Gold's Bull Market Isn't Over—But the Risks Are Changing

0:16Trevor Hall: Hey, good morning, everybody. Welcome into this week's long form episode on mining stock daily. A huge shout out to Tara Hutton who helped make the invisible investable. If you're at all interested and getting your company highlighted and being able to tell your story online through the Tara Hutton platform. It is amazing and really engaging. Go check them out at tarahutton.io. All right, let's jump into my conversation. Thank you, Jessica, and thanks for having us back. Henrik, really looking forward to this conversation and preparation. You and I had a few conversations leading up to this. And there's just so many directions we're going to take this.

0:58Trevor Hall: We're going to try to keep it as succinct as possible. And the biggest themes we're going to stick with over the next 40 minutes, we're obviously going to talk gold. We're going to talk debt in many different forms and what that means. And we'll also talk about the miners here and the number of cycles we've seen most recently. Just quick introductions with these slides. But you have some history in this sector. Well, some family history. What are we seeing here in this image? This is a 130-year-old photo taken out in Alberta of my great-grandfather in 1897. You can see him. He's the gentleman who sits on the left side of the carriage.

1:51That's amazing. And he went up there. The story is actually he went to Canada, a little bit in California, but then moved on to Yukon and didn't succeed there in mining. So he went down with a friend of his and set up this shop, you see on the photo there, and they bought a farm where they actually grew horses that they bought from the Indians. And then they were selling the shovels to the mining industry at that point in time. And I think he left the country in 1905 with a few relics and enough money to buy a farm in Denmark. Thanks for sharing that history.

2:37Trevor Hall: Unbelievable. I love those old photos. Listen, we're going to talk about this gold bull market. And despite the volatility we've seen recently, I firmly believe we are still in a gold bull market. Walk us through your thoughts on what really ignited this. Was it the freezing of Russian sanctions? Was it central bank buying? All of the above or anything that maybe we haven't discussed? Yeah. Yeah, I mean, I entered this business in around 2014, by the way, or 13, I should say. And it was a short stint, the first one, because it was with my father-in-law's coal mine in eastern Ukraine. And that ended in February, March of 2014.

3:31I know some of you have been here before and you remember when we took the travel down from 2000 to 1050 and what we see there I think starts in around 2016 when we saw the 1046 low and then the first move up was we didn't know at that point in time it was a low but it's a correction but the lines I've put in, there's one missing but we'll get to that one later But this is really the regime change we saw because of the Russian reactions into Ukraine and then what the world then did to their own currencies afterwards. I would, Felix Solab this morning mentioned this, and I got to say his historical and global macro view, I am at least 80 % in alignment with.

4:29And he was speaking about the change, and it was maybe over hundreds of years he was talking about. I actually wrote an article about this published in April. and I think every regime in the world meets some obstacles and something just changes. And I do think this was the invasion into Ukraine and what happened to the Russian reserves in the central bank and elsewhere. I mean, it's not only the central bank, but all private assets in the West were also a lot of private assets by private people who not necessarily are in agreement with the political regime in Russia. They lost their assets. On my own account, I was a part owner of a gold mine in Eastern Russia, and we lost this because this was their counter move.

5:34So we stole from them and then they started stealing from us. And the lines that are put in there are actually to show the exact dates. The first one is when the CIA report came out in November in 23, sorry, in 21. And it ended up in an article in the Washington Post or Financial Times, I can't remember, maybe both even. one week later and that's where we saw the first ball start up that people were aware that actually the rumbling in Ukraine would probably develop into something new. And the next one is actually the week where we saw the invasion and funny enough it peaked up one or two days and this is not an uncommon phenomenon because it happens once again in the same chart.

6:28And then we saw the last part of the correction before everything just went, as we all are smiling about, upwards. I mean, I think we owe Trump. I'm not a particular fan, to be honest, but I think we can owe that bull face there to his workings. And Biden, by the way, as well. But the third one there is when it was decided politically, it was acceptable this time around to not only freeze the Russian assets, but actually to impound them and probably take them and use them to fund the war in Ukraine. And Felix mentioned this this morning. Anybody out there who can spell the name reserve, outside mining industry maybe, because there's a different meaning there, but currency reserve, government reserve, national reserve, they realized that if you have either a dollar-denominated asset or an asset that needs to be transferred through the American banking system, you are not so 100 % sure about that as being a reserve anymore because it can be taken away from you overnight.

