A Return To Mean
Investing In Metals
By Matthew Laffer
March 17, 2025
As a general rule, “Whoever holds the gold makes the rules.”
As a supplement to this idea, I’d like to propose, “Whoever runs the metal supply chain makes the rules.”
First some background and then some insights.
Background.
The US is broke.
The net federal on-balance sheet liabilities exceed $30,000,000,000,000, while the net present value of unfunded federal promises exceeds $100,000,000,000,000. (Congressional Budget Office)
That’s $130 Trillion in debt. That’s with a T, as in Totally F**cked!
And then there’s the decline in the US dollar’s purchasing power. Here’s the “official” arithmetic since 2020 and since 1971 when the US unilaterally terminated the convertibility of the dollar to gold, ending the Bretton Woods system.
$100 in 2020 purchasing power is about $188.19 today. $100 in 1971 purchasing power is about $798.17 today. (US Bureau of Labor Statistics)
Never mind that the Consumer Price Index (CPI) doesn’t capture a lot of what most people care about. You know, like food, shelter, energy, and tax. Renaming the CPI to CP LIE is more fitting.
Now let’s look at the price of gold relative to the stock market. Here are their market caps for nearly the past twelve years.
When the US closed the gold window, the rules of the game changed.
The US money printing binges have destroyed and distorted the economy, but it’s been a boon for the corporate welfare system and the stock market.
People frequently ask when the price of gold is going to make a move. The answer is always the same. In the year 2000.
The price of gold was $300 in 2000 and it’s now $3,000. That’s10x in 25 years!
Where do we go from here? My outlook for the next five to ten years is a return to mean.
That sounds like a clever thing to say, but what does it actually mean?
It means that precious metals and precious metals securities make up a half of one percent market share in the US savings and investment assets with a mean of two percent market share during the past four decades. (JP Morgan Chase)
When market share reverts to mean, that’s 4x!
Said differently, that’s a 400% increase by returning to the average precious metals market share in the US during the past forty years.
If history rhymes, then money can be made across the entire precious metals spectrum.
Metal reflections.
Two things are certain.
Gold and the other precious metals group combine to form and exhibit unique properties which affect our everyday lives.
You can’t print the precious metals that power our world.
Gold.
Few of the earth’s natural resources have evoked so many different responses in humans as gold. And yet, it’s also simply a form of savings. Gold is money.
Gold has been a store of value and a medium of exchange for thousands of years. Therefore, it’s important to think about a different supply and demand dynamic: that of gold relative to fiat currency.
This dynamic, in large part, is why gold will continue to rise while the purchasing power of the dollar declines. At a minimum, I believe the increase in the price of gold will keep pace with the decrease of the dollar. And that’s a much higher number than $3,000.
Gold is a necessary metal in terms of maintaining one’s purchasing power.
Historically, a rising price in gold has been a reliable indicator that something is going wrong in the world. Gold is at an all-time high. Nothing to see here.
A rising tide lifts all metal ships, especially silver.
Silver.
Silver has been used as a monetary metal more frequently and for a longer duration than gold. In fact, silver backed China’s entire economy at one point in history.
Silver is more than money. Today, approximately 70% of all silver production is used industrially. And while it’s more geologically abundant than gold (28 ounces of silver to 1 ounce of gold), supply trends cannot keep up with demand.
The price of gold in ounces of silver is currently at a ratio of 88:1 versus a historical average of 50:1. The higher gold-to-silver ratio coupled with supply and demand dynamics are bullish for investing in silver.
When the price of gold justifies the precious metals narrative, silver will see strong investment inflows. Silver moves later, but it also moves further and faster. Hence, it’s reputation for being more volatile.
Platinum and palladium.
Similar to silver receiving inflows as a result of the price action in gold, a case can be made for platinum and palladium.
Nearly ten years ago platinum traded at a multiple to gold. You can see from the chart below that it’s currently priced at 35% of gold. This is cheap relative to its utility and likely to change in the years ahead.
Platinum, palladium, and other platinum group metals (PGMs) play an important role in new and existing energy technology. The potential of PGMs stare at us from the periodic table as we seek higher energy efficiency.
Platinum and palladium are industrial metals and rarer than gold. For every 100 ounces of gold, there are only 17 ounces of platinum and 17 ounces of palladium.
And if you guessed that platinum and PGMs are running supply deficits relative to demand, then you guessed correctly. Additionally, there’s political insecurity around supply given it’s produced predominately in South Africa and Russia.
There is also the potential for PGMs to gain recognition as monetary metals.
Copper.
I’m attracted to copper because it enhances quality of life for people all around the world.
Many people don’t realize that there are 750 million people on the planet that still don’t have access to electricity. These people over the next couple of decades will become electrified and indirect users of a lot of copper.
Copper is the standard benchmark for electrical conductivity. It conducts electrical current better than any other metal except silver.
For the past thirty years the US has under-invested in copper exploration, development, and construction. The gap between production and consumption is significant and supply-side deficits can be expected.
Despite the recent surge in copper prices, when adjusted for inflation, it’s trading at levels we saw in the early 1990s. If we don’t have a global recession in the next five years, the copper price will likely be much higher than it is today.
Copper, like gold, speaks to us through its price. An all-time high is a macro warning. Inflation, supply shocks, and industrial demand surges. Yes, yes, and yes.
Nickel.
Nickel as an investment is facing significant headwinds, including an oversupply that continues to outpace demand. This dynamic implies continued downward pricing pressure in the short term.
So why do I like it?
For starters, I like investing in a bear market when things are out of favor and cheap.
And if you are patient and you have a longer time horizon, the low prices will eventually reduce supply and increase demand. *This is a market truth.*
Nickel is currently a critical material for the stainless steel sector. It is also a key battery component uniquely positioned to meet the rising global demand for energy and energy storage.
During the last decade, Chinese investment has transformed Jakarta into a nickel powerhouse. Indonesia has emerged as the dominant nickel producer accounting for half of all global mine production.
This has created a competitive advantage for China who now controls most of the world’s nickel production. But it has come at a cost of land degradation in Indonesia. A rebalancing is in order.
As a result, the global nickel market is likely to experience a tightening of supply causing prices to increase in the next few years.
Rare earth metals.
Maybe the periodic table does contain the element of surprise. This is a more challenging category to understand.
On a very broad scale, the industrial applications for rare earth metals are increasing rapidly.
Most of the world hasn’t looked for rare earth metals because China has produced them so cheaply. That’s over, for two primary reasons.
Prices are unsustainably low for geopolitical purposes and because of more sustainable mining practices.
The price of rare earth metals will increase with the rising cost to produce them.
Additional insights and takeaways.
We have all heard of buyer beware. How about saver beware? If you have been saving in fiat, then you have been punished harshly. What’s the use in making money if you can’t safeguard it?
There is currently no physical market mechanism or price discovery in the West for actual physical metals. What if rock does beat paper?
Investing in yourself is the best investment you will ever make. It will not only improve your life; it will improve the lives of all those around you.
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A special thank you to Rick Rule for sharing his fifty years of metal market wisdom so honestly and generously.
Matthew Laffer is a 3x entrepreneur and the Founder and CEO at Goalspriing.
