now, there are a number of things we gotta talk about. I hope to, I gotta ask you some point about tax loss selling. Tell it...but, as we get started, I wanna remind everybody about Sprott Money, okay, the sponsor of all of this content. If you wanna buy yourself some sound money, before Christmas even, but in the holiday season, you wanna pass along some education, some sound money, go to sprottmoney.com. They've got all kinds of great gift ideas still. You can call them up as well, at 888-861-0775, and maybe, again, educate. Don't just give a gift card. What good are those? How about a silver round, that you can explain the value, you know, and what it is, and how it's been money for millennia, and it's a lasting gift, that keeps giving the whole year, Clark. All right, Bob. Let's start with where we are, here in the middle part of December. It has been quite the rollercoaster for the last couple of weeks. What do you make of all this?

Bob: It has, it has. And just a comment, somebody to be said about, you know, when each of my sons were born, I have a 5-year-old and a three-year-old, the year they were born, I bought a gold coin for them, for that year. And I gave it to them when they were 5 and 3, and it kind of gets chucked over the shoulder right now, because they wanted to get their cars and trucks. But anyway, they'll enjoy it over time, and I'm sure that gold coin will be worth a lot more than it is right now, when they go to college. But I thought that was a kind of a neat idea, or, you know, the silver coins are great too. At Canadian Royal Mint, Royal Canadian Mint here in Canada has ones that celebrate the birth of a baby. So you can actually, you can give them, you know, something for their year. And it has a little baby on it and things like that. So, it's great. And also, you can get those through Sprott Money, no problem, so...

Craig: Absolutely.

Bob: Good. So, yeah, the last couple weeks. You know, I think the last couple weeks, two things have shocked me. But, one is that we could go from euphoria, around the beginning of December, and push through all the highs, and people were, you know, pretty excited about that with gold, to having an outside reversal, which, in technical analysis, is not a good thing to happen. Gold then gets crushed, down in price. The shorts are growing rapidly. The banks are all going short, to gold and to silver. And then you have the Fed come out with something a little more dovish than I guess people were expecting, and I think you and I were expecting. Now, we know it's gonna happen. But anyway, the market wasn't expecting the Fed to be so dovish, and now, everybody in the last two days is getting all euphoric again, all within the span of two weeks. So, talk about a push-pull. So, that's the first thing that's stunning. And the second thing, which is actually related, that shocked me, is that people actually even pay attention to the Fed anymore. Like, why are we sitting here paying attention to everything the Fed is saying? You know, two years ago, two years ago, June of 2021, the Fed dot plot was, for 2023, that the Fed funds rate was gonna be .75% in 2023. That was two years ago. Now, how could you be more wrong? But, but, in fact, it's been the same for the last 10 years since the since 2008. Every single time, the dot plot is so crazy wrong from what actually happens. And, but we're all still believing it. I don't know why, so, that, it's a too-shocking thing.

Craig: They're a little bit like your local I-should-be-politically-correct weather person.

Bob: Right.

Craig: In my day, they were just the weatherman. But it's like the weatherman. They're trying to predict what is essentially a chaotic system. Right?

Bob: That's right.

Craig: But they come out and they try to predict, and then, you know, like, we hold the weatherman in some kind of high esteem. "Well, you know, he's the highest-rated weatherman in our local market," right?

Bob: Right.

Craig: But the media all holds these people in esteem, like they're some omnipotent demigods, like they've seen the future, and that's not true.

Bob: You know what's funny there, that, it's is... I agree with that 100%. You know, and I took some mathematics in my past days, and what I like to equate this is, is this is, like, this huge multivariable equation that they're trying to forecast. So, you have this huge equation, with all these variables. Well, all these...in order to solve for one variable, you have to make assumptions for every other variable.

Craig: Right.

Bob: And those assumptions are dependent upon other variables, right? So, you realize how complex that system is. You really can't. Now, you know how things are gonna turn out at the end of the line, but to make some sort of forecast in the near term is bad. And with the weather? You know I live in Vancouver here, right? You never know what's going to happen on a daily basis, right? But, and if you're right, it's more luck than anything else.