7:45So this was when the policy changes in a lot of central banks changed. China probably started their development earlier on but even Turkey and Poland changed their policies dramatically we know that Swiss gave up half their resources back in around 2000 at the bottom together with where the Brits sold everything together with Canada and now suddenly holding US treasuries U.S. currency that needs to be transferred through the Fed or one of the clearing banks could be taken away from you. And I think that's the regime change we saw. And the trend has come down. In the meantime, this is a nominal scale.

8:45So if I put it on log, it would have been shown a little bit different. there will be later on. But I think it was the sign to everyone out there that you need to take care of yourself. And this is, unfortunately, what has happened in the world. I mean, in the meantime, last year, the French repatriated the last 10 % of what they had left over in the Federal Reserve's Bank of New York department. It was about 300 tons they moved. And the other 3 ,000 tons, they moved them back in 1963 to 1966 deliberately by Charles de Gaulle for the exact same reasons as was mentioned this morning and we will touch a little bit more into later on.

9:45Trevor Hall: Let's jump to the peak that we saw in February and its correlation with the invasion, attack of American Israel into Iran. And that really was the peak. That was an interesting day in the gold market. It was a buy the war news and then sell off to the day. And it has really seen some volatility since then. And here too, recently, we see nice little bounce, which obviously we're all a little bit grateful for. But this is on the back of the U.S. midterm elections. So let's think about what we've seen. Is this the correction we needed and deserved? Or do you think we've seen this? Have we seen the bottom of this cycle?

10:32To the last question, I'm not sure we've yet seen the bottom. I would love to, just to be clear. I was the one who bought nearly everything back that I sold, very close to the top at 4 ,100, just to be happy a few days or weeks.

10:51Because there are a few, I'm an economist by education, but I actually wrote my master's on behavioral finance. And this was a different word of what Felix was talking about this morning. And most people of you know this as technical analysis, But technically, it's only a little part of it, and a little part of the little part is exactly what you see on the screen there.

11:18We have had now some kind of regime change in the U.S. The election was not even discussable, I think. And I think that's a good thing because I would have thought in the states where it would be very close. And this jury isn't out yet. And there are still open questions in at least two states. This is the thing that could lead to riots. I am going back to your question. Is it behind us? I don't think that the election day probably is the key igniting day here. I am more concerned about the week when the transition is going to happen, similar to what we saw back in 2020 on January 6th or 16th.

12:14I can't remember anymore the exact date. The 6th. Where we saw that Trump ignited people by calling out Mike Pence and calling him an idiot and that he wouldn't support his role as the vice president. and then suddenly we have people burning down the White House. I can still see that happen.

12:38Structurally and economically, these things don't always 100 % correlate and you can always debate in the aftermath which one is the leader and which one is the lagger. As a behavioral economist, we would say that it's actually the financial money generation from the markets that drives the economy, where an economist would say, and I have both, is say, actually, no, the financial market is a result of how the general market is going. But if that was true, none of us would be sitting here because then everything would be prized to perfection.

13:19What happens tactically in my case, and I would advise for everyone is that I took the first leg in at 4 ,100 and it looked so nice for a week. And then suddenly the AI bubble collapsed and had enormous impact on us the last month. That means that I can't be buying here at 3 ,900 if we return to that. I would have to wait if we see an even deeper correction. And from a pure technical perspective, I can find the argument that gold could even go to three and a half thousand.

13:58Trevor Hall: Well, we've seen, obviously, moves, wartime maneuvers have been bad for gold this year. And are you at all concerned of a re-escalation in the Middle East as now there's about a month and a half before the new congressional members in the U.S. are sworn in? How pivotal is the next six weeks? Yeah.

14:25Felix said he thought it wouldn't happen. And now I get to the 20 % where I disagreed with him because he was, as I heard him, he was thinking about what will the Americans do. but there are two sides to this one and the other side is not like Russia this is a fanatical people that we from the West since the British invaded them the first time in 1880 or something have been meddling with ever since and the biggest discussion we've had in the West is who of France, the UK and the US owns the Iranian oil it was never a discussion in our part of the world if the Iranians maybe owned it. And I'm quite sure that the Iranians have an opinion on this.

