Adam Rozencwajg: Gold Cycle Just Starting, Plus Silver and Uranium Outlook

I'm Charlotte McLeod with InvestingNews.com and here today with me is Adam Rosenzweig, Managing Partner at Gehring & Rosenzweig. Thank you so much for being here. Great to have you. Yeah, nice to talk to you again. Really good to be catching up with you as well. It's been a little while, but really what a perfect time to have you on. I was thinking with the gold price at historic levels right now, that would be a good place to start and I'm going to begin with kind of an open question here. For you, when you look at what's going on in gold, where would you place us in the current cycle? I think the current gold cycle is just getting started and that might be like a crazy thing to say with gold making all-time highs and pushing through $2,900 an ounce, but I really think that in a lot of very real senses, this market hasn't really even taken off yet because investors, particularly what we would call Western investors, haven't woken up to the gold story yet. There's been lots of press about it and lots of, I suppose, people watching it, but if you look at the holdings of the GDX, which obviously holds gold shares, that's plummeting. If you look at the shares outstanding of all the gold physical ETFs, which in recent years has become a preferred way for a lot of investors to get access to gold, it's come up a little bit off the bottom. I have it here in front of me. It looks like it bottomed in May of last year at 81 million ounces and now we're up to a whopping 83 million ounces, so you're still a huge, huge cry from where we used to be. We were up at 110 plus million ounces in 2020 and 105 as recently as 2022, so the participation has still been very subdued on the part of investors and that's why I think ultimately this market has a long, long way to run. Well, I think that's definitely what our audience would like to hear about when it comes to gold. If we look over to Gary and Rosenzweig's latest quarterly report talking about gold, it's no secret that central banks have been strong buyers of gold for the last several years supporting the price, driving the price higher. But the report talks about a shift that we might be starting to see there where central banks maybe buy a little bit less and that Western investor interest picks up. So since the report has been published, is that a trend that you've seen continue? That's the fun part about writing investment reports is that they're stale, you know, depending on how long we take to edit it, they might be stale before we even release them. So I think that from an investor perspective, we are seeing an uptick in the ETF gold buying, as I mentioned before. It's certainly not dramatic, it's nothing like it was a couple of years ago, but the direction is trending in the right way. So I think in the last few months and in our last letter that we wrote, we did talk about how the Western investor seems to be coming back a little bit and I think that's still true. I think that trend is still in place, albeit very early days. As far as central banks, those central banks have resumed gold purchases. So now I think you have this sort of double whammy where you have the Western investor on the margin little by little, certainly not selling. And I think that's the important part, right? Because gold prices are set on the margin like every commodity and you need a willing buyer and a willing seller. And so when central banks were buying lots of gold and they're pretty price insensitive, they don't care what they pay for the gold, they just make the decision they want to own more of it. And you had the Western speculator selling it into them, that was a strong dynamic. But now you're in an even stronger dynamic where the central bank is still buying quite a bit and those purchases have picked back up again and the Western investor is not there to sell it to them anymore. And so then what you need is obviously higher prices to coax ounces back into the market. And I think that's beginning to be what you're seeing now. Yeah, I can certainly understand, you know, things go moving so quickly that it's hard to to keep up with all of that. So thanks for going into that one. And if we look at the Western investors a little bit more closely, what is something that you think would drive more interest from them? We've been hearing for a long time, I think, that they need to come back into the market. So what could what could start to make that pick back up even more? If I could explain what investors do and why they do it, I think I'd be a very, very rich man. So look, I'll punt a little bit. I don't know. Ultimately, I think like so many investments, what will ultimately pull Western interest is performance and momentum. And we're starting to see that now in a very material way. You know, gold stocks are starting to show some signs of life, at least, you know, relative to other sectors in the market. And the gold price certainly has people's attention. So I think if you get a few more months of that, you'll start to really see a renewed interest again back in the gold space. But a couple of things that I want to point out briefly, you know, first of all, I think it's a little bit of a misconception, particularly for investors that have gold exposure, either through the equities, which we think are at generational lows in terms of their cheapness relative to gold and to their earnings power and things like that, or whether you're talking about gold itself. And that is, you know, in order to really unleash things, you need massive market participation. And that's really not true. What you need is for investors not to be liquidating. That's really the key point. And I would put people's attention onto the coal space. You know, coal stocks, they didn't have a great year last year, but since the bottom in 2020, coal stocks have been, I think, the best performing subsector in the market, beating everything. I think it's probably, don't quote me on this, but if not beating NVIDIA from the absolute lows, probably pretty close, really, really, really strong performance coming out of the coal stocks from the bottoms. And I guarantee you that's not because of any large market participation. Nobody owns coal stocks. Nobody has any interest in them. But when things get really cheap, they can go up quite a bit, even without a huge amount of investor