Craig: Right.

Bob: But, you can say that in Vancouver, it will rain more in the winter than it will rain in the summer. Right? And you'll be correct, all the time, on that. Right? But the day-to-day, you don't know, right? And I think that's the same with what you just said. Why listen to the Fed in the short run? Look out 18 months, and say, "What's the weather gonna be in July of 2024?" It's probably gonna be pretty good.

Craig: Yeah. Well, let's do that, Bob. We sit here now, middle of December. Spot gold price is up about 11% year to date, which is right in line with the average annual gain this century, going back to the year... I mean, you can always cherry pick dates and all that kind of stuff. But if we just start at the year 2000, gold's, on average, in dollar terms, gone up a little over 9% every single year. So, we're right on track, like a normal, you know, average year would be. But now we head into 2024, with all this uncertainty that you're talking about. But at the same time, the charts look pretty good, and, you know, you and I have talked for years about there's so little interest in our sector, whether it's for holding the precious metal, you know, as money, that people should be doing, or even just buying the money shares. There's so little interest. And what's it gonna take to get the generalists involved? Get the people in your office to come knock on your door, and go, "Hey, Bob. I got a client that wants to get some mining shares. Can you help me out a little bit?" The longer-term charts have a chance, the monthly, but also the quarterly, have a chance to go out looking pretty attractive, here at the end of this month. How important is that, do you think, in terms of creating momentum for next year?

Bob: [inaudible 00:07:30] I think generalists are out of this sector, right? Pretty much. And funny enough, an all-time high would have created a little bit more interest in the sector, but it hasn't yet, because there's been a lot of false starts. And that's fine. And I always say, you know, we've got, yeah, five or six false starts. The market is programmed that the least amount of money... Sorry, the least amount of people make the most amount of money. That's the way it works in the market, right? So, each time that we've had a false start here, it's stopped people from coming back in, which means less and less and less people are gonna be the benefactors of this. So, when they all come in, they're all gonna rush in very rapidly, and I think we're on the verge of that pretty soon. But it's gonna take, I think, you know, over $2000 for the quarterly. All right? It's gonna take the stocks that have been the all-star stocks in the U.S. to start to trail off a little bit, and that's what happened in 2000.

So, they start to look... So, they're not getting rewarded for what they've been doing in the past. They have to look and say, "Okay, whatever we've been doing in the past is not working anymore. What's gonna work now?" and then the money will start to flow. And so, I think it's two things. It's, you know, the technicals, the quarterly close, the fact that the Fed's gonna be reducing interest rates, but also, all these momentum traders are gonna have to stop making money in what is easy. Right? It's easy. It's been easy to make money in seven stocks, in the past year or two. Those stocks have to kind of turn over and stop, and then they have to look and say, "What's the other sector?" And that's what happened back in 2000, is that the sector really started to take off when the generalists said, "Wow, okay, we gotta look for a new place to make money here."

Craig: Do you think there's kind of a rotation, possibility? The mining sector ever be looked at as, like, a value, versus growth?

Bob: So, funny enough, the value versus growth is this push and pull, all the time. So, value stocks are stocks that are unloved, unwanted, trade at relatively low valuations, high dividends, low price-to-book, all these sorts of things. Growth stocks are stocks that trade at 250 times earnings, and are forecast to continue going up, things like that. So, we've had this massive growth outperformance in the last few years. And, interesting enough, value stocks and mining stocks are heavily correlated. Heavily correlated. So, I do think, in the next decade, we're gonna start to see value stocks significantly outperform growth stocks, and with that will come the mining sector too, that starts to do well.

Craig: Are you getting anybody, just, I mean, anecdotally, is anybody coming down the hall there, Bob, and knocking on your door, going, "Hey, Bob. I got a client that wants to buy some mining shares?"

Bob: Not yet, and that's great. I'm so happy about that.

