Peter Hug | Precious Metals Trading Advice from a 40-year Veteran

In this interview, Peter Hug, Director of Kitco’s Precious Metals Division, shares regarding his approach to trading and investing in precious metals. Peter has over 40 years of experience in the precious metals markets. He has acquired extensive experience in the wholesale markets and international asset diversification. Peter is a frequent speaker at precious metals conferences and in the financial media. He is one of the handful of experts who have succeeded through multiple bull and bear cycles on the strength and skills honed during the dramatic fluctuations of the 1980’s.

0:05 Introductions of topic and guest

1:40 Peter’s background & how he came to be a precious metals trader

4:43 How Peter discerned the top of the 1980 gold bubble

7:52 How the psychological mindset of a precious metal trader differs from that of a long-term investor

11:01 Peter describes his approach to gold trading and price trend forecasting

14:05 How accurate was Peter trading Brexit & the 2016 US elections?

16:39 Peter’s thoughts regarding if a private investor should trade in the precious metals futures markets

18:20 Peter’s thoughts on whether the precious metals markets are manipulated

22:20 Peter’s thoughts on investing in junior mining companies

25:20 The type of mining company Peter currently invests in

27:12 Will we see all-time high gold prices in the next 3-5 years?

33:14 Peter’s concluding advice and info regarding Kitco.com

BEGIN TRANSCRIPT:

Bill: Welcome back ladies and gentlemen to another mining stock education expert interview. I’m Bill Powers, your host. And today, I’ll be speaking with Peter Hug, the Director of Kitco’s Precious Metals Division regarding his approach to trading and investing in precious metals. If you follow the precious metals market, you know who Peter is via his frequent Kitco commentaries and interviews. Peter’s been involved in precious metals since 1974. And over the years, Peter has acquired extensive experience in the wholesale markets and international asset diversification. He’s a frequent speaker at precious metal conferences and in the financial media. And he’s one of a handful of experts who have succeeded through multiple bull and bear cycles on the strength and skills on during the dramatic fluctuations of the 1980s. Peter, I appreciate you taking the time to join me today.

Peter: It’s pleasure to be here, William.

Bill: Could you begin by giving us a background of how you came to focus on precious metals trading and trend forecasting. If we followed the precious metals market, we’ve heard you do the three to five-minute forecasting and commentary on the precious metals market, but what’s your background? How did you actually find this specific niche?

Peter: Well, as in most cases, it was a total accident. I graduated from the University of Toronto in ’73 with the full intentions of becoming a teacher. But back in ’73, there were no teaching jobs in Canada. And a friend of mine that was a Swiss trained banker, that we had worked in the restaurant business together as I was paying my way through university, had landed a job in the foreign exchange business with the largest retail foreign exchange company at the time called Deak-Perera. And he asked me if I’d be interested in getting into foreign exchange. And obviously, I had no knowledge of what foreign exchange was. I didn’t even understand what the offer was. But coming out of university, I was looking for my first sort of career job, and I started doing corporate foreign exchange for the company in their Toronto office starting in 1973. Just by fluke within about five or six months, about three or four, the other traders there either left or were relocated to other offices of Deak-Perera. They had offices in some 50 countries. And I found myself the head trader for the Canadian operation of Deak-Perera.

Then about three years later, a financial trust company called Guardian Trust, which was Quebec based in ’76 was becoming concerned about the Quebec referendum in Canada where Quebec was looking to secede from Canada and their board of directors thought it would be appropriate to have an operation outside of the province. So they opened up an operation in Toronto, and that company, Guardian Trust, also had a very small retail precious metals business. When I joined Guardian Trust as the manager of their international division, we continued to do corporate foreign exchange. And then we started to get a little bit more involved in the precious metals business, and we developed a certificate programs for the brokers in Canada and started sort of to build a base of product. And then we were fortunate enough to be there right at the time ’79, ’80 when sort of the first bold marketing gold developed taking gold to 850 and silver up to $50. And we got in just at the right time and we became Canada’s second largest wholesale precious metals dealer next to the Bank of Nova Scotia. So that’s sort of how I started in the business, and then I’ve been in and out of the business for the past 45 years.

Bill: Did you sell near the top gold’s peak there in the ’80s?

Peter: When you say sell near, my personal position?

Bill: Yeah, just what you advise your clients and your personal positions because it’s sometimes it’s so hard to time the top. How close were you to timing the top of the peak there of gold during that time period?

Peter: You know, I can tell you I hit the top within a day, but I’ll tell you I did it just by…God, I can’t come up with a better way of saying this, by total accident. And I’ll tell you what happened. Back in ’79, ’80, when gold ran up to $850 and silver went to $50 now, you know, remember when the timeframe there which many of your listeners may not be able to relate to where there were no computers. We were using IBM Selectric typewriters. There was no live streaming prices for precious metals. Reuters had a service, but it was very antiquated. So most of the trading was done over the telephone. So when gold and silver took off in ’79, ’80, retail public didn’t have a lot of choice except to physically come into the brand into the operations of companies in the precious metals business. And they were few and far between to buy their metals. So we had lineups twice around the block at our banks where people were trying to get into our counters as quickly as possible because the longer they waited, the higher the price was going. So they were actually paying people in front of them in line to take their place in line in the anticipation that they would get to the counter quicker and by paying for the right to be there earlier would save you some money on the price point by the time you got to the counter.

Anyway, that all said, you have to sort of imagine these sort of hundreds and hundreds of people that are in this position doing this. And we had a little Italian guy. The guy couldn’t have been four-foot, five that used to deliver our mail. And I sort of had a view of the front of the lobbying. Every day, this guy would fight through the crowds to deliver the mail to the bank. And when gold got up to about 840, I looked up and I said to my head trader at the time. I said, “We’re at the top of the market” because now in line was our postman buying the gold. And what I found was that retail tends to chase a market and become exuberant with a market either near the top, and when they are fed up with the market, they tend to sell near the bottom. They’re usually the last ones to throw in the towel. And that concept has worked fairly well for me in my trading career. Once I see gold on the front pages of newspapers that aren’t financial newspapers like “USA Today,” you know. When it starts hitting headlines and those types of venues, it indicates to me that we might be relatively close to a top.

Bill: You’ve had decades of experience as a trader. Could you speak to the psychological mindset that’s needed to be a precious metals trader and contrast that a little with the perspective of a long-term investor? 

Peter: Well, if you use the concept of trader, again, I want to diminish sort of the aura that surrounds precious metals. When people speak in the context of gold or silver or platinum, palladium, any of the base metals or even the peak of the industrial metals, there seems to be an aura about it that makes it feel different than other investments. And to be quite frank, gold is no different than trading in orange juice or trading in bonds and for that matter trading in stocks. There is a time when gold has the fundamentals and the technical characteristics to be a good buy from a trading perspective now. And there are times when you wanna be short the market. So, a trader’s mindset has no loyalty to direction. A trader’s mindset is they’re trying to pick when they wanna enter and exit a trade. And that doesn’t matter whether it’s gold or Apple stock. You can’t get emotionally married to a belief you buy and sell. You have to set on a transaction where you’re a trader. You have to set a stop-loss and you have to be diligent enough to honor that stop-loss. If you’re buying gold that 1300 and you believe it’s going higher as a trader now, and gold that goes to 1295 and that’s where your stop-loss is. That 1295, you don’t second-guess, you take your head. Vice versa if you’re buying at 1300 and gold goes to 1305 and you’re still committed to the long side of the trade, you stay with that trade and you raise your stop-loss so that protects you if there’s a reversal in the market. That also allows you to run your profits.

So a trader’s mentality is strictly capital gains. He’s looking to make money. A long-term investor in gold may also have that mindset, but they may also be looking at precious metals as something more along the lines of protection against the balance of their other assets. That’s where the difference is. So you might be very happy in the stock market, very happy with having a stock market bond mix, again, depending on your age and your risk tolerance, but you might also need a 5% or 10% allocation into a metal’s component or oil, some inflation hedge that gives you a bit of protection. Should volatility hit the market, that section of your portfolio will help mitigate some of the pain you’re going to feel on the balance of your portfolio. And that’s the difference I think between an investor and a trader.

Bill: Could you describe your approach to precious metals price and trend forecasting? How do you prioritize the different analytical techniques and data to come to your conclusions?

