Rick Rule: “speculative profits are made on the Delta between stupidity & fact”

During a time in which downward volatility of the junior resource sector has resumed in force, Rick Rule, Chairman of Sprott U.S. Holdings was kind enough to share a few comments.

When asked if we’ve seen the ultimate capitulation in junior resource markets yet, Rick noted that, “We haven’t had a capitulation yet… we’re beginning to see the types of market volatility, rabid moves up and down on no volume, that are normally the “rattle” of the rattlesnake of capitulation. But the market hasn’t followed through yet, and I think that’s a consequence of the recent strength in the gold price.”

With regard to the recent political and social turbulence associated with West Africa, Rick commented that, “With regards to what happened in Burkina Faso, the probability of that set of events being unpleasant for mining is very small, and so it’s pretty obvious to me that the sell-off engendered an opportunity.”

Rick further added that when investing in politically turbulent markets, “Having the cash and the courage to make a binary bet in an extraordinarily bad situation where the risk to reward is $.20 cents on the downside and $10.00 on the upside, is a set of circumstances that everybody should be lucky enough to have once or twice in their career.”

Here are his full interview comments with Sprott Global Resource Investment’s Tekoa Da Silva:

Tekoa Da Silva: Rick, you published a commentary on October 16th in which you said, “It’s my belief now that we have a 50% chance of entering a capitulation phase in this bear market. If that’s true, in the next few weeks, we will see two or three weeks of fairly dramatic, fairly ugly, but fairly short term of a sell-off. This is consistent with what we saw in ’92 as well as the bear market bottom in 2000.”

Given the sell-off we’ve seen in the resource sector over last two weeks of October, do you have any updated thoughts?

Rick Rule: We haven’t had a capitulation yet. I think the increase in the gold price forestalled a capitulation. I also think there are more psychological forces in the market, which could take it lower in the short term.

We’re in a very interesting situation from a valuation viewpoint. The best 300 of the juniors out of the 3000-junior universe are not merely cheap; they’re very, very, very cheap. So while the stage is set for a move to the upside from an empirical point of view, in the near term, markets aren’t driven by empirical data. They’re driven by emotion.

So any further weakness we could see in commodity prices, in particular weakness as a consequence of a strengthening US dollar, could push us over the edge again into a capitulation, which I think is a condition for a higher market.

At the point in time in which we’re talking, we’re beginning to see the types of market volatility, rabid moves up and down on no volume, that are normally the “rattle” of the rattlesnake of capitulation. But the market hasn’t followed through yet, and I think that’s a consequence of the recent strength in the gold price.

TD: Do you still feel there is a 50% chance of a major market capitulation?

RR: I think so. I think the next excuse for the market to go one way or another is…

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By: Tekoa Da Silva