Craig: There you go.

Bob: I'm so happy about that. And let me give you an example. You know, and it doesn't pertain to pressure metals, but I was very positive on uranium, back in 2019. And it was kind of the same thing. Everybody's, "You're crazy. It's done terrible. It's a terrible sector," etc., etc., etc. Those stocks are up, I mean, Cameco is up 400% to 500% since then, right? Now, I hear a lot of people, "Oh, uranium. The fundamentals are fantastic. This is gonna be great." And, you know, I haven't sold a lot of the stocks, but I'm thinking, eh, I don't think I wanna own them when everybody's so excited about this sector. The gold sector, that, I think that'll be the gold sector in three or four years. Right? What uranium was back in 2019, the biggest stock is up 400%. I mean, what are these junior gold and silver stocks gonna be when this sector really turns?

Craig: Yeah.

Bob: That's why we invest in the sector.

Craig: Well, so, Bob, is that 5-year-old of yours playing T-ball yet?

Bob: Not yet. He's [crosstalk 00:11:20]

Craig: Not yet. Okay. Because you just put the ball right on the tee for the next question. That's why I asked.

Bob: All right, all right.

Craig: Because that leads right into your old, you know, your proprietary deal, the mining clock. I mean, it would seem like the uranium sector is at 11:00 or something like that. Where are we on the clock for the, just, the precious metals?

Bob: We're still about 6:37. But remember, that can go to 10 or 11 pretty quick. I do think it's gonna be a push and pull, so, we're a few years until it's getting to be a euphoric market. But remember that in any commodity cycle, you know, there's something called Pareto's Principle, and that is, you know, the 80/20 rule, right? So, 80% of your gains are made in the last 20% of the bull market. And if you look at any commodity cycle, that's what happens. So, that is ahead of us, definitely. And, you know, you can't go into a severe bear market when everybody's negative. Right? It, I mean, just mathematically, you can't happen, right? Everybody, everybody was negative at the end of 2022, on the U.S. stock market, right? Everybody. So, what happened? It rallied tremendously, right? So, and everybody is still very negative... I don't wanna say everybody's maybe super negative on the gold sector right now. Everybody is either negative or very cautious, because they've been burned.

Craig: [inaudible 00:12:48]

Bob: The generalists feel that they've been burned a few times, which will delay them getting into the sector. But, it's like a coiled spring. When they come in, it'll be a flood that come in. And you kind of gotta be there before that happens, to get the gains.

Craig: Well, and Bob, you've witnessed this now a few times. We might as well, let's draw on your experience a little bit, and some wisdom that you can share, to everybody that's watching. What will be some signs that those doors are starting to open, and we're ready to actually have a pretty extensive rally? And what will be some things for people to remember and keep in their mind along the way, as they begin to accumulate gains?

Bob: Right. You know, Paul Wong used to be the chief investment strategist at Sprott. He used to manage the hedge fund with Eric, years ago. And Paul said something to me years ago, which I thought was very interesting, with regard to the gold sector. Because I asked him that question. I said, "When do we wanna get out? It's a cyclical sector, right? When do we wanna start paring back and take our profits?" He said, "Well, you want to invest when," you know, for the Toronto Stock Exchange, for example, he said... Gold was about 7% of the index. And he said, you know, "When..." on historical basis. But he said... Gold was about 2% or 3%, at, you know, at the bottom. So, he said, "That's when you want to invest." And he says, "You wanna start getting out of the sector when the average investor has about a market weight in gold." So, if the TSX... So, in other words, if the gold stocks, you know, represent 10% of the sector, or sorry, of the market, and the generalist investors have about a market weight in gold, he said you should be getting out. Because the generalist investor's never gonna be overweight, in gold, generally speaking. Right? So, he said if they're pushing that market weight, it's kind of time to start getting out. Now, at this particular time, I don't know what percent of the TSX that the gold sector is, but generalist investors are almost zero or 1%.

Craig: Yeah, it's not much.