interest. And remember, you know, the gold market cap now, I don't have the numbers off the top of my head, but it's tiny. It's absolutely tiny. After, you know, a fairly brutal bear market that lasted from 2011 all the way to the bottom in 2020, 2021, you just eviscerated the market capitalization of the gold industry. And so it doesn't take a lot of buying to come back in order to really see a big price movement in those stocks. And so I don't think you do have to get the Western speculator really whipped into a frenzy in order to see some really strong returns. The way we like to say is that when you buy things this cheap, there's usually not a huge cost to being early. Maybe the fireworks come down the line and, you know, some of those years of truly spectacular performance needs a broader participation. But you can get a really good return when stocks are as cheap as they are today with relatively modest flows coming back into the space. Now, having said all of that, I do think that something is on the horizon in the near term that is going to change people's perception towards gold, investors' perception towards gold, and speculators' perceptions towards both gold and gold equities. And I think it's happening really, really potentially quite soon. And what I'm talking about, you know, we've talked in the past about these long cycles of commodities and real assets. And certainly on any measure, we like to look at commodity prices relative to stock prices. It's nice and simple and straightforward. And on any measure, commodities are as cheap today as they've ever been. And historically, the big catalyst to re-rate real assets much higher has been a shift in the global monetary system. And so you saw that in the late 1920s. Excuse me, I'm just coming off a cold. So pardon me. But in the late 1920s, that was the end of the classical gold standard. And the end of the 1960s, which was another inflection point where commodities did really well, was the end of Bretton Woods. And at the late 1990s, it was the shift of all the Asian currencies and how they pegged their currency to the dollar. They decided to peg their currency well below the market rate to help spur their exports and draw treasuries to the east and draw Asian goods into the Western consumer markets. Those were all major shifts in how we conduct our global monetary plumbing. And so as far back as 2020, when commodities got really cheap relative to financial assets, we said, look to the global monetary system. That's going to be your key that the catalyst is coming. And a couple of years ago, the central bank started buying gold. And there was lots of talk of China looking to settle trade outside the dollar and the BRICS currency block was going to be formed to provide a threat to the dollar and things of that nature. And we said, oh, maybe this is it. Maybe this is the catalyst. I'm not so sure anymore. I think more and more the catalyst for a new monetary system might come from a very unlikely place, which is the United States itself. And I think we're starting to hear a lot of talk from Treasury Secretary Besant about what that might look like in some of the fairly revolutionary – I'd say radical, but I think really revolutionary is a better word – initiatives that he's suggesting the US take to help shore up its balance sheet and to help really kind of change trade directions and geopolitics in general. And what I'm talking about is really three things. The first is his discussion of the use of tariffs and things of that nature to kind of create this walled garden, this commonwealth of nations, or some people are calling it the United States of the West, wherein if you agree to the terms of trade, which is to say you continue to use the US dollar and you support Treasury purchases, then you're included in the common market. And if you take a more adversarial approach, then that's fine, but expect really high tariffs and a difficulty accessing the US consumer market. That's a really bold shift in global monetary stance, using the dollar and effectively the dollar exchange settlement to be able to create sort of this delineation of allied countries, if you will. The second is his talk of the use of century bonds, which we probably can get into in a whole different podcast, spend an hour talking about that. But there's some really, really new, innovative technology being put forward by the Treasury and by the current administration that I think would come to rise to the bar of a change in the global monetary system. And the third, which has to do directly with gold, and we're hearing more and more sort of whispers of this coming out of certain circles in DC and other Beltway watchers and things, there's a big interview in the Financial Times this weekend that discussed it, was the idea that the US might in fact, at some point, revalue the Treasury's gold holdings that they keep on balance at the Fed. Now, for those that might not be familiar, most countries, when their central banks own gold, the asset, the gold, is held at market prices on the central bank's balance sheet. In the US, it's a little bit different. When we ended Bretton Woods and closed the gold window, actually, I'm sorry, I think it happened actually long before that. It might have actually happened, don't quote me, but I think it might have happened more in the early 1930s. But at some point, whatever it was, they decided to move the gold holdings to the Treasury, and the Treasury issued, on balance at the Fed, an IOU effectively for the gold that it would then hold off of the Fed's balance sheet. When they did that, the statutory law held that the Fed would hold that on its balance sheet at $42 an ounce. It wouldn't mark it to market, and for a long time, gold prices didn't move, obviously. Today, clearly, with gold pushing through $2,900, that is a massive, massive difference between where the Fed marks its gold holding and where the actual true value is. With the stroke of a pen, you could say, no, revalue that at the current prevailing market price. If you were to do that, it would result in about $800 billion of increased assets at the Fed. For anyone who had to take accounting in high school or college, or even, God forbid, is an accountant professionally, you know that if you increase the asset side of the balance sheet, you have to increase either the liabilities or the equity. In this case, you