The Real Winner of the U.S. Election? Gold, Says Frank Holmes.
Frank Holmes says it doesn't matter if the U.S. sees a Red victory or a Blue victory in the presidential election; gold will be the real winner. In this a Streetwise Reports interview, Frank discusses gold's prospects post-election, inflation, stock market performance and the criteria he uses to evaluate mining companies.
Frank Holmes, CEO and chief investment officer of U.S. Global Investors, says it doesn’t matter if the U.S. sees a Red victory or a Blue victory in the presidential election; gold will be the real winner. In this far-ranging interview with Streetwise Reports, Frank discusses gold’s prospects post-election, inflation, stock market performance and the criteria he uses to evaluate mining companies.
Read an excerpt from the interview below.
Streetwise Reports: Frank, let’s begin with gold. After a substantial rise in the price of the metal earlier this year, which went as high as $2,036 an ounce in early August, it has since been trading sideways, consolidating roughly around the $1,900 mark. What effect do you think the U.S. presidential election will have on the price of gold? Do you see different scenarios based on which candidate wins?
Frank Holmes: Well, you can hit the red button or the blue button, but I’m hitting the gold button, no matter which one it is. You have to sit back and look at macro forces and macro themes to understand gold and the drivers of gold.
When we go back 30 years ago, as Pierre Lassonde pointed out at the Denver Gold Show a year ago, China and India represented only 10% of gold demand: 6% India and 4% China. Today, however, these two countries comprise 53% of all gold demand. Why is that? Because a rising gross domestic product per capita and purchasing power parity are highly correlated with what I call the love trade, that is gold jewelry demand and gifts in gold. So that’s the underlying factor that keeps driving gold demand.
Now we get into the fear trade, and that’s what really accelerates things—negative real interest rates and unprecedented money printing. The G20 finance ministers and central bankers started their own cartel 20 or so years ago. At the beginning of the century, they were consumed with global trade, the World Trade Organization, China, and, all of a sudden, there’s a huge global boom. Gold stocks took off. Bullion went from $250 to $800/ounce. We had this incredible cycle. Along comes 2008–2009 and we go to synchronized taxation and regulation. Today, we have synchronized money printing to fight COVID-19. There is not one country printing money faster than another. They’re all taking turns at it.
SWR: Going back to gold, it is often touted as a hedge against inflation. What’s the situation with inflation in the United States currently and looking ahead?
FH: If we look at what the inflationary number is today, and if we look at 10-year, 5-year and 2-year bonds, they all have negative real interest rates. It says that gold is a very attractive class. For me, gold stocks with rising dividends and free cash flow are even more attractive. I think that’s one reason why Warren Buffett all of a sudden bought Barrick Gold Corp. It has strong leadership. Newmont Corp also looks attractive for many fundamental factors. Both have free cash flow. I think the free cash flow allows for rising dividends, so it’s much higher than what you’re going to earn with the negative real interest rates.
SWR: U.S. Global Funds manages a number of mining funds. Could you talk a little about what you look for in a company when making the decision to invest? Is there any one type of company investors should focus on right now for the greatest upside potential—senior, midtier, junior, royalty companies?
FH: We look at what is called "The Five Ms of Mining"—mine lifecycle, market cap, management, money and minerals. Basically when we go down the food chain, for explorers, management is key, as is where they are in the lifecycle of a mine. The early explorers can give you tenbaggers, twentybaggers—20 times your money—but, in time, they can fizzle out early and quickly, so you can lose your money. In that lifecycle, you want to have proven management track records in a well-known area and companies that are well funded and have good daily trading liquidity.
When we go up the food chain, we want to look at the producers that have expanding production or have a free cash flow yield, which means with rising gold they’re going to be able to pay higher dividends. We think that those stocks outperform.
In fact, we’re going to be doing a broadcast program with Streetwise on Thursday, November 12, at 1pm EST on 10 junior stocks that we like and we’ve invested in. (You can register here.) These companies will be telling their story "PechaKucha" style, which is 20 slides, at 20 seconds per slide, comprehensive but concise, in 6.4 minutes total. The presenting companies are Magna Gold, TriStar Gold, Barksdale Resources, Allegiant Gold, Revival Gold, Silver Viper Minerals, Orex Minerals, Barsele Minerals, Brixton Metals and Gran Colombia Gold.
For producers, Gran Colombia Gold Corp. is the least expensive of the whole universe of gold producers we follow. It also has an interesting gold note which we own. Caldas Gold Corp. is a spinout, which has been funded by Wheaton Precious Metals Corp and the capital markets. But it will go from producing 24,000 ounces a year to 180,000 over the next three years, so I think it has probably the biggest ramp-up of a higher grade deposit that we see. There are very few gold mining companies that can increase their production sixfold over the next three years.
They are the companies that we like, and we remain bullish in this sector.
Sign up for the Virtual Junior Mining Expo hosted by Streetwise Reports and U.S. Global Investors for free 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.
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 (09/30/2020): Barrick Gold, Newmont, Wheaton Precious Metals, Ivanhoe Mines, Royal Gold, Franco-Nevada Corp., Allegiant Gold, Barksdale Resources, Barsele Minerals, Brixton Metals, Gran Colombia, Magna Gold, Orex, Revival Gold, Silver Viper and Tristar Gold.
M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.