Bob: But they're very, very low. But that's a good point, because when they all start piling in, and they get up to that market weight, you should be saying, "Okay, maybe it's time to rotate out of the sector," but we're years off of that.

Craig: What about the juniors? You know, Eric taught me something I'd never really thought of. It's kind of counterintuitive, but he said, you know, what you gotta do, you know, if you got a basket of them, you know, when you get a winner, that's when you want...and you got a hot table, you wanna start kind of pressing your bets, and [inaudible 00:15:19] I think it's kind of counterintuitive, because a lot of people think, when you get a winner, you're like, "Well, I'll take out three-quarters of my money, and just leave in this..." But that also applies, I would think, to when you get losers, right? You have to [crosstalk 00:15:30]

Bob: Well, yeah. You can't let emotions get involved, and you gotta be a bit sociopathic, and say, "Emotions don't come into play in my decisions," right? You gotta kind of be like that. And that's a good point, what Eric has said, because yes. Let's just think of this mathematically. Let's say that you sell your winners. Right? And you hold on to your losers. That's what most people do. They sell their winners because they say, "Oh, I've made a profit," and you hold on to your losers because you're like, "My cost is a dollar, and I'm just gonna wait for it to get back to that dollar." You know, that's an emotional decision that you don't wanna... A loss aversion, right? You don't wanna take a loss, because if you take a loss, that means you failed. Right? If you [crosstalk 00:16:18] people don't wanna admit that they failed. So, mathematically, if you sell your winners and you hold on to your losers, what do you have? You have a portfolio full of losers. Right? Exactly.

So, you kind of scratch your head, say, "Why do I want a portfolio full of losers?" You don't. Right? You gotta sell the losers if it's not working, and stick with the winners. But, you know, I think what's important in this industry on the juniors, and maybe I'll just mention, you know, there's been two reasons why people are so depressed in this industry. You know, gold's up 11%. It should be a great year, right? But the juniors are, have been terrible. There's two reasons for that. One is because the generalists haven't come in, people don't believe. Another reason is the regulatory environment is more difficult for people to buy into these stocks. Something that Eric's talked about is the heavy short selling in these stocks, for short-term gains that have happened, and that's something that's held the sector down. But a big one is, small caps in general are just terrible. I mean, it doesn't matter if it's oil, or biotech, or whatever the case is. People aren't investing in small caps. So, there's been a few things that have gone against us there.

But we have something in this sector that is different than other sectors. And that's something that I think that is important in the junior space, because a lot of people that listen to this video are in the junior stocks. And we have an industry that's full of binary outcomes. And what I mean by binary outcome, it either goes up 10 times or it goes to 0, right?

Craig: Yeah.

Bob: And there's gonna be a lot that go to zero. So, I just wanna mention to people, just be cautious with the juniors. Have a portfolio of juniors, a bunch of them. And Eric said that, when I wrote the book, he said, "I got 10 or 12 or 15 stocks that I buy, that I think are all gonna be great, and three of them have actually turned out well. And then, those are all my gains. And then, yeah, and some of the others go to zero." So, remember that, you know, gold could go to $3000 in the next couple of years, but if you have a junior that fails, and doesn't find the gold that they think they're gonna find, or the silver, or their mine doesn't get into production ever, that stock's going to zero, or close to it. And that would be a shame to go through this pain, and miss out on the big gains because your stock went to zero, with the binary outcome. So, that's something I'd wanna mention to people. Just make sure you harness, you know, the gains in the sector that I think are gonna be there in the next little while, and try not to have too many binary outcomes.

Craig: Sociopathic investing, with Bob Thompson. I like [crosstalk 00:18:54] And I want to announce there's been a Christmas miracle. I've actually remembered the question that I thought of when I was introducing this segment. And so, while I've remembered it, I better ask here, or I'll forget again.

Bob: Okay.

Craig: We're recording this on the 14th of December. We're toward the end, at least in my experience, of the tax loss selling, in the mining shares. What has been your experience with that? Does it usually wrap up before Christmas, that sort of thing?