15:12And that's the reason why I don't see oil go back to 60, as you said. I think we, I'm not saying we will stay here at 100 to 117 where we've been, but the price of oil will also have started a new trajectory. and I fear that the Iranians are much better prepared than any one of us imagined, at least myself and if they decide they've had enough we are just in the first chapter of that war well six weeks.

15:59Trevor Hall: We'll see what happens in six weeks. All right, let's move on and keep talking. I want to ask you about gold, if it's become the collateral of choice. And we talked about Russia's assets being frozen in 2022. After that, gold and bonds kind of stopped moving together. Did reserve managers decide gold's a safer collateral than treasuries at that precise moment and is that the real engine behind this bull market i think it is it it's all when these things happen it's always a multitude of factors but when you get a perfect storm and you get a series of factors at the same time at least in the same direction this is then what ignites and then it starts to feel feed on feed on itself uh and i think that's the that was the thing that ignited the whole thing and started the feeding and everybody moved i mean the chart shows it quite literally, people stopped buying U.S.

16:53treasuries for many reasons, but one of them was what we discussed before. The other reason is, it's really turned into a junk bond. Sadly, the U.S. government printed bond is not the only junk bond that is printed by governments these days. I mean, you can, nine out of 10 countries are in the same basket there. but you see clearly and it's the same dates actually this is the price of things and the yield of things and of course there are also the fact that suddenly inflation came back but inflation also came back because of the war and the issues there because Europe lost its connection to gas Europe pays about a trillion dollars a year extra in heat and power just because of a higher gas bill.

17:49And we all know that the major inflationary from the supply side input is energy because we all run on it. We sit here, the microphone goes on it, all the lights and everything, the mobiles, whatever else. Without energy, we would be living in caves. So, yes, I think this is the point.

18:16Trevor Hall: Obviously, another dynamic driving the gold market, debt. And this is one of those things, we think about it and talk about it every day. But when the numbers come up, it's always surprising. It's always a jaw drop, like how we're living in such a time here. U.S. government debt, now$113 ,000 per person. That's the highest in the OECD. Total,$40 trillion. How much of gold's move here, Henrik, is a verdict on U.S. debt and deficits? And is there a debt level or a point of interest where the market stops trusting the dollar, much as Mr. Zuloff mentioned this morning? let's take the last one first um i mean economists they always talk about the six percent level uh when it comes to when it becomes expensive for a government but six percent on a small debt is not really something to be concerned about but 60 on a debt that covers about 100 and 250 of your global GDP, then if you make the mathematics backwards, then it starts to be that every 25 cents that all of us pays in taxes ends up paying for all errors and mistakes.

19:44The U.S. is in a unique situation here. If those numbers were in European countries, and you can see some of them are, actually I can tell you when I sent this to Trevor, I was even surprised. And he was as well, as you heard, he was surprised what the numbers were, because this is the first time I've ever seen them backward calculated per capita. So this is what bad government does to its own citizens. And this is just on the way up. but when this has to be paid back which is not going to happen we all know that it's going to be inflated away but when it comes to that point we all know that it's going to be inflated away then you're going to change the price that you want to pay for that specific debt

20:46US has more grounds than any other in terms of issuing government debt. And this is simply because they are issuing it in their own currency. There are other governments who need to issue debt in dollars as well. And that is a different story. They can literally do it endlessly. And there is a trick there that has been utilized a few times and it can mainly be done by the Americans. It is if you see to that you put in, let's say, 200 basis points in your curve, meaning that, let's say, long is 5%. That means if you lower the short-term refinancing cost, financing and refinancing to 3%, then you can actually put away all the debt in your banks and let them just do what they're good at at best, namely nothing, and let them make the 200 basis points each and every day.

21:52Then they need to survive the volatility in the bond market. And we already saw that when the trend changed from below 1 % up to 4 % in a very fast, there was a series of banks in the US that went bankrupt. I mean, the one in California, actually, they went bankrupt because they had put on a future hedge. And then somebody in the trader room sits and sees, Oh, that hedge turned into something very, very different number. And it was only halfway up.