Peter: I’m not a technical trader in the true sense of what a technician is sort of defined as. I don’t trade candles or shooting stars. From a technical perspective, I’m…again, with gold now, there’s other commodities where you have to be a bit more oriented towards charts and the technical side of the equation. With gold, I tend to be focused on sort of moving averages, the 100-day, 200-day moving averages from a trend perspective. When you’re trading gold on a daily basis, you tend to…I can’t put this in hard terms. You tend to develop a feeling. I know that sounds really unprofessional, but you tend…you develop this feeling. It’s almost like a second memory where you’re saying, “You know, a lot of time gold got to 1319. There was some resistance here. It just looks like it had trouble getting through.” You can then go back and verify that feeling with some technical work to see where the charts were the last time gold hit a certain level that you’re now experiencing. And from that basis, you can then…if you’re a trader, make an assessment whether you want to engage in the market if it gets through a certain level or if you wanna take profits because it’s at a resistance level that it’s had trouble getting through.

And to give you an example, I mean, gold has been up and down for the past three years. I mean, people are very disenchanted with gold. From the perspective, if you go back to 2011, yeah, gold at 1300 looks lousy right now because it hit a high of 1925 if that’s when you got into the trade. But in 2015, gold got all the way down to a 1040 and now it’s at 1310. Right now, it’s been coming off last couple of days. But let’s say, it has been up above $300. That’s still about the 10% return per annum over the last three years. As a hedge of vehicle, it’s not a bad return. Well, gold has been having extreme difficulty over the past two years. It’s tried it four times to get up to 1365, which is a pretty significant technical resistance level. If we can clear 1365, I think 1425 or higher is definitely in the cards. So, again, as the traders that approaches 1365, you tend to wanna lighten up on your position and let the market prove you wrong. If it gets through 1365, you’ll have enough time to get in and buy the position and then right into the next resistance level, which is probably about $60 to $70 higher than that level.

Bill: Regarding that intuitive feeling that you develop as precious metals trader when you look back on how you traded, let’s use the 2016 U.S. presidential election with Donald Trump’s victory and also before that, Brexit, what was your feeling going into those events and were you accurate?

Peter: I was accurate on the Brexit call. We were long the position going into the Brexit call. I was flat to short the gold market coming into the election. And then when it appeared that Trump had a chance, we went flat as he won the gold markets like…I’m trying to remember exactly about $70 at night during the election night. Within about two days, once it’s settled, it came right back down again because people started to believe that Trump might be able to pull off some of his programs that he had promised during the election. So I got the winner of the U.S. election wrong. I got the Brexit call right. But again, we don’t stack. I don’t quote stack as a rule of thumb for the current company. Now, back in the days when I was trading for the bank in precious metals, we had a wholesale trading desk. We had some 70 traders including foreign change in a variety of…just a normal trading desk for a bank bonds tea bells. There, we had positions on our book just by the nature of the volumes of the businesses we were doing.

At a company like Kitco, basically, you don’t go and speculate on a position. You might take a minor long or short position on the day like basis just because of the nature of a client coming in buying 50 ounces of gold and your cover is 100 ounces of gold. You might be short or long 50 ounces of gold at any given time. So there it’s not so much a step from a retail metals operations perspective. If you see the trend going one way or the other, you try to discern where the volumes are going to come in from your client base and, you know, what type of inventory you need to carry and in what metal type do you need to carry that inventory. So it’s more a management process as opposed to a trading process.

Bill: What’s your perspective regarding a private non-professional investor trading in the precious metals futures market? Is it too risky that it should be avoided or what approach should a private investor take?

Peter: I’m sure there’s people out there that have taken the time to understand what the futures are, how to trade futures, how to put in orders. There’s a lot to learn, and you get burned a lot in that market, not by somebody burning you, but it is a very volatile market. You have to be prepared to have a margin. Be prepared when a broker calls you that he needs margin that you are ready and standby to send that margin, or you get your position blown out. It is work to make money in the futures market. You can’t just go and say, “Okay, I’m gonna buy 100-ounce gold contract for September and it’s gonna go higher.” I mean, you’ve gotta watch these markets because you’re leveraged. On 100 ounces of gold, it’s $130,000 value in the trade and you’re probably putting down again depending on your broker anywhere from $4 to $7,000 in margin. So you’ve got a lot of leverage on that trade. So it’s great if you’re on the right side, but if it comes down, you’re in the same position in the lost category. So this is not something you dabble in if you’re a retail investor. If you’re going to trade futures, you need to be educated and understand them and be prepared to do this as a job because it is a lot of work.