would increase the equity in the form of an unrealized capital gain into the Treasury's general account. That's the mechanism. The Treasury would then be free to use that money. They could draw that down to zero. There's no reason that they couldn't do that. It would effectively remove $800 billion of additional Treasury issuance that they would need to either pay interest or pay, roll the debt and things like that. That's a pretty sharp shift. It wouldn't involve selling the US's gold or in any way pledging it or hypothecating it. It's just literally marking it to market instead of holding it at cost, which at this point is off by a factor of what's that, 20 or so. I think if that were to happen, any of those three things, all of those three things, that would certainly constitute a shift in the global monetary plumbing. That historically has been when the pendulum swings back towards real assets because what it really represents is a devaluation of the dollar, not necessarily relative to other currencies. In fact, the dollar may appreciate, I don't know, but certainly relative to gold. That in turn lights a fire under investors and speculators to say, wait a second, here we are valuing our real asset stock at the lowest level relative to growth stocks or technology stocks or just the broad market in the 20th and 21st century, the last 150 years. And perhaps it's time to see that relationship normalized. So I think we could be on the verge of finally getting the catalyst because people have asked for a number of years. Yes, commodities are cheap. Yes, resources stocks are cheap. What's going to stop them being cheap? My answer has always been the same. Who cares? As long as they're cheap, they represent good investments. But I do think that the catalyst could actually be here now. Okay, that's very fascinating to take a look at that. I think that often when I talk about people, about these global monetary regime shift types of things, the bricks do come up a lot as you had mentioned. So just to maybe wrap up there a little bit, to what degree do you see the bricks as important in this situation, given everything that you've gone over? Again, I try to focus on knowing what I know and knowing what I don't know. What I do think very, very confidently is that we're in the right neighborhood, the right zip code, as it say down here, postal code in Canada, the right area for one of these changes to take place. And so to some degree, I don't have a horse in the race. We've just had our antennas up looking for potential shifts that could take place. And if you had asked me a year ago or two years ago, to me, the most natural potential for a regime change would have come from the bricks. They were threatening the US dollar dominance, the idea of the US as a unrivaled reserve currency. It wasn't to say that the bricks were going to introduce a new reserve currency and displace the dollar. But again, on the margin, they were going to provide competition and potentially take some interest away from the US dollar as a sole and unchallenged reserve currency. Now, I think, though, that in fact, the regime change could happen from the US kind of digging in its heels and trying to enact certain measures that ensure the dominance of the dollar as a reserve currency for the next generation or two going forward. So I don't know, and I don't have a horse in that race. I do think, though, that the time, sort of getting time to be like the showdown at the corral at this point, where it does seem as though there's now both from the bricks countries and from treasury in the United States, a willingness, a desire, and almost a sense of urgency in doing something different and having tomorrow look a little different than today and yesterday. And historically, that's going to be what unwinds this trade. So many things in this market, whether it's passive investing, tech investing, growth stocks, high duration, whatever, really comes down to the same factor. It's all short volatility. As long as it keeps working, it'll keep working. And the more it keeps working, the more money it'll draw in, and it'll go up and up and up. And we've seen trends like that in the past. We had the nifty 50 in the 1960s, where the idea was you have a high PE multiple stock, you buy a low PE multiple stock, you create earnings per share growth. That makes the high PE multiple stock go even higher. You can do it even more. You're like, what could go wrong? And in so many of these things, the answer is it works until it doesn't. It's the same way of saying it's short volatility. It's assuming that tomorrow is the same as today and yesterday. And I think with the highest probability that I've seen in my investing career, the next six months have the risk of looking very different than the last 20 years. Yeah, I think that all makes very clear what you're thinking here. And so if we go back and look a little bit at gold, you've mentioned in previous conversations that your long-term gold price outlook has five figures in it. So I wanted to check in with you on that and also ask about 2025, what the price potential is looking like to you right now. Yeah, absolutely. Our long-term price view on gold is based, we come at it a couple of different ways. One way, and these are all relationships over time, gold is a little bit different than other commodities in the sense that it is more of a monetary commodity. It's not consumed like oil is consumed. You can't say, well, at what price does high oil slow the economy? You can't really say at what price does a high gold price slow the economy because it carries a very, very serious and real monetary role. So we like to look at its price and its evaluation relative to other financial stock metrics. And so what I mean by that is we sometimes like to look at it relative to how many dollars have been printed. I know we're not on a gold standard anymore. However, the value of the central banks, the US Treasury's gold holdings relative to the dollar has actually stayed in a fairly, it's a wide band, but it's a steady band for the last 200 years, even while gold was exchangeable into dollars and while it wasn't. Back when we were on a gold standard, you had more or less gold flow in or out of the United States. The price was fixed, but the volumes came in and out. And the backing of the dollar, it went from being 20 cents of the dollar backed by gold to 150 cents of the dollar backed by gold. We in 1971 said, okay, we'll let the price float, but volumes will come in or out. And price took over the job that volume did before. So even in the period since then, we've also seen the dollar be backed as much as 170% by gold and as low as about 10% by gold. So that band continues. And if you take kind of the long-term, long-run average, you're at about $8,000 or $9,000. And now it's this point. And if you start to take what it could look like at the high end, which is to say, if you really get a speculative mania going, then you're easily into the five figures and you could get as high as $20,000 an ounce. So what's the price target? If we go from a huge bear market to a huge bull market, it's not going to stop nice and neat right on the nose of fair value. It's going to way overshoot to the upside. So I think that you could make a very, very conservative case for $8,000 an ounce gold, just looking at what the long-term historical average has been. And in a real bull market, you could get that easily to $15,000 or $20,000 an ounce. I don't know that that's justifiable. I probably would be selling my gold holdings around that time. Another thing that we like to look at, and this one can be tricky too, but we like to at the odd fact, and this used to be sort of an adage on Wall Street, is that every investor will see the Dow Jones Industrial Average and the gold price cross twice in their investment lifetime. I think the idea of twice in the investment lifetime might be pulled out a little bit. In 1980, it came awfully close to doing just that. So some of the older people might see it a second time. I don't know that younger people will get it twice in their generation, but we'll have to wait and see. So the Dow right now is 44,000. I suspect if the gold price and the Dow were to cross, it wouldn't be with the Dow at its highs. Could that be down 50%? I mean, in a really horrible, horrendous bear market that lasts years and years, which I don't think is the base case, but 20,000, could that happen? So I think the idea of gold with five figures sounds crazy and outlandish, but I think there's lots of historical precedent for that. And I think if we do get into a little bit of a new regime here, where real assets start to come back into favor, I think what could surprise people is how fast that moves. Well, I think that that type of price level sounds less and less crazy day by day. So we'll see how that plays out. I want to take it back around to the gold stocks and what investors should do in this scenario, because I think that's always helpful for people when they look at this. So if we have the gold price going to these levels, it really sounds to me like there should be opportunities across the spectrum when it comes to the stocks. And of course, each investor is different, so they have to choose what works best for them. But for people who are looking at, all right, what do I do now when it comes to the gold stocks and maybe wondering when we're going to see that across the board move that I think a lot of people are still hoping and waiting for? What would you say on that note? Look, I think that people have been overly pessimistic on gold stocks for some time now. And obviously, in the 2022 to early 2024, mid-2024 period, that was a little bit of an anomaly, because you had Western investors with high rising real rates selling gold, and they were selling both gold shares and gold bullion. And you had the central banks buying the bullion and propping up, not propping up, but bidding up the gold price. But the equities were kind of lost in the shuffle, right? So in that 22 to 24 period, gold stocks didn't do as well as the gold price did. And I think there's a really plausible explanation for why that's the case. But really, over every other time in the last 25 years, gold stocks have done what they're supposed to do, which is to say that they've offered a high beta, high leverage return to the gold price, because they have a bunch of fixed costs. And so gold price rises by 30%, and their earnings don't go up by 30%. Their earnings go up by 90% or more. And so you get this kind of big move in their earnings and then eventually in their stock prices. And look, we can sort of quibble on small periods of time, but I think the only real deviation from that was 22 to 24. And I think gold stocks are having a good year now, and they're starting to perform better, despite the fact that the GDX is shedding huge amounts of open interest. But the stocks are hanging in. And I would make one distinction, though, which is that some of the large major gold companies, and I don't want to pick on any in particular, but I think everyone knows who they are, are suffering from a little bit of a challenging fate because of a reserve base that hasn't really been invested in enough in the last 10 or 15 years. There's been all this talk of capital discipline and of not increasing exploration budgets, not increasing acquisition budgets, after a string of pretty lousy value destructive deals in the last cycle. And that was good for near-term shareholder return. But unfortunately, now that the gold price is coming back up, they find themselves with a lot of aging assets and with costs that are starting to increase and with a difficulty in really kind of achieving all the bottom line that they would like from an increase in the gold price. I don't find that that's true, however, amongst the intermediate golds and amongst the sort of newer projects, either just through development into production or a couple years into production. And you can look at our holdings. We have Alamos is a name that we've held for some time. We have some of the more junior, what I would call the more senior development companies and companies with one and two assets that are a year or two into production. And those companies are incredibly attractive. And they're seeing really good results. And they're starting to see cash flow really fall to the bottom line. So I think they're in the catbird seat right now. I think that the barracks of the world, oh, I guess I said it, will probably be forced to come out and acquire some of them to help backfill some of the production and things like that. Obviously, Barrick is talking now about Recodeak as well, which is a massive project in Pakistan. But I think there's some other opportunities as well. Yeah, I was going to ask you how these gold majors get out of this situation. Do they go on an M&A spree at some point? And where would they be focusing on? Do we see them invest more in exploration or in juniors? Anything else you would add on those points? Well, I think the model of the large gold seniors, and this is true in the energy space as well, and it's true in the big mining houses like the BHPs and Rios, is that over the past 20 years or so, they really have relied upon the juniors and the intermediates as acquisition targets. There's a little bit more of an entrepreneurial culture. There's a little bit more of an ability to be nimble and to navigate more challenging early stage issues that they have to deal with. Whereas an Exxon or BHP or Barrick can be a little bit of a bigger ship to turn. And frankly, I mean, that's okay. It's understandable. What they do provide is ballast in tougher times. And if you had to own one stock over the whole cycle, that's a different question. But if you think that gold prices are going higher, I do think that the intermediates and the development companies stand in a really, really good position right now. And I do think that there will be M&A. Is it possible that Barrick decides to ramp up its internal exploration and let that be the driver of success going forward? It's entirely possible. But as we all know, it takes a long time to explore, delineate, develop, and ultimately produce a new deposit. And so I think that they're happy to pay a premium to have some of that work front-loaded by some of the smaller companies. Yeah, I think certainly we all know how long these things can take. So that gives us, I think, quite a good idea of what's going on with gold and the gold stocks. But I have to ask you as well, at least a little bit about silver. So we know what your outlook is for gold. How does silver perform in this coming environment? I think by the time the cycle is over, silver will have done quite well, just as gold will have. But there's a little bit of a timing issue. So I think it depends whether your listeners or viewers are looking for performance this year or are trying to play a long cycle or are owning already silver companies and thinking, should I be selling them here? And I would say the answer to that is no, particularly if there's tax consequences. I think silver by the end of the cycle will have done very, very well. And I think the silver stocks will as well. Right now, however, we favor gold and gold miners. And the reason it's kind of interesting, and my partner Lee did this work a couple years ago, and I find it really quite fascinating. But most gold investors are under the impression that in order to have a truly strong and robust gold bull market, you need to have silver leading and outperforming. And it turns out that that's not really true. In fact, it's kind of the opposite. In most bull markets, gold outperforms and outperforms and outperforms. And silver lags and silver investors gnash their teeth and talk about how it's not fair that this gold to silver ratio is blowing out and it's at distorted levels and stuff like that. And yet it keeps going in that direction for longer than anyone expects. And then bang, silver catches up right at the very end, makes up all that lost time. And so right at kind of the culmination of the gold bull run, you will have a sharp outperformance of silver as it catches up all that lost ground. And so if you look just at that one year, that 18 months, yes, silver will have led. And if you think about the quintessential bull market years, yes, maybe that was a quintessential gold bull market year. So I think that's where the misconception comes, where they say to have a really strong gold bull market, you need silver to outperform. That really happens in a big catch up rally right at the end. And we saw that in the 70s into the early 80s. We saw that more recently when gold rallied from 1999 to 2011. And then we also saw it actually when gold had its rally during COVID and silver caught up in 2021 when the Reddit crowd came into the mix and decided to really try to pull a Hunt Brothers and try to corner the silver market unsuccessfully. Again, obviously, I might add. And in all cases, it actually signaled a little pause, in some cases, three years, in some cases, longer in gold's advance. And actually, if you look back, that's kind of when we lightened up on some of our gold investments was because we felt that silver was giving you that signal saying, okay, you had the catch up rally. This is sort of over and maybe it's time to consolidate a little bit. Now we're back into silver lagging. Gold has obviously started a new bull market. And I think at the end, once again, if history is a guide, which it doesn't have to be, but it often bears some similarity, I think you'll get at the very end this kind of huge gasp for silver prices higher. So I don't think it's there yet. If you want to own it for the cycle, you want to own it for the whole thing, then it doesn't really much matter. Okay. So silver, we should kind of think of as our finale here. Do you have a price in mind for this cycle for silver? No, I think it's hard to say. Look, I mean, I think that if you look at gold and you look at the historical ratios of gold to silver, then you could easily have $100 plus silver, if not higher than that. So I think certainly, if you're going to get fireworks, then silver is going to go along with it at some point, probably the end. I think the fireworks, people call it the bouquet, is the last big finale of the fireworks. Okay. I think that's fair enough. And just one more point on silver. When it comes to the stocks, I think we know that the universe of silver stocks is much smaller than gold stocks, for example. And especially if you want to look for pure place silver companies, that gets quite tricky. So any considerations for you when you are looking at silver stocks with that in mind? No, look, I think you're exactly right. There's not a lot to pick from. So you're probably not going to differentiate yourself quite as much going after this huge universe of diamonds in the rough on the silver side of things. I mean, there certainly are some junior silver companies. We own Pan American. There's a few names to own, and I think any of them will probably do well in the environment. Okay. We can leave silver there and gold as well. I want to also bring you over to uranium because since we last talked about uranium, there have been some pretty big changes in the space. We've had this big AI boom and the big tech companies really starting to embrace nuclear power to power their AI needs. So I wanted to get your thoughts on that, especially because the setup for uranium was so strong before this came into the picture. So when you look at it, all this AI demand for nuclear power and uranium, how much does that really change what's going on here? Well, I think it puts, I shouldn't say fuel on a fire is probably not the right thing to say in the uranium sector, but it certainly adds to the tightness in the market. And if you go all the way back to 2018, which is when we got involved this cycle in uranium, our thesis was pretty simple. We had shut in a lot of mine supply. Reactor demand was being taken offline all around the world. And we made the conclusion or the assumption at that point that anything that would be taken offline was already disclosed, that Germany was still in the process of shutting stuff down, but anything other than what was already announced at that point, we said, let's just keep that intact. By that point in 2018, seven years after Fukushima, if you had wanted to take your nukes offline, you probably did, or at least announced your intention to do so. And we made the conclusion that nothing new would come offline. And in that environment, the market would slip into deficit in 2018, 19, and you'd have a real problem by 2021. And the reason for the gap is because after Fukushima, when Japan shut down all their reactors, they warehoused, they continued to take and warehouse all the uranium that they had contracted for. And it was just sitting there. They never declared force majeure, they just took it all and they were sitting on this big stockpile. And so even though mine supplies as early as 2018, 19 was actually below reactor demand, meaning the market was in a primary deficit, you weren't mining enough new uranium to put through reactors, you had the stockpiles and other secondary supplies to bridge that gap, right? And we said that that would run out by 2021, and that then it would be off to the races. And that's exactly what happened. And uranium has gone from $18 a pound up to about $85 a pound. It got as high as 100 on the spot. Now, when you look forward, you're starting to see life extensions of existing nukes that we expected to be shut down, which no longer will be. You're starting to actually see restarts of nuclear power plants in the United States, and notably Three Mile Island, where there was an incident in Three Mile Island decades ago. People sometimes erroneously think that they're restarting those damaged reactors. That's not what they're doing at all. In fact, there always was a third reactor that never came offline and remained operational until 2019. And that's the one that they're bringing back online now. So they're not taking the old Three Mile Island that we remember from the newsreels and cementing over the cracks. They're just restarting what had been in operation until very recently. But you're starting to see more and more of that across the board. Some of it's been driven by the tech sector. Some of it's been driven by utilities that are looking to provide ballast against very intermittent renewables. But it's all happening in a very, very real way. Obviously, China and Korea remain on track with their nuclear programs, and they're building out new capacity all the time. And then this huge new source of demand, which I'll be honest, nobody really knows how big it could get. I would argue it could be bigger than anyone expects, but it is a little bit out there, is the demand coming from the so-called small modular reactors, which should come online anywhere between 2027 and 2030, and I suspect closer to 2030. And that's all going to have a huge, huge, huge impact because those reactors are very safe, incredibly safe. They don't use high-pressure water, so the idea of a core meltdown is almost impossible. It's basically impossible. They're very capital efficient relative to existing third-generation reactors. And then they also create about 90% less waste than the current reactors because they use a different type of uranium. They use a high-assay low, or the so-called helium. And what that does is it burns up much more efficiently, and so what you're left with is much, much less waste per unit of electricity dispatch. So those are kind of the three major concerns that a lot of folks have about nuclear power, safety, cost, and waste. All three are addressed. We now have an administration in the US who is very much in favor of small modular reactors. The Secretary of Energy, Chris Wright, sits on the board of Oklo, which is one of the SMR companies. It's actually publicly traded, so he's very, very much acquainted with the power of the technology and very much in favor of it. And I think that from a regulatory perspective, nuclear's day really could finally be here. And the reason the tech companies are embracing it is really quite simple. The AI demands and data center demands in general are incredibly, incredibly odorous. If you look, actually, Oklo, which I said Chris Wright sits on the board of, Sam Altman was one of the first founders of that company. And the legend sort of has it that when he started to build out OpenAI and ChatGPT, he very quickly said, okay, well, this is all well and good on the software side, but what it's really going to need is power. That's where I'm going to make my fortune. And so he moved over, gave a lot of money to Oklo and basically was the lead investor of that company from the very, very beginning. Bill Gates is the guy who's running TerraPower, not running it, but is the majority owner behind that. So you have all these people who I think have realized that the technology side of the ledger is going to have a huge, huge impact on electricity demand. And where's it going to come from? It can't come from renewables. There's a number of reasons why. Intermittency is obviously a huge one. Even if the intermittency were somehow dealt with, it turns out actually that the power that comes from a windmill, even if the wind's blowing, is not high quality enough. It's not regulated enough with the same harmonic distortions that would allow it to go through some of these very sensitive