Gold Mining Stocks ‘Too Cheap’: Rule

Tuesday, 2 Jul 2013 | 6:11 PM ET
Gold Miners 'Too Cheap': Rick Rule
Tuesday, 2 Jul 2013 | 5:36 PM ET
The winning gold trade isn't directly in the precious metal, Sprott U.S. Holdings Chairman Rick Rule says.

The winning gold trade isn't directly in the precious metal, Sprott U.S. Holdings Chairman Rick Rule said Tuesday.

"I think we're headed into a period right now of capitulation selling," he said. "Anything can happen with capitulation selling, which is what we've been seeing recently."

On CNBC's "Fast Money," Rule also noted that he believed that gold could go "much higher" in the long term.

"I think that gold is already off from, what, $1,900," he said. "My suspicion is that this is another cyclical decline in a secular bull market, similar to the cyclical decline that we saw in 1975 and 1976, when the gold price came off by almost 50 percent, and then of course rallied famously for 650 percent over, what, six years.

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(Read More: Dennis Gartman's 'Watershed' Shift in Gold)

"Gold is both cyclical and volatile, and I think you'll see both in this market."

Gold ended the day unchanged at $1,243.40 per ounce.

Rule's top gold play wasn't in the metal itself; it was in the gold miners.

"I think some of the miners are simply too cheap," he said.

Rule said that shares of the miners should be considered on a valuation basis.

(Read More: Is the Pain Trade Over in Gold?)

"If you look at the streaming companies as an example, Franklin Nevada, Royal Gold and to a lesser extent Silver Wheaton, and you schedule out the net present value of their future cash flows, in particular discounted by today's very, very, very low interest rates, the price response to the cash flow that one would expect at these gold prices is very attractive, particularly on a historic basis," he said.

But that doesn't mean the bottom is in yet, Rule added.

"It doesn't mean in the near term they can't get cheaper," he said.

Trader disclosure: On July 2, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Stephanie Link is long AAPL; Stephanie Link is long GS; Stephanie Link is long JPM; Stephanie Link is long WFC; Stephanie Link is long CSCO; Stephanie Link is long EBAY; Stephanie Link is long FB; Stephanie Link is long JWN; Stephanie Link is long GPS; Stephanie Link is long COST; Stephanie Link is long HIG; Stephanie Link is long F; Jon Najarian is long AAPL; Jon Najarian is long ZNGA; Jon Najarian is long KSS; Jon Najarian is long DVA bought today; Jon Najarian is long COG; Jon Najarian is short XLF puts; Tim Seymour is long BAC; Tim Seymour is long INTC; Tim Seymour is long GM; Tim Seymour is long F; Steve Grasso is funds long AAPL; Steve Grasso is funds long ZNGA; Steve Grasso is funds long STZ; Steve Grasso is funds long F; Steve Grasso is funds long GM; Steve Grasso is funds long MU; Steve Grasso is long BA; Steve Grasso is long BAC; Steve Grasso is long GDX; Steve Grasso is long GOOG; Steve Grasso is long MHY; Steve Grasso is long HPQ; Steve Grasso is long LNG; Steve Grasso is long MJNA; Steve Grasso is long NVIV; Steve Grasso is long PFE; Steve Grasso is long QCOM; Steve Grasso is long S.

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