Bob: So, interesting, on the small cap side, just small caps in general, forgetting about the mining shares, I read a stat the other day that for 33 years, from the last two weeks of December, the small-cap junior market has gone up every year, 33 years, except for one that was minus 0.9% or something. So, that's interesting. So, and a lot of that's due to the tax loss selling. You know, I think that tax loss selling has held things down this year, but I don't know. I haven't noticed it that bad in the gold sector, as bad as I thought. And I think because one of the reasons was, 2022 was so horrific. That was huge tax loss selling, and I don't think people have a lot of gains in this sector right now that they have to offset. So, I, interestingly enough, I don't know if it's been, I think it's been a little more muted than I would have thought.

However, having said that, you know, people are gonna wait till these last two weeks of December to actually start to make their purchases. And I think that [crosstalk 00:20:24] we're gonna see some, you know, pretty magnificent gains going into January. Everything is so macro now, though, unfortunately, that, you know, you could have some Fed speaker come out tomorrow and be all hawkish again, and then people actually believe them, and then we get a big sell-off again, right? So, I think that's important. You know, I think gold will go to where we think it's gonna go, but it's gonna be managed to get there, right? Because nothing's easy. Nothing's ever easy. Like, it's gonna be managed to get there, and I think the stocks will get to where we want them to be too, but it's not gonna be easy. It's not gonna be managed. Nothing like... What did we learn when we were in kindergarten? Nothing in life that's worthwhile is easy. Right? Right?

Craig: It's true. That's a good point. That's a good point.

Bob: That's what we learned. So, there's no free lunch. So, you gotta put in the time, you gotta put in the pain, if you want the gain, and then, this sector, obviously, is representative of that.

Craig: Well, it's gonna be an interesting year ahead, there's no doubt about that. Because it's like forecasting the weather. It's hard to say exactly what's gonna happen, but it's, certainly, as we wrap up this year, it looks like we're gonna take some momentum into next.

Bob: Right, right.

Craig: Bob, for people that want to get in touch with you, I think you're always willing to give out your email address, but also tell them about your own newsletter, that you call "The Gold Digger."

Bob: Sure. We deal a lot with mining executives. Not all our clientele. We've got lots of clientele. But there is a subgroup of mining executives, and we do this publication called "The Gold Digger," which talks a lot about really current ideas in the gold sector. We always have a chart of the month, which is very important. You know, we talk about financial planning things too, about building that family legacy, about, you know, how, in the mining sector, in the cycle, you can do extremely well in the cycle, but you gotta, you know, diversify out of it, preserve your capital, maybe sell the stocks, buy gold, right, at various times. And, you know, it's called "The Gold Digger," and it comes out once a month, and it's pretty popular. So, it's, you can email us at ThompsonInvestments@raymondjames.ca. ThompsonInvestments@raymondjames.ca, and, you know, my team will put you on that list.

Craig: It cost anything?

Bob: It doesn't. It doesn't.

Craig: How about that?

Bob: Just, we just do it as a service. We do it as a service to the industry, really. So...

Craig: Again, the gift that keeps giving the whole year, Clark. Bob, Merry Christmas. I hope you have a great holiday season and happy New Year, and all that stuff, and I look forward to talking to you again in 2024, that's for sure.

Bob: Fantastic, Craig. And let's have a great couple weeks off here.

Craig: Let's do.

Bob: All right.

Craig: And, again, on your way out, please keep an eye on this channel. We might have some special surprises coming up still, later on this month, that you're gonna wanna listen to. And be sure to thank Sprott Money, by either visiting sprottmoney.com and picking up some physical metal, or just giving a like or a subscribe to whatever channel you're watching this on, because that really helps them spread the word too. But for now, it's time to go. Thanks again to Bob Thompson, who is the senior portfolio manager at Raymond James, in Vancouver. And thanks again for watching. Again, keep an eye on this channel. We'll have some more content for you before the end of the year, and we'll look forward to talking to you again soon.