Sprott Money


November 3, 2015


Title: Justin Trudeau’s lesson to gold investors

Blurb: Canada’s newly-elected Prime Minister began planning his rise decades ago. Gold investors would also benefit by keeping their eye on the long game.  Justin Trudeau was born in 1971, the year then-President Richard Nixon ended gold’s convertibility into US dollars. Back then, the yellow metal was trading at USD $44.60 an ounce, compared to $1,175 per ounce the day Trudeau took office.


Last week three of the world’s largest gold producers, Agnico-Eagle, Barrick and Newmont, reported quarterly earnings results.

However gold investors could have learned a lot more about the metal’s likely future by watching news clips of Justin Trudeau taking his wife and kids out for Halloween. During that event Canada’s newly elected Prime Minister demonstrated an impressive example of long-term thinking. Thinking that many gold investors could benefit from.


On the surface, Trudeau’s walk around the same Ottawa neighborhood that his father, former Canadian Prime Minister Pierre Elliott Trudeau, took his kids to decades ago, was a simple, media stunt. However the real audience, was almost certainly Trudeau’s three children: Xavier, Ella-Grace and Hadrien, whom he was “taking to work,” the same way that his father, provided him early exposure to political life.


Whether any of Justin the Younger’s children will take an interest in politics is unclear. However there are huge lessons to be learned from this kind of long-term thinking; lessons that are of particular interest to investors in gold, a precious metal whose value becomes immediately clear, for those who have a longer time horizon.


A long-term vision from the start

Justin Trudeau and gold, in its modern form, in many ways, “grew up together.” Trudeau the Younger was born in 1971, the year in which President Richard Nixon ended direct US dollar convertibility into gold. Although Justin Trudeau quickly grew to an impressive 6’ 2”, the price of gold grew even faster.


When Margaret Trudeau, now Canada’s First Mom, changed little Justin’s first diaper, the yellow metal was trading at USD $44.60 an ounce. By the time he took office it was trading at $1,175 per ounce. That’s a 26-fold increase, far outpacing the 20-fold increase in the S&P 500 index during the same time period. Yet while Justin Trudeau has stopped growing, over a long-term horizon, the prize of gold looks almost certain to continue to rise.


Nixon, who jokingly hailed Justin Trudeau as “Canada’s next Prime Minister,” when he was just four months old, is also prominent in another example of the family’s long-term prescience: through its endless repetition of the story to anyone who would listen. This laid the groundwork for a sense of destiny to emerge.


The actor meets the Pretender

Another US President, Ronald Reagan, a former actor, also played a key role in Justin Trudeau’s long-term vision. Reagan, who Trudeau met in 1981, when he came to visit Pierre Elliott Trudeau, at 20 Sussex Drive while on a state visit, demonstrated to the younger Trudeau, that there are numerous pathways into politics – one of which was acting.


Trudeau almost certainly heard the story, of how Reagan, who when asked by one of his many detractors how an actor could become President semi-jokingly replied: “How could you possibly be President and not be an actor?” Indeed, looking back, Trudeau the Younger’s meeting with Reagan, almost certainly influenced his later decision to study and teach drama and signals that he had a political career in mind almost from the start.


Indeed it was Trudeau’s acting, which first vaulted him onto the national stage fifteen years ago. The magnificent nationally-televised eulogy, which he delivered at his father’s funeral[1], touched the hearts of all Canadians and immediately set the radars of the political class flashing. Less obvious though, but clearer, when you watch the video a second time, was that Trudeau, while he was almost certainly truly grieving, was, at that particular moment, acting. His voice, facial expressions and gestures, were all studied, and feigned.


Gold investing and the long-term

While long-term thinking is almost a sine que non, of political dynasties, it can also bring huge benefits to gold investors. In fact, a brief look at some of the major developments in other asset classes, during the decades in which Trudeau grew up, provides a clear demonstration of the yellow metal’s value as a long-term store of value. For example major stock market indexes have twice lost more than half their value during the past 15 years alone.


More recently, fixed income securities now pay derisory interest rates, which leave investors losing purchasing power, after taxes and inflation are put in the mix. House prices have also fluctuated wildly in major global markets, and are thought by many, to be vastly overpriced relative to rents and household incomes here in Canada.


During a time when asset prices often move in tandem, gold remains, over the long-term, one the asset classes, which is the least correlated with the others.


Two years is not “long-term”

Let’s be clear by what we mean here when we say “long-term.” We are not talking about the two to three year scenarios, that mainstream media and analysts often cite as long-term. In today’s government saturated economy, business sectors ranging from banking to resource extraction to major business construction initiatives, can’t even get the permits they need to operate within those time-horizons.


Even in technology businesses, time horizons can be surprisingly long. Merely taking one of the major high-tech de facto monopolies such as Microsoft (operating systems), Google (search engines), or Facebook (social media), through the court process on anti-competition/anti-trust charges, would take more than a decade.


In short, serious investors, like the Trudeau family and other political dynasties, can benefit tremendously from occasionally looking past short, and even sometimes medium-term developments, and instead taking a longer-term view. For those that do, whether to invest in gold is almost an open and shut question.


Their only question is: how much should they hold?


Note: For art, see if you can get a picture of Justin Trudeau.





[1] Link to: https://www.youtube.com/watch?v=5p4NUJMPAjQ

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