electronics. And it's really inefficient. It takes so much energy, so much steel and cement, so much copper, so much manpower, and so much energy to transport these massive, massive infrastructure projects that you end up consuming as much as 10% or 15% of the energy that that thing is going to produce over its life. So these are not the answers to a huge increase in electricity demand that data centers are going to require. And that leaves you with coal and natural gas. And both of those obviously emit CO2, which is not satisfactory to most of the big tech companies. So you see a lot of gas that's going to be built out for sure, because gas is both more efficient than coal and much lower CO2, much low carbon intensity. And where does that leave you? I mean, it leaves you with nuclear. And so I think this is a very crazy, circuitous path that we've taken via renewables and tech and growth. But I think the big thing here is that they're finally realizing and unlocking what we as industry and we as consumers have not really had to confront, which is what is the most efficient, safest, and lowest carbon form of power? And that is so clearly nuclear. And the reason the tech companies, I think, are important in this going forward is that even with the small modular reactors, there's a lot of capital to be put to work. And there's a huge amount of risk aversion on the part of utilities and on the part of certainly regulated utilities and IPPs as well. But the tech companies have both the capital and the risk tolerance, I think, to be able to push forward on something like this, particularly when they see it as an existential threat, which it really is. The lack of power is an existential threat to the tech industry. Tania Salarvand Okay. I think really good overview of what's going on with uranium demand. And I want to make sure that we touch on what's happening with the supply side as well, because there's a lot of interesting dynamics there. And I'm curious what you're watching the most closely. We've got companies that are struggling to ramp up or increase production. We've got the whole geopolitical angle with where supply is going to come from. What are you focusing on when it comes to supply? What should we be paying attention to there? Adam Draper Well, I think that there's two kind of big things to pay attention to. In the West, what everyone is looking at is NextGen and the Rook Arrow deposit. And that's scheduled to come online, I believe, in 2028. And there's some controversy around that. And certain people believe that they'll be able to hit their timelines, and other people think that they're too aggressive of a timeline. We own the company. We own shares in the company. We really like the asset. It is an incredibly high-quality uranium deposit. I guess I'll remain neutral on this podcast. I think it's a pretty ambitious timeline to try to bring a big project online. We obviously own the stock. We continue to own the stock. I think from a stock perspective, ironically, if they came out and said that they wouldn't be able to meet their timelines, the whole uranium sector would probably lift because that's going to be a big, big, big 20-plus million pound project coming online in 2028. And that's in everyone's models, right? So even with that, the market stays pretty tight. If you took that out, then I think uranium prices would gap higher, and I'm sure all the stocks would go up along with it. So that's what is to watch in the West. In the East, it's obviously Kazakhstan. Kazatomprom is the world's largest uranium producer. Kazakhstan is the world's largest producing country. And there's both geological and geopolitical concerns there. From a geological perspective, they're moving into a new part of that asset. It's an in-situ leach. So they drill wells and they pump chemicals into the wells and leach the uranium out of the rock. They don't mine it as such. And the area that they are going into now is proving to be a little bit challenging. It's deeper. It's different geology. And it's certainly consuming acid more than they expected. They talk about an acid shortage in the country. That's true. It's not so much a supply bottleneck issue, although that's part of it. It's also that the rock is just consuming acid more than they would have expected. So I think there's some real geological issues to confront there. And unlike a traditional mine, which might have a mine life of 20 or 30 years, this is much more like an oil, shale oil field where they decline. So you need to be out drilling your next wells and continuing the pace of development. They're very economic assets. They're wonderful assets. But if all of a sudden on the margin, what you're drilling is not as good as what you had before, you can start to see impacts there. The geopolitical concern with Kazatomprom, of course, is that it sits in Kazakhstan, which is not Russia, but is closer to Russia than it is to Canada or the United States. And so it could very easily fall into the Russian sphere of influence and to some extent already has. If you go back a couple of years when China expelled many of its cryptocurrency mining operators, they all set up shop in Kazakhstan because they had very cheap electricity. And it immediately overwhelmed the grid and retail electricity prices doubled and tripled. And there was unrest in the street. And very, very quickly, the Kazakh government asked for relief from Moscow. Moscow sent troops actually on the ground to restore order in Almaty. So I think that there's a real concern, particularly with some of the recent announcements around the joint venture that Cameco has with Kazatomprom with Incai. I think there's a real concern that if you were to draw demarcation lines across the world, and if you were to kind of divide us into the United States of the West and the rest, that Kazakhstan might not be on the right side of that, which of course would tighten the Western uranium markets substantially. Okay. And also a really good overview of what's going on with uranium supply. I think when we put those together, it's easy to see that the setup for uranium is looking maybe better than ever. And yet, I have to ask you about what's going on with the price because over this past year, we've seen the price go down and kind of consolidate and investor interest seems pretty low. So when do you think that changes? Any thoughts there? I think any day now. And the reason that I think that is, might be oversimplified, but I think that in this case, this is pretty much the case. For years, the spot price and the term price of uranium were always in lockstep with each other. People like the spot price because they can pull it up on Bloomberg. 90% of the market happens on the term price. And the spot price had a nice feature that it was pretty close to the term price. So you could reliably pull it up on Bloomberg and mark your models and go to your investment committee and say, this is what it is, instead of waiting for the monthly numbers to come out from the various uranium reporting agencies. At the end of 2023, when Cameco announced that they would have production shortfalls in their Athabasca operations, and Kazatomprom, there's some concern over there, 24 and 5 projections as well, you saw a huge rush of capital into the uranium space. Every hedge fund became really experts overnight. I know this for a fact because we were one of the very few investors that had any interest in uranium before that. And so I know who the original guys are in that trade. And I know who the latecomers were in that trade too. And there was a lot of latecomers. They piled in. Now importantly, capital flowing into a commodity space can sometimes be the kiss of death because it brings on too much supply. In this case, we didn't actually see a lot of new capital raised. We didn't actually see a lot of new projects sanctioned. A few, but not many. But what we saw was the money come in very quickly and the prices appreciate very, very rapidly. And where you really saw it, I know the guys at the Sprott Physical Uranium Trust quite well. I spent a few days with John a couple of weeks ago. But you definitely saw that as a preferred vehicle where people piled into that. And as a result, you saw the spot price climb sharply above the term price as much as 25% or so by the end of 23 and into 24. To me, that's a measure of the hot money that flowed into the space. Throughout 2024, I think all of these new hedge fund experts became intimately acquainted with the fact that the uranium market can move at a glacial speed compared to the gas markets or the oil markets where you get data coming at you every day. Uranium is this opaque, slow-moving thing, including the fact that from when a pound is dug out of the ground to when it goes into a nuclear reactor, it might be six years or more. It's a long fuel cycle. And so you don't have the same dynamics as you do in other markets. And I think they kind of got bored. And so they stepped away from the space. They sold their shares. We've seen a huge deflation in the spot price throughout 2024, particularly relative to the term price. And that's a long-winded way of getting to where I want to end, which is the term price continues to move up and up and up. That's where 90% of the pounds get transacted. That's where fuel buyers are buying from fuel fabricators who are buying from the mines. That's the true market. And that didn't miss a beat. That didn't maybe go up as much as the spot price did in 2023, but it didn't come down in 2024 either. It's just been a slow and steady march higher. And now you actually have term prices slightly above the spot price. So to me, that tells me that the speculators are pretty much out. Maybe they're even short. I don't know. People love to talk about uranium. I don't think people, at the end of the day, love to buy the shares. And so I think that that speculative fever is gone. The prices have normalized, consolidated. They haven't been terrible performers, but they've consolidated. And I think they're now ready for their next leg higher. Okay. Well, any day now, I think that will bring some heart to some of our uranium investors who are listening here. All right. So thank you for going through that. We've really touched on three of our audience's most favorite topics, gold, silver, and uranium. Before I let you go, I know that you're really focused on staying ahead of the trend and figuring out what's going to be next. So any final thoughts that you would leave investors with other things that you're looking at or just things that you would leave everyone with? Well, listen, I think I'd sum it up as follows. We've harped for a long time on trying to be contrarian and trying to be value investors and trying to buy assets when they're at the bottom of their cycles. And we've also told people that in a lot of cases, when you can buy really cheap assets, it doesn't cost you anything to be early. Whereas if you're late, you end up risking missing out altogether or chasing it higher and higher, which can be quite detrimental. And so we've argued caution that people should try to get there before the turn. It's rare that you can get anything spot on. And in this case, for a few years now, we've been saying, if you have to err, err on the side of being early because there's really no cost to it, whereas the cost of being late is sizable. Price is right rules or whatever. You're getting awfully close. You don't want to go over. And I think we're now, I think the takeaway should be you're right at that cusp as far as I see it. I think that there's the biggest risk to a major catalyst that would propel real assets higher in 2025. Maybe we'll be wrong and it'll be 2026. I'm very confident that if you look five and 10 years from now, prices have to go much, much higher to help attract the capital back into the space. But I can see a fairly short fuse for what the catalyst might be in the next six to eight months. And I'll caveat that by saying I'm not always the best market timer, but I think in this case, there's really a risk to not being there this time. Because if you could look as soon as September, October and say, you know, darn, I really started to miss the beginning in that move. So I think the time is now. The valuations are very attractive. The companies are in really good shape. They've repaired themselves, stuff like that. Investors have no interest. And I think that we could be on the verge of a really big regime change here. Well, I think that's a really good spot to wrap it up. Thank you so much for going through what's happening in all of these markets. It was really good to have you on. Yeah, great to talk to you again and glad to be on. Of course. And once again, I'm Charlotte McLeod with InvestingNews.com and this is Adam Rosenzweig.