22:23The first part you said, I think it is surely beneficial to gold that people are losing their trust in their government. I mean, I'm not saying we're winning here because if you think about it, the price of gold is always a trade upon Fed because they are the operator of the US currency. And in governments, and not only U.S. governments, but governments globally. So when governments, sorry, when gold price goes up, it's voting by the constituents that they are losing trust in their government.

23:02Trevor Hall: And it's, I love this discussion about the U.S. dollar and gold as the debasement trade. Once gold had a label to it last year, I knew as the contrarian in me knew the time was up, right? But when the U.S. dollar and the debt, when you have the world's global currency and you have this much debt per person, you're basically the best looking horse in the glue factory. But don't you get a little grace? If you continue to be the global reserve currency, would it be surprising to see that$113 ,000 per person to double, triple, quadruple before that currency system actually breaks and resets? No, I think you could see that because, I mean, the number has doubled since COVID.

23:57I mean, we spend as much money, always spend as much money since COVID, since U.S. did the prior 120 years. And I think there's a long way before we see the U.S. goes away, that U.S. dollar goes away. not because of quality, but because of lack of substitutional quality because who is there to take over? I think the infrastructure that the Americans built since the First World War with the IMF and all these institutions and how the banking system has developed over time, the Federal Reserve being the lender of the last resource and something that most people don't think about. I actually worked on the money market desk where I ran the U.S.

24:43dollar book in the bank back in the days. But unless we move to another time system and eradicate GMT and moves it somewhere else, if you look at the globe, the U.S. closes the shops the latest. Asia is closing when we are waking up, then we are in the middle day, and when we are closing, the U.S. is opening up. There is overlay on both ends. But simply because of this, all liquidity on the planet in a bank that is from any kind of currency, on your foreign books, it always ends up being swapped into dollars. So they are really tactically 24 hours ahead of everyone else, meaning that overnight trading can't be done in other than one currency internationally.

25:36Domestically, you can. Also because every Swiss bank has an account in the S &B. every German bank has one at the Federal Bank in Germany and so on. But many banks also have, many non-US banks also have an account, a US dollar account where they can draw upon in the US time zone. And this is really what finances short-term liquidity. and the fact that we don't just move us that we would have to move the clock instead makes this window much much longer than people think yeah i do want to talk about um october a

26:24Trevor Hall: little bit maybe just what kind of drove that volatile uh month especially in the end of the month were there what really was a washout what i was watching here those last couple days of October here, Henrik, it felt like a liquidation event. The market was also, the S &P was also volatile. It felt like people were selling wherever they could. And obviously gold's not immune to when selling pressures happen. Is that your read on what we saw in October or was it something else? No, no, this was a liquidity event. And what's the origin of such a liquidity event? In my case, I think it was the fact that the election was coming closer.

27:10And it looked as if there were going to be a change in American leadership, let's call it that. But he loses the house and everything and suddenly he can't do whatever he wants. And all his West Coast oligarchs suddenly couldn't do with him what they wanted. and this was spilling into the financing of the AI team. I don't know if you related to the numbers, but this year the expected usage of hardware in the AI ecosystem is about$800 billion. That's about 10 times the size of the Manhattan Project, the biggest project the government has ever taken upon themselves in history. It was 120 ,000 people employed on average over a series of four years.

28:11Now, there was the strongest names out there that took it on, but the sheer size of it. And then we started to see it was actually a little bit like the cracking when Lehman went bust and we saw Bear Stearns go bust first because we saw some bond financings that failed. Everybody has been talking about when does the U.S. Treasury bond auction fail. If that happens, there will be wreckage on the market, but it wasn't a Treasury issuance that failed. It was both rated and non-rated long-term bonds, mainly five and 10-year duration, and they started failing. I mean, even, I'm sure you remember it, last Monday, copper woke up in a different price.

28:58What happened over the weekend? Anthropic had a failed financing. Nobody talks about this. You can see it there. And then this is the thing. I didn't catch this up until last Monday, unfortunately, because normally I used to look at the black line, which is the yields in the ETF, the biggest corporate bond ETF on the planet called HYG for high-yield bonds. But the sub, what's it called? the credit subsector being CCC, and this is what we measure on the, let's say the worst rated or the non-rated. But if you see there, the spread over, not even the yield, but this is the spread over up there, went from 7 % to 13%.

30:05And if you then add another five for the treasury, that means that if you had to go out and borrow money last week, You'd have to pay as Anthropic unless this was underwritten by NVIDIA or this was Microsoft and Larry Ellison were underwriting this first. A lot of what happened there, the first part of 2026. I mean, unless you got a third party to underwrite for you, you suddenly were on your own. And at 18%, I mean, we're in the mining industry. We know that we're used to high yields, but 18 % can kill even the best of juniors. And we are talking about$2 trillion companies that are thinking they are$2 trillion worth, or at least they hope that they are going to do an IPO at the price of$2 trillion.

31:02I mean, this chart tells you this is not going to happen. I think if Antropic comes, let's say, about one and a half trillion instead, I mean, they need to take a serious impairment here on this.

31:21And actually, the steepness is exactly as to when gold decided the bad party wasn't over. And I think this was the major inflection because even though we're used to this segment of credit is not very big, they issued hundreds and hundreds of billions into it. So the purchasing ability from the investor side, it was just killed. All right.

31:49Trevor Hall: So we titled this keynote, Gold, Debt, and the Miners. So we've covered the first two. We're going to jump forward here and talk about the miners. So this is something that's been really interesting as we're starting to see those Q3 numbers come in from the big boys. all in sustaining costs are up nearly 24 to 25 percent at the three largest miners like Neco Eagle, Newmont Barrick. The consensus Q3 ASIC was 1 ,929. My question really is we know we we're aware of the inflationary pressures. ASICs typically rise every quarter. That normally happens. This seems like a pretty substantial rise year over year.

32:40Trevor Hall: Have margins in the miners? Will we ever experience the margins we saw in, say, Q4 of last year, Q1 of 2026? Or is that, will we look back at that time, Henrik, and be like, they were raking in so much cash. First of all, the window when we saw these massive margins at a price of, let's say, we weren't many. I don't think in total we were more than 40 days above 5 ,000. So let's say 4 ,500, but with more than 60 % in margin, and if we forward look this, it's going to take a long time before we're going to get back to those margins. As I also told you yesterday, I think it was, I don't want to be saying it can't happen, but we will have to see that the story that people keep repeating in our industry that we are going to see six, eight and ten thousand dollars on gold.

33:46And we will have to see six thousand before we'll return to these margins because we're not going there tomorrow. and in the meantime, I mean, if we have a 25 % change on ASICs a year, just put that forward there. That means the marginal cost is at 2 ,500. So, just to have 60%, you – oh, I didn't even make that math. At 50%, it would be 5 ,000. So, we would probably be close to the 6 ,000, yes, at the same – which is required to get to these numbers. But we don't need those numbers. I mean, I think any miner, if we keep it to the gold price, should be happy with a gold price around$4 ,500. Then we can add 10 % every year because of the underlying change in the operating cost.

34:47I mean, we've seen this extreme change. and this extreme change is nothing different than we saw before because this is direct cost and what we saw on the charts before on the funding cost the funding cost also went up not only because there was printed too much debt but also because inflation went up and this is exactly inflation in the mining industry and remember these are the biggest ones so I'm sure we can find somebody in the mid space that would have It's lowered cost rise. But if you take this just as a general indicator, I think that's a fair thing. But I'm not saying we're going to keep on.

35:33I'm not hoping that we're going to keep on with plus 25 % year on year on year, because that means that the crisis in the Middle East is going to go on and we'll see$150 a barrel of oil. and then suddenly something else is going to happen because then we will see the U.S. Treasury yields go to about 6 % and then the discussion changes.

35:57Trevor Hall: Let's talk about implications with the explorers with this kind of inflation we're seeing in the ASICs throughout production. A year ago, Henrik, we were seeing a huge financing window open. There was capital flowing off the shelf, funding expiration. There were financing. The financing window was wide open. And I think that lasted probably three or four months. It probably closed around February of this year, I would say, for the most part. We've seen some decent financings recently. I'm not saying it's been completely closed. But obviously, the market and the froth obviously brought in a lot of risk capital off the shelf and into the sector, which was great.

36:41Trevor Hall: But if we continue to see margin pressures in the producers, what kind of implications is that going to have on exploration budgets and a potential, any sort of new financing window that opens here this winter, which explorers will need to happen to fund next season? I think this season funding is going to be very, very tough. If we are going to fluctuate here down around 4 ,000 plus minus 300, I think it's going to be a tough sell. I think if we go above 4 ,500 again, I think everybody's going to be smiling. People will get a lot of their profits back on their books, which will accelerate the risk appetite back again and for people to get more.

37:35But, I mean, we can't live in a closed environment. We also need to see that our industry goes into new areas. And when I say this, I mean new investor sectors, segments, sorry. We can't just have this centered group of mining bugs who we all see we're getting older and older. We need to get onto Wall Street as well, else we will see that the industry is going to have a very hard time. Now, should we get above 5 ,000 on gold again? And I think we do. We will. I think this time around Wall Street will wake up and the discussions about asset allocation. If I hold dollar risk, if I hold bond risk, don't I need to have 10 or 20 % in the mining space or in the metal space as an inflation hedge?

38:43and I think the answer to that is yes I mean I've used that I've used that term for a long time and it was a brilliant term to use in 24 and 25 and the first half of 26 but since summer not so much because it turned out we weren't a hedge in the period here we wanted I mean the goal is has moved not in a way we couldn't understand And the one that surprises me the most is copper. We are close to being all-time high in copper, and copper stocks are down 40%. That's a scary thing.

39:22Trevor Hall: I do want to close with this because this was my favorite slide in preparation for this, and we only have 15 seconds, unfortunately. Resource investing is like skiing. Hopefully you have better snow here than we had in Colorado. It was pretty abysmal, and we're keeping our fingers crossed. But I love the analogy. Just walk us through this as quickly as possible if you can. Yeah, I mean, I wanted to make an analogy that could be a little bit fun and relate to both Switzerland. I live here, but I'm not a native Swiss, but I am a skier. And I know all our Canadian colleagues, most of them are as well, if not hockey players.

39:59But, I mean, we need to make the world easier for us and not keep the discussion about mining surviving only because of the price of metal. There needs to be things within the industry itself and especially within the companies themselves. And I think this is the guidance we need to have on ourselves, our own discipline. We've been talking all day about the U.S. has no discipline and governments have no discipline. But we also need to put discipline on the companies that we invest in and discipline in our own investment. And this is what I'm trying to relay here. I mean, you need to be at the right area and mountain.

40:41And by this, I mean, you need to be where the geology is there. I mean, clausology is probably a very, very good thing. If they found something over here that's a good neighborhood, then let's see if we can find something close by. And the lift system is an illustration of the infrastructure. I mean, there is a difference if you want to explore or mine in Nunavut or if you do it in Nevada or in Arizona. I mean, there is about$1 ,000 difference just per meter on the drilling cost because of infrastructure. And water needs to be there and power needs to be there and manpower needs to be there. And I mean, this is the reason why some projects need to be phenomenally big, like down in the Andes, because you need to start out spending$500 million at least just to have access, water and power.

41:41And you haven't even started building a mine yet. And then the snow conditions, of course. I mean, one thing is you find something in the ground, but it has to be not too refractory. You need to be able to work with it. There needs to be methods that are not necessarily novel every time that you can extract the value in the ground. And finally, the right company. I mean, that's really, I mean, to have a good day on ski, you need to be among friends and so on. And in this business here, we need to be among friends, discuss under friends to make everyone smarter and more experienced. But we also need to be in the boat with strong financial people that have either very deep pockets, I should say both, actually deep pockets, but also have done it before.

42:35And they sit on a network of financial people that can keep the engine running. because let's say this goes, let's keep it at gold. Let's say gold goes down to three and a half thousand. Then the phases on all of us is going to change statute. And that just means that the time for recovery is going to be even longer. And in the meantime, there'll be lots of casualties there and we'll be running out of snow, most of us.

43:06Trevor Hall: Be like Colorado last season. It's going to be global warming. All right. It was a real pleasure working with you on this presentation. Thanks so much, Henrik. That's a wrap here at Luncheon. Thank you so much. The information presented should not be considered investment advice. Mining Stock Daily and its affiliates are not responsible for any loss arising from any investment decision in connection with the material presented herein. Please do your own research or speak with a licensed financial representative before making any investment decisions.