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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.

How to Unrig the Gold Market, According to GATA's Chris Powell
May 21, 2019

In an earlier post, I gave you a sneak preview of my interview with Chris Powell, secretary/treasurer at Gold Anti-Trust Action Committee (GATA). For 20 years now, Chris and others at GATA have made it their mission to expose collusion by international financial institutions to control the price and supply of gold.

Below are highlights from the interview. I have to say that during much of our conversation, my jaw was on the floor. I don’t want to say much more than that! Read on, and remember to share widely.

Tell us about GATA’s background and what it does.

GATA was founded in 1999 to expose and litigate against the longstanding Western central bank policy of suppressing the price of gold. At first we weren’t even sure if it was Western banks that were doing it. But after a year or so of research and investigation, we concluded that the bullion banks were operating surreptitiously as brokers for governments, giving cover to their intervention in the gold market. At the time, we had a law firm advise us that this rigging was very likely authorized by the Gold Reserve Act of 1934, as amended since then, and as such, there may not be grounds to sue the government directly over gold price manipulation.

We went ahead and filed suit in 2001 anyway, in the U.S. District Court in Boston. We had a consultant, a Harvard-trained lawyer and gold investor, who brought a case against the Bank of International Settlements (BIS), the U.S. Treasury and various bullion banks.

One particular hearing I attended that year produced a remarkable admission from an assistant U.S. attorney. In short he said that, while the government was not admitting to the complaint, it nevertheless had the power and authority to do all the things the suit complained of—manipulating the price of gold, in other words. I made a record of this admission and put out a press release. The lawsuit was ultimately dismissed by the judge on technical jurisdictional grounds.

Having lost a little hope of suing the government directly, we determined that the best course of action going forward was to try to publicize our findings. We’re convinced that the Gold Reserve Act gives the U.S. government, particularly the Treasury Department and the Exchange Stabilization Fund (ESF), the unrestricted authority to intervene in and secretly rig any market in the world. Our work now is simply to expose this policy to as large an audience as possible.

On a practical level, how does manipulation like this occur on such a global scale?

It’s done largely in the futures markets. It’s also done in the London over-the-counter (OTC) market. The mechanisms are gold swaps and leases between central banks and bullion banks, and through the sale of futures contracts.

We’ve seen a number of flash crashes in the price of gold, but lately they’ve been happening every few weeks. Somebody will dump a billion dollars or more of gold futures contracts in New York. That can be achieved only by someone with infinite resources and money, who also has a powerful interest in suppressing the price of gold. Nobody interested in making good money would dump that much gold all at once. He would sell it gradually over a period of time. I think these flash crashes are irrefutable evidence of price suppression.

the gold futures flash crash of January 6, 2014
click to enlarge

Are there any public records that point to all of this?

Yes. There’s all sorts of material in the Treasury Department and Federal Reserve archives about gold price suppression being U.S. policy. Jelle Zijlstra—the former president of the Netherlands’ central bank, who simultaneously served as president of the BIS—wrote in his memoirs that the gold price has always been suppressed at the behest of the United States through international action. You can go back to the years of the London gold pool in the 1960s, where the control of the gold price through international action was a matter of public record, operating through the Bank of England (BoE).

A very remarkable transcript exists of a meeting in April 1974 between Secretary of State Henry Kissinger and Thomas Enders, the assistant under secretary of state for economic and business affairs. Enders explains to Kissinger that U.S. government policy is to drive gold out of the world’s financial system and prevent European governments from remonetizing the metal in any way. The purpose of this policy is to support the U.S. dollar as the world reserve currency, and if not the dollar, then the International Monetary Fund’s (IMF) special drawing rights (SDR).

The most compelling evidence, I believe, are letters sent by Representative Alex Mooney of West Virginia to the Federal Reserve, Treasury Department and U.S. Commodity Futures Trading Commission (CFTC). Mooney asked the Fed and Treasury to identify which markets they’re secretly trading in, and to explain the purposes of this trading. Fed Chair Jerome Powell essentially refused to answer the question, as did the Treasury. Mooney asked the CFTC to state whether manipulation trading in the futures markets undertaken by the U.S. government or its agents or brokers is subject to the CFTC’s jurisdiction, or whether such manipulation is actually legal or exempt from ordinary commodities law. The CFTC refