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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

Billionaire Investor: "Gold Has Everything Going For It"
June 17, 2019

Billionaire Investor: “Gold Has Everything Going For It”

Last week was a strong one for gold, which managed to eke out its fourth straight week of positive gains. The price of the yellow metal broke above $1,350 an ounce last Friday, while gold miners, as measured by the NYSE Arca Gold Miners Index, tested their 52-week high.

Investors sought safe haven investments on a number of geopolitical risks, including protests in Hong Kong over the now-delayed extradition bill and an attack on two oil tankers near Iran and the Strait of Hormuz, the world’s busiest sea lane through which a fifth of global oil consumption passes. After placing the blame on Tehran, President Donald Trump now faces a tough decision on how to respond, if at all.

gold miners are testing one year high
click to enlarge

Billionaire investor Paul Tudor Jones, founder of and hedge fund manager at Tudor Investment Corp., said in a Bloomberg interview last week that geopolitical disruptions have made gold his favorite trade in the next 12 to 24 months.

The yellow metal “has everything going for it,” he said, adding that if it can reach $1,400 an ounce, it will push to $1,700 “rather quickly.”

The biggest catalyst for such a move, Jones believes, is the ongoing U.S.-China trade war and the broader implication of shrinking global trade. After 75 years of globalization and free trade, we’re seeing a return to the use of tariffs and other protectionist policies.

Remember, it was the 1930 Smoot-Hawley tariff “that helped send the U.S. and world economy into a decade-long depression,” according to a 2015 article by now-National Economic Council Director Larry Kudlow and former Federal Reserve Board of Governors nominee Stephen Moore. Just last month, global manufacturers contracted for the first time since 2012 due in large part to trade tensions. World trade volume has also sunk the most since the financial crisis.

Meanwhile, Trump is threatening to impose tariffs on $325 billion in imports from China, in addition to the approximately $200 billion that are already being taxed. Trump and China’s president Xi Jinping are expected to meet later this month at the G20 summit in Japan, where hopefully the two leaders can hash out a resolution to the trade war.

Says Jones, this reversal in globalization “would make one think that it’s possible we go into a recession. It would make one think that rates in the United States go back down to the zero-bound level. Gold in that situation is going to scream. It will be the antidote for people with equity portfolios.”

Gundlach and Dalio Also Bullish on Gold

Jones isn’t the only billionaire hedge fund manager who thinks gold looks attractive right now. In a recent investor webcast, DoubleLine CEO Jeffrey Gundlach said that he’s “long gold.” His call is based on the belief that the U.S. dollar will be substantially lower by the end of the year. (Want a sure way to push the dollar down? Wipe out all $1.5 trillion in student loan debt in the U.S. Senator and presidential hopeful Elizabeth Warren will reportedly introduce a bill intended to do just that. What’s next—mortgages?)

And then, of course, there’s Ray Dalio, the world’s most profitable hedge fund manager. Dalio is a true believer in the 10 Percent Golden Rule, and according to Bridgewater’s SEC filings, he maintains significant positions in gold across all tiers in the industry.

Yield Curve Flashes a Warning Sign—Another Catalyst for Gold?

Last week the yield curve inversion between the five-year and three-month Treasury yields passed a key threshold that, in the past, has telescoped a recession. In a tweet dated June 13, Bloomberg’s Lisa Abramowicz shared a chart of the yield inversion and commented: “Cam Harvey, the economist who first linked an inverted yield curve to economic declines, pinpoints the 3-month/5-yr curve as a key recession indicator once it inverts for a full quarter. It officially finished a full quarter of being inverted yesterday,” meaning last Wednesday.

The three month slash five year treasury yield curve has been inverted for a quarter
click to enlarge

As for when we can expect a recession, Gundlach says he now believes there’s a 40 percent to 45 percent chance of one occurring within six months, a 65 percent change in the next year.

Oil Prices Jump on Tanker Explosions, but Don’t Overlook Norway

The big news involving oil last week was, as I mentioned earlier, the attacks on the two tankers near the Strait of Hormuz, among the world’s most important strategic chokepoints. Every day, as many as 17.2 million barrels of oil pass through the strait, if you can believe it. Because it’s the only way into and out of the Persian Gulf, both Saudi Arabia and the United Arab Emirates (UAE) have proposed building pipelines in order to bypass the historically dangerous shipping route.

Following the attack on Thursday, oil prices jumped as much as 4 percent.

Two oil tankers attacked and US blames Iran

But unless this incident escalates into something else—a U.S. military response, for instance—I see it as merely a short-term boost to oil.

A much more meaningful, long-term impact on oil and oil stocks is Norway’s divestiture from fossil fuels. The Scandinavian country’s sovereign wealth fund, known as the Norwegian Government Pension Fund, is the largest such fund in the world, valued at more than $1 trillion. Established in 1990 to invest in the profitable North Sea oilfields, the fund also invests heavily in international stocks, bonds and property in nearly 80 countries.

In the first quarter of this year, the fund delivered returns of $85 billion, its best quarter ever.

But following a recommendation from the country’s parliament, the fund will sell off some $13 billion of stocks in companies involved in the exploration and production of fossil fuels, including oil, gas and coal. The move is a huge step toward shifting assets into renewable energy.

The divestiture won’t have much of an impact on large-cap companies such as Royal Dutch Shell and Exxon Mobil, but it could have consequences for some mid-tier firms such as Anadarko Petroleum, Occidental Petroleum and EOG Resources.

Combined with OPEC’s recent forecast for weaker global oil demand, Norway’s decision—perhaps needless to say—is expected to be a headwind for the fossil fuel energy industry as whole.

All Eyes on Hong Kong

On a final note, I wish to express my support for the 7.4 million people in Hong Kong, especially the estimated 2 million who have took to the streets to protest an amendment that would allow suspected criminals in Hong Kong to be extradited to mainland China.

The former British colony, now autonomous territory, is one of the world’s great success stories. For more than 20 years, it has ruled itself with its own government, currency and police force, and thanks to economic liberalization, it’s risen to become one of the top three financial hubs following New York and London. It consistently ranks among the most competitive places on earth, as well as one of the best to conduct business in.

Every nation wishes to have the freedom to make its own decisions with respect to its laws, economy, security and more, without interference from another sovereign state. That wish is at the heart of Brexit and, frankly, the election of Donald J. Trump. At the same time, it’s important to remember that government policy is a precursor to change.

At the moment, the bill has been delayed "indefinitely." Let’s see if the protestors can manage to get it turned over permanently.

Congrats, Toronto Raptors!

Before I leave you, I want to congratulate the Toronto Raptors on their very first NBA Finals win. As I mentioned earlier, they are now the most valuable sports franchise in Canada, even above the Maple Leafs.

It really is incredible to see not just an entire city, but an entire country, get behind this team. Two of its superstars, as many of you may know, previously played for Gregg Popovich of the San Antonio Spurs – Kawhi Leonard and Danny Green.

I’ve been in San Antonio during a Spurs championship win and naturally the excitement was widespread. The enthusiasm in Toronto, however, even a day after the win, was just as grand—if not more so. Fans from all over took trains to the stadium to purchase championship t-shirts and flags. Lines of people literally wrapped around the stadium.

The joy of winning truly does create economic value.

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.0 at the close of trading on December 20, 2002.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2019): Royal Dutch Shell Plc, EOG Resources Inc.

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What a U.S. Rate Cut Could Mean for Gold Prices
June 11, 2019

Stocks surged last Friday following a U.S. jobs report that, to put it mildly, fell far below expectations. At first this might seem counterintuitive. Shouldn’t signs of a slowing economy act as a wet blanket on Wall Street?

Not necessarily. Investors, it’s believed, are responding to the expectation that the Federal Reserve will have no other choice than to lower interest rates this year in an attempt to keep the economic expansion going. Earlier this month, Fed Chair Jerome Powell himself commented that he was prepared to act “as appropriate” should the global trade war risk further harm. President Donald Trump has also renewed his attacks on Fed policy, calling last December’s rate hike a “big mistake.”

So a rate cut looks more and more likely in 2019, perhaps as soon as this summer. And investors rejoice.

The thing about rate cuts, though, is that they’ve often telegraphed a recession, as you can see in the chart below. The blue line represents the New York Fed’s probability of a recession 12 months out, based on the spread between the 10-year and three-month Treasury yields. In the past, this probability spiked about a year following the beginning of a rate cut cycle. Today, as monetary easing is widely expected, the chances of a slowdown one year from now stand at just under 30 percent.

global manufacturing PMI contracts for the first time since 2012
click to enlarge

No one seems particularly certain a rate cut will succeed in thwarting a potential recession. In a note to clients this week, Morgan Stanley equity strategist Michael Wilson wrote that “Fed cuts may come too late. Fed could cut as soon as July but it may not halt slowdown/recession.”

And because the Fed waited so long to begin raising rates in late 2015, it has noticeably less gun powder, as it were, to address recessionary risks compared to past instances. Historically, rates have been lowered between 500 and 550 basis points on average to head off an economic slowdown. With the federal funds rate at around 2.4 percent right now, such a decrease just isn’t possible.

Unless, of course, negative rates were introduced here in the U.S. as they have been in the European Union (EU), Japan and elsewhere. These policies effectively punish people and businesses that save, in effect motivating them to spend.

Five-Year Anniversary of Negative Rates in the EU

This week, in fact, marks the fifth anniversary since the European Central Bank (ECB) lowered rates into negative territory. Since that time, European banks have paid as much as 21.4 billion euros ($24.2 billion) in revenues to the ECB, CNBC reports.

According to the report, German banks account for a third of all deposit charges, followed by French and then Dutch banks. The Swiss National Bank (SNB) is also expected to maintain negative rates through 2021.

Curious to know what effect this might have on fixed income? Take a look at the yield on the 10-year German bund. On Friday it hit an all-time low of negative 0.257 percent, meaning investors were paying the government for the pleasure of holding on to its debt. Adjusted for inflation, that rate was even lower.

U.S. Manufacturing Job Growth Has Been Slowing for Nearly a Year
click to enlarge

Gold Has Thrived in a Negative-Yield Environment

So will we see negative rates here in the U.S.? There’s no indication of that right now, but again, in the event of an economic slowdown, the Fed will be very limited in its capacity to loosen monetary policy before other measures must be considered.

If you believe negative rates are a real possibility, an allocation to gold and gold stocks might make a lot of sense right now. In the past, gold prices have surged when real yields fell into negative territory. (The real yield is what you get when you subtract the annual inflation rate from a government bond yield.)

This is why I always recommend a 10 percent weighting in gold, with 5 percent in gold bullion, the other 5 percent in gold stocks, mutual funds and ETFs. Remember to rebalance at least annually!

 

 

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

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Put Your Trust in Gold
June 10, 2019

Put Your Trust in Gold

Americans’ trust in institutions, from the federal government to banks to the news media, has been deteriorating for decades. Sixty years ago, three quarters of Americans expressed faith in the government to do the right thing “most of the time” or “just about always.” Today, only one in five people, a near-record low, believes our leaders make decisions in the country’s best interest.

The news media fares just as poorly. A new survey finds that Americans believe “fake news” is a bigger problem right now than violent crime, illegal immigration and terrorism.

Just take a look at the chart below, based on Gallup polling data going back to 1973. Whether it’s newspapers, television news or, more recently, online news, Americans’ faith is steadily eroding. Last year, the percent of Americans who said they have a “great deal” or “quite a lot” of confidence in newspapers stood at a near-record low of 23 percent. Trust in television and online news was even lower.

Americans trust in news media has been slipping for decades
click to enlarge

So where can you still put your trust in today’s often cynical world? Friends and family. Our churches and other religious organizations. Our jobs.

As an investor, I continue to have great faith in gold as a store of value during times of economic and geopolitical uncertainty. It’s behaved precisely as I expect it to. In response to heightened global trade concerns and weakening economic indicators, investors have piled into the yellow metal, pushing its price up for a remarkable eight straight days as of last Friday. We haven’t seen such a winning streak since June 2014, when gold traded up for 10 straight days.

Late last week, it was within striking distance of its 2019 high of about $1,356 an ounce, which should spur even more investors to get off the sidelines and participate.

Gold within striking distance of 2019 high
click to enlarge

Indeed, there are a number of warning signs that suggest investors should proceed with caution as the U.S. economic expansion turns 10 years old. Global manufacturing growth reversed for the first time since 2012, with the purchasing manager’s index (PMI) falling for a record 13 months in May.

This weakness turned up in the monthly jobs reports from the federal government and payroll services provider Automatic Data Processing (ADP). The Labor Department reported Friday that U.S. employment edged up only 75,000 in May, far below expectations of 175,000.

According to ADP, the U.S. added 27,000 jobs, making May the weakest month for job gains in more than nine years. I don’t know about you, but I can’t help reading this as a direct negative consequence of the White House’s escalating trade war with China and earlier threat to impose a tariff on all imports from Mexico. The U.S. goods producing sector was hit hardest, with construction losing 36,000 positions, natural resources and mining losing 4,000 and manufacturing losing 3,000.  


US had the smallest monthly job gain since economic expansion began
click to enlarge

The 5 percent Mexican tariff was “indefinitely suspended,” according to Trump Friday evening, in exchange for Mexico doing more to stem the flow of illegal immigration into the U.S.

As I’ve explained elsewhere, tariffs are essentially taxes and, as such, they’re inflationary. This has historically supported the price of gold.

Besides Walmart and Costco, a number of other retailers have been telling customers and investors that prices will be going up thanks to the Chinese tariff. Discount retailer Five Below said it will likely need to raise prices on certain items above $5 for the first time. Dollar General and Dollar Tree both alerted shoppers that they will be “facing higher prices as 2019 progresses.”

Trump Could Be a One-Term President Thanks to Mexican Tariffs

Discussing the trade war, JPMorgan’s Michael Cembalest, who hosts the “Eye on the Market” podcast, reminded listeners last week of an article written back in August 2015 by Trump’s National Economic Council director, Larry Kudlow, and former Trump pick for the Federal Reserve Board of Governors Stephen Moore. In the article, titled “Why Trump’s protectionist ways will hurt the economy,” Kudlow and Moore compared then-candidate Trump unfavorably to Herbert Hoover, the last Republican “trade protectionist.”

“Does Trump aspire to be a 21st century Hoover with a modernized platform of the 1930 Smoot-Hawley tariff that helped send the U.S. and world economy into a decade-long depression and a collapse of the banking system?” the two asked.

For better or worse, we may end up getting an answer to this question in the coming weeks and months.

What the Gold/Silver Ratio Is Telling Us

Another sign of slowing economic growth is the gold/silver ratio. This ratio tells you how many ounces of silver it takes to buy one ounce of gold. Last week it crossed above 90 for the first time in 26 years, meaning silver has not been this undervalued relative to gold since the first year of Bill Clinton’s first term.  

Gold to silver ratio at highest level since 1993
click to enlarge

The reason this is important is that half of silver demand comes from industrial applications. When the demand cools, the price of silver falls. One of the metal’s primary uses is in semiconductors, sales of which have been slipping. According to the Semiconductor Industry Association (SIA), global sales were $32.1 billion in April, a 14.6 percent decrease from the same month last year. This is the deepest plunge since the financial crisis.

Buying silver, then, could be a contrarian play, but I recommend also that you maintain a 10 percent weighting in gold. Although the yellow metal’s price surged last week, it’s still not quite in overbought territory when you look at the 14-day relative strength index (RSI). There could be further upside potential, especially if Trump revisits the Mexican tariff.

Will inflationary tariffs finally boost gold? Watch my latest interview with Kitco’s Daniela Cambone by clicking here!

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 3/31/2019.

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Global Manufacturers Just Shrank for the First Time in Seven Years
June 4, 2019

Perhaps surprising no one, global manufacturers are now in contraction mode for the first time since 2012. That’s according to the most recent reading of the sector’s health, the purchasing manager’s index (PMI), which headed lower for a record 13th straight month in May. The PMI posted 49.8, down from 50.4 a month earlier. As a reminder, anything above 50.0 indicates expansion; anything below, contraction.

global manufacturing PMI contracts for the first time since 2012
click to enlarge

Less than half of world economies’ manufacturing sectors are expanding right now, “the worst showing since the throes of the euro area sovereign debt crisis in 2012,” according to analysis by Neil Dutta, head of economics at Renaissance Macro Research (RenMac).

Trump and Modi 2017 Dutta adds that one of the few bright spots is India, whose own PMI climbed to a three-month high in May. However, “the improvement might be fleeting as the U.S. recently announced that it would strip India of a special trade status.”

This Wednesday, June 5, the U.S. will remove New Delhi from its privileged trading program called the Generalized System of Preferences, which for decades has allowed some developing countries such as India to avoid tariffs on certain exports to the U.S. By ending India’s exemption status, worth tens of billions of dollars, President Donald Trump hopes to pressure Prime Minister Narendra Modi into giving the U.S. greater access to his country’s market.

International Trade Tensions a Contributing Factor to Manufacturing Weakness

Indeed, tensions surrounding international trade, particularly between the U.S. and China, have been taking a large toll on manufacturers. The two superpowers represent around 34 percent of the global PMI weighting, so any weakness in either country will disproportionately affect overall manufacturing strength.

The U.S. PMI fell to 50.5 in May, its lowest print since September 2009, while new orders “are falling at a rate not seen since 2009, causing increasing numbers of firms to cut production and employment,” commented Chris Williamson, chief business economist at IHS Markit, which produces the report. I shared with you last month that the “flash” PMI showed new orders in the U.S. falling for the first time since August 2009, and it turns out that this preliminary reading was accurate.

U.S. Manufacturing Job Growth Has Been Slowing for Nearly a Year
click to enlarge

China’s PMI, meanwhile, came in essentially flat at 50.2.

President Trump’s plan to impose a 5 percent tariff on all goods imported from Mexico was announced too late in the month to have an impact on the May PMI reading. Today Trump said that it’s “likely” the tariff will go into effect next Monday as planned—in response to Mexico’s perceived unwillingness to do more to stop illegal immigrants from entering the U.S.—so it’s probably safe to anticipate further manufacturing weakness before conditions start to improve.

What Does This Mean for Stocks?

The reason why the slowdown should be a concern for investors is because of the manufacturing sector’s outsized role in the broader U.S. economy. In the fourth quarter, manufacturers contributed some $2.38 trillion to the U.S. economy, accounting for nearly 12 percent of gross domestic product (GDP). The sector also has a huge multiplier effect. For every $1 that’s spent in manufacturing, another $1.82 is created, according to the National Association of Manufacturers (NAM).

Higher consumer demand for goods and services means manufacturers require greater amounts of raw materials and natural resources. This benefits the metals and mining sector, not to mention energy, transportation and more.

As you can see below, the S&P 500 Index has closely tracked the global manufacturing PMI. When manufacturers expanded at a faster rate, stocks jumped higher year-over-year. And when they slowed or even shrank, stocks sold off.

U.S. stocks have closely tracked global manufacturing PMI
click to enlarge

It’s for this reason that I believe investors should remain cautious going forward. Let’s see how negotiations between the U.S. and China, and the U.S. and Mexico, proceed.

Stocks traded up sharply today following Federal Reserve Chair Jerome Powell’s suggestion that he’s open to rate cuts if economic conditions worsen. But it can’t be all about the Fed.

As always, I recommend investors ensure they have around a 10 percent weighting in gold bullion and gold mining stocks, which have performed well in times of economic uncertainty. Today the yellow metal broke above $1,330 an ounce for the first time since March, and there could be additional upside potential the longer trade fears persist.

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

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Will Trump Be a One-Term President Because of Mexican Tariffs?
June 3, 2019

Trump Could Be a One-Term President Thanks to Mexican Tariffs

“Tariff Man” strikes again. In a surprise tweet last Thursday, President Donald Trump announced that, beginning June 10, the U.S. would impose a 5 percent tariff on all goods coming into the U.S. from Mexico “until such time as illegal migrants coming through Mexico, and into our Country, STOP.” The tariff is scheduled to rise incrementally to a hefty 25 percent through October.

As I’ve explained elsewhere, including in an interview this week with Kitco’s Daniela Cambone, tariffs are essentially taxes that are paid by U.S.-based importing companies, which then pass the extra expenses along to the end consumer. If Trump’s Mexico tariff goes into effect, in fact, it will be the largest tax hike on Americans in approximately 30 years. As such, tariffs are inflationary. Historically, faster inflation has boosted investor demand for gold, and indeed, the price of the yellow metal crossed above $1,320 an ounce on Monday for the first time since late March.

Gold miners have also increased sharply. The NYSE Arca Gold Miners Index jumped nearly 4 percent in intraday trading on Friday, the group’s biggest one-day gain in two years. The S&P 500 Index, meanwhile, lost some $1.5 trillion in market cap in the month of May.

gold miners surge on market volatility
click to enlarge

Investors also sought protection in U.S. Treasuries, whose yields fell to a fresh 2019 low. This pushed the already-inverted yield curve between the 10-year and three-month Treasuries deeper into negative territory. On Friday the yield curve sunk to 17 basis points (bps), its lowest level since well before the financial crisis. An inverted yield curve has preceded every U.S. recession over the last 60 years.

Treasury yield curve inversion falls even further into the negative zone
click to enlarge

Tariffs Against Mexico Will Hit Middle-Class Americans

In 2018, the total value of imports from Mexico stood at $346 billion. A 5 percent tariff on this volume amounts to a $17 billion hit on the U.S. economy. At 25 percent, this cost surges to a whopping $87 billion.

value of US imports from mexico
click to enlarge

To be sure, this will have a much more direct inflationary impact on middle-class Americans than tariffs on Chinese goods have had so far. That’s because Mexico—besides being the number one exporter of car parts and vehicles to the U.S.—is also America’s top supplier of agricultural goods, with exports totaling $26 billion in 2018 alone. Fresh fruits and vegetables (valued at a combined $11.7 billion), beer and wine ($3.6 billion), snack foods ($2.2 billion) and more are all set to rise in price at your local grocery store if the 5 percent tariff takes effect as planned.

Think I’m exaggerating? On an investor conference call last week, Costco Chief Financial Officer Richard Galanti said, “At the end of the day, prices will go up on things” due to tariffs on Chinese and now Mexican-made goods.

For some idea of what might happen with food prices, take a look at what corn has done in the past month alone. Granted, this price jump is due to inclement weather, which put U.S. famers behind in their planting schedule. But imagine all of your tomatoes, avocados, cucumbers, onions, strawberries and other produce from Mexico making similar moves. This would have a serious multiplying effect on the U.S. economy.

corn prices took off in may after inclement weather put farmers behind schedule
click to enlarge

Vehicle prices are also likely to climb. In a press release dated May 31, Matt Blunt, president of the American Automotive Policy Council (AAPC), wrote that tariffs against Mexico will undermine the United States Mexico Canada Agreement (USMCA)—the not-yet-ratified replacement for NAFTA—and “would impose significant cost on the U.S. auto industry.”

Speaking specifically of General Motors (GM), Citi analyst Itay Michaeli said that the 5 percent tax could result in a significant “several-hundred-million-dollar” impact to the carmaker’s annual earnings. Shares of GM, Ford and Fiat Chrysler were all down significantly in Friday trading.

Could Trump Be Ambushing His Own 2020 Reelection Bid?

costco said it will pass the costs of tariffs onto consumers

Taken as a whole, the Mexican tariffs could very well end up being the one policy that costs Trump many die-hard supporters who have stuck with him up until now.

On Thursday, the U.S. Chamber of Commerce—the staunchly Republican business lobbyist group—condemned the president’s plan, writing that “tariffs on goods from Mexico is exactly the wrong move. These tariffs will be paid by American families and businesses without doing a thing to solve the very real problems at the border.”

High-ranking Republican Senator Chuck Grassley of Iowa, who has also safely been in Trump’s corner on most policies, came close to suggesting the imposition of tariffs was an abuse of power. “Trade policy and border security are separate issues,” Grassley said. “This is a misuse of presidential tariff authority and counter to congressional intent.”

Further, Grassley commented that the tariffs could risk the ratification of the USMCA, one of the president’s greatest achievements in his two-and-a-half-year-old administration.

Further still, the tariffs could sabotage any chance of a trade resolution with China. In a note to investors, Raymond James public policy analyst Ed Mills wrote that he views the president’s actions as “further deteriorating the U.S.-China trade fight. Chinese officials have stated their concern about the reliability of President Trump as a trading partner. These tariffs were announced the same day as significant advancement of the USMCA. If China does not believe a deal will stick, why negotiate?”

While I’m on the subject of China, the number of Chinese tourists to the U.S. fell 5.7 percent in 2018 from the previous year, the first time that’s happened since 2003. Trade tensions between the two economic superpowers appear to be a huge contributing factor. Hopefully this isn’t the start of a trend, as Chinese tourists top the list of the world’s biggest spenders.

Is Gold the Solution?

the 10 percent golden rule

All of this is ample reason to ensure that you have some gold in your portfolio. I always advocate the 10 percent Golden Rule. That means I think you should have half of that 10 percent in gold coins, bars and 24-karat jewelry. The other half should be in high-quality gold mining stocks and funds. Make sure you rebalance at least once a year.

One of the biggest proponents of gold is the Austrian school of economics, which emphasizes self-reliance and individualism. Because fiat currencies are solely based on the faith and credit of the economy, they have no intrinsic value and are prone to huge swings, according to Austrian economic thought.

Gold, on the other hand, is nobody’s liability. As destructive as socialist policies can be to business and capital, they can’t reduce the value of your gold. In fact, the inverse is true. Historically, the more debt that the government accrues, and the higher inflation gets, the more valuable the yellow metal has become.

 

 

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The NYSE Arca Gold Miners Index is a rules-based index designed to measure the performance of highly capitalized companies in the Gold Mining industry. The S&P 500 or Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies.

A basis point is one hundredth of one percent, used chiefly in expressing differences of interest rates.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 3/31/2019.

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Net Asset Value
as of 06/17/2019

Global Resources Fund PSPFX $4.43 No Change Gold and Precious Metals Fund USERX $7.28 0.07 World Precious Minerals Fund UNWPX $2.65 -0.01 China Region Fund USCOX $8.31 -0.07 Emerging Europe Fund EUROX $6.91 0.01 All American Equity Fund GBTFX $24.14 -0.09 Holmes Macro Trends Fund MEGAX $16.59 No Change Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change