Bill: What’s your perspective on the precious metals price manipulation that many speak of, and how does that affect your personal trading and your management at Kitco?

Peter: I’m not gonna argue with anyone that there is no manipulation in the market, but it’s not unique to gold. You get a broker that front-runs an IPO on a stock. They sit there, and they say, “Well, okay, ABC stock should be worth $18.” So they load up at $18 as their underwriting fee and then the stock comes down at $30. Now, is that an ignorant broker that has underpriced the company by 50% or is that a broker that basically wants to see the juice in the market as the IPO comes out to get other people involved and make it look exciting? I don’t know, could be both, could be one or the other. Is that not manipulation? I don’t know. Maybe it is. Maybe it isn’t. Now, people tell me that gold is manipulated. So, again, my argument with that is not that it’s not manipulated, but which way is it manipulated. It’s funny. If gold goes from $1,200 an ounce to $1,300 an ounce in three days, you’ll never see anybody say it’s manipulated because they believe it should be at 1300. But if gold goes from 1,300 to 1,200, everybody says it’s manipulated and the banks are selling. Well, if you honestly believe that the banks are selling every time gold is going higher, you can take advantage of that.

Well, future’s market is shorter contract. You can play with the banks. You don’t have to be on the same side. You don’t have to be a long. You can be short. So if you believe the banks are pushing the market down, get on the bandwagon and play with them. So again, the manipulation that banks are forcibly keeping gold down, I find difficult to believe from that mindset perspective. Does a bank like JP Morgan when gold gets up to 1320 and the Fed raises interest rates by a point sale gold short on the futures market. Absolutely, but it is the same way they would sell Apple short if they believe that their forward guidance isn’t going to be as good as these three things that’s going to be. I mean, you can use the same argument. Who in their right mind shorts a stock? Well, there is as many people on the short side of the stock trade as there are on the long side because markets have to balance either. For every seller, there’s a buyer. And for every buyer, there’s a seller. So if you’re stating to me that the banks at 1300 are selling 1,000 gold because they wanna see it lower, there’s a buyer on the other side of that trade. They’re not selling 1,000 into a vacuum. They’re selling it into a buyer’s hand. So the buyer obviously believes gold is going higher.

Bill: And then the argument is that the banks can supply an unlimited amount of contracts that’s not hinged or limited by the true supply of gold. That would be one of the arguments that those that stress precious metals manipulations would make.

Peter: Possibly, but remember, there has to be a buyer on the other side. And if you’ve got a bank that is selling 50,000 contracts, you’ve got buyers on the other side. Now, these contracts are mature. So if it happens in the futures market, so, you know, the most active contract in gold right now is June. So the banks are short the June contract. Well, when June comes up for settlement, the banks have two choices. They either have to deliver the gold or they have to roll out of the contract. They’ve got to buy the June’s back and resell the September’s. So, in the context of then doing that swap, there’s got to be somebody on the other side of that trade.

Bill: Do you, Peter, invest in junior mining stocks, and if so, what are the key things you look for in a junior mining stock?

Peter: I used to when I was younger. At my age, my risk profile is considerably lower than it was back when I was in my 20s and 30s, you know, where some guy came to me and said, “God, I got a mining stock here at 20 cents and it’s adjacent to a property that is run by new mining which is a senior.” So, if they’ve got gold on their property, we’re adjacent to their property, our property is gonna be worth a fortune. Again, personal experience, you buy 9 out of 10 junior mines. Maybe, maybe you get a home run on the 10th but 9 for sure will go to zero. The problem with junior mining companies is it’s one thing to say, “I went to the government that got a lease on some land in Utah.” That is the tiniest of steps. From there, they’ve still got to do the surveys, the core samples. Then they’ve got to bring in equipment. They’ve got to start, in essence, digging. Now, they’ve got to produce the gold. They’ve got to bring it to market. This is a process that takes years and takes huge amounts of capital. So as the mine is doing this, the junior mine is doing this, they continue to issue shares which dilutes the value of the existing shareholders.

So the problem with that is that what junior mines tend to do is they tend to get to a certain phase, you know, have the adjacent property, go through the geological survey, might even drop a core sample down, come up and show some gold findings in the core sample. Then they’ll go to a broker and say, “Look, we think we’ve got something here.” And depending on the management, depending on their background, maybe the broker is capable of going to a major and saying to them, “These guys next door to you have found something.” And then their talk starts about acquisition, and it is in that stages where the junior miners really take off because when you’re buying the junior miner, you’re just buying the dream. There’s no production. There’s nothing coming out of the ground. It was sort of like Tesla three years ago. Tesla’s been a winner, but now they’re actually delivering something. Tesla was making these promises of these huge amounts of cars that were gonna come to the market. They’ve never met those production numbers, but Tesla still seems to be a favorite stock. Now, I’m not comparing Tesla to a junior mining company. But junior mining companies…I’m careful getting into mining companies until they’re at least at production stage.

Bill: Are you investing in any producers right now?

Peter: Again, I’d like…as opposed to specific gold mining companies, I like the streaming companies like Silver Wheaton, Franco-Nevada where they’re getting royalties off their properties. I like that play better in the current environment. I’m not yet convinced that gold is going to break higher. I mean, there’s a number of arguments you can make that gold is set to move much higher over the next year or two. But there’s also a scenario that you can lay out that where gold could remain sidelined and under pressure for a while longer. And what people don’t understand is that margins can stay flat for an extended period of time, usually longer than the investor can wait. And give you some examples, in ’92, gold was trading after it peaked in 1980, it worked its way all the way down to about 300 and change high 200 by 92. It took from ’92 to ’02 for that gold price to break over 350. I mean, it traded in about $100 range for 10 years. Gold doesn’t always have to go higher. There are times when just as any other commodity goes sideways. And there are times where it’s an extended down channel in the precious metals. Investors need to be aware of that. I can make the argument where I can see gold north of 1450. I can also make an argument where I can see gold south of 1200 over the next 12 months.

Bill: For those of us, and I’m a golden bull that hold the perspective that we’re in a gold bull market. Let’s say, the next three to five years, many of us expect a new all-time highs for gold. Would you be in that camp and what type of numbers we’re going to expect for the price per ounce of gold?

Peter: I could answer that question without putting any caveats in there. I mean, there’s just so much that goes into where the price of gold may or may not be in two or three years, I mean, from a fundamental perspective and from a geopolitical perspective. But just looking at the market over the next five years, yeah, again, I’ve been in this business since ’73. I’m very reluctant to give out sort of extravagant numbers.

Bill: Because you know how Jim Rickards calculates. You’ve heard Jim Rickards and how he calculates 10,000-ounce gold based on the amount of debt that’s out there.

Peter: Yeah, I know Jim. I actually was just on a conference with him. We were on a panel together in Vancouver. God, I think it was February. So I’ve known Jim for years. I know the Peter shifts of the world. I know these guys. I mean, when you go to a metals conference, the four or five speakers…six speakers are always the same guys, the guys that are speaking on the mining side, Rick rule, I mean, Adrian Day, the Aden Sisters. I mean, I know them all and I respect them all. And I’m not suggesting that Rickards is incorrect at $10,000 valuation, but I can tell you, you know, since ’79, ’80, when that first gold rush happened, there were a number of analysts. And a couple of the names I just threw out there were around back then. Today, they don’t look quite as young as their profile on their web page or on their newsletter. They’re all dinosaurs like I am that have been saying since the ’70s that the world’s coming to an end and gold is going to be worth $4,000, $5,000, $10,000 an ounce. Gartman, his favorite saying, “I love investing in only things that when I drop them hurt my feet.” But in my opinion, he’s been my best contrarian. Whenever he’s been bullish, I’ve been bearish ever since the ’70s and the ’80s. So, I’m not suggesting gold can’t go to $10,000 an ounce but you’re not gonna get it from me to tell you that I think gold is going to $10,000 an ounce.

I can tell you that if the financial system continues the way it’s going right now, there is going to be another implosion. This one probably will not be solved by the Fed lowering interest rates to zero. And in those types of scenarios, you know, gold taking up 2011 highs, totally, totally possible. In a scenario, however, where…let’s pick a rosy scenario as opposed to being negative. Let’s assume…I find it difficult to assume this, but let’s assume that Trump can actually pull this off and he gets the economy humming at 3, 3.5%. And there is…and he makes a deal with North Korea that’s a verifiable deal. So there’s no deal of political tension in North Korea. I still think he has issues with Iran, but let’s just assume Iran quiets down a bit and the U.S. pulls off 3, 3.5% growth and the Federal Reserve can normalize rates and start bringing those 10 and 30-year rates up closer to the 4 or 5% level, which historically, that’s where they’ve been. They’ve never been at zero. People now are freaking out because it’s approaching 3% on the tenure. I mean, my God, that was normal course for the past 50 years. But let’s assume the Fed can do that. In that environment difficult for me to be bullish gold. I see gold going sideways, going lower because the investors are going to take their capital and they’re going to invest it in the stock market or in the bond market and not in gold because the fear level of the market will have dropped significantly. In that scenario, I see a possibility of gold reaching 1,200 on the downside before other events will change the cycle again. I just see everything in cycles, and gold tends to trade in about a 10-year cycle, 8 to 10-year cycle. If you look at the high in 2011 where 7 years into this bear market, possible we have another two years to go.

Now, once the Fed tightens to a point where the economy slows down, you get a recession, again, normal course economics. If everything stays the pattern, you get a recession, but what does the Fed do? Drop the interest rates. When they drop interest rates, capital flows come out of the dollar searching for better yields as the Fed drops rates that is positive for the commodity market, then the commodity market cycle starts again. That’s sort of been the history of the cycles since the ’70s. I see no reason why that would be different except now you have this huge debt and you have a president that is unpredictable. I guess that’s the word I’m looking for. And that will create somewhat of a floor for gold because people are gonna wanna hold a bit of an insurance position in case he does something that no other president has done.

Bill: Peter, in light of what you’ve shared, for the average person listening to us, do you have any concluding advice and also how would someone get in contact with you or follow you online?

Peter: One thing I wanted to say, and again, if you knew me, you would know I’m being absolutely truthful here. Being in this business and having traded both with retailers and with wholesalers in my 45 odd years in the business. One thing your listeners might be interested in knowing is that I find Kitco extremely unique and unique in the following context. If you go to kitco.com, that’s our media division that handles our kitco.com website. You can read all of the stories that are provided by a variety of analysts and dealers. And there’s even a guy there that does the horoscope projections on precious metals, anyway a little, but your readers can go in there and read various people’s opinions. Some of these people have been in the market for a long time. Some of them are extremely well educated and well respected in the markets. And you can read and make a decision on your own as to which way you think the precious metals market is going to go. You would think as a metals dealer all of these articles would be slanted to the bullish side. They’re not. There are times that as many are slanted or more are slanted to the bearish side than bullish. So it gives the client a good two-sided perspective of what the pros think the markets are going to do. If they then want to engage in the market, especially in the physical market, they can then go to the Kitco store and buy metals or they can call us and they can…we have a number of other products that are available and they can then engage in the physical market.

But the first element, the educational process is all free. They can go and check it out, and I recommend that highly, whether they do any business with Kitco, another dealer, or on the futures market. It is a very good tool that’s available for free to investors. I usually write a small blog every morning and I mean small, three, four, maybe five sentences. Depending on the activity in the market, I’ll give my perspective on the market but from a trader’s perspective. So I’m much more focused on support resistance lines and I’ll give you my opinion of what I think may or may not be happening in the market. And then about once a week, every 10 days, we have a little fun show that we call “For Pete’s Sake.” Daniela, our editor works out of New York. We do a show and it’s a little bit longer. It’s about 10 minutes. Then we usually do something when there’s a market development or something of substance in the market to speak about. We do an interview. I can be reached at [email protected]. You know, basically, it’s a great site to surf on. But what I wanted to say specifically is that Kitco does have a Chinese wall between its media division and its metals division, which is very unique in the industry, very unique. Most dealers are out there promoting the product and they’re promoting it in such a way that their clients naturally have to come in and buy the product that this dealer is offering for the context to make sense. We don’t do that at Kitco. So that’s what I threw out there for your audience.

Bill: Peter, thank you so much for stopping by to share your insights and your perspective on the minors and the metals and trading and investing. I really appreciate it. Thank you very much.

Peter: It’s my pleasure, William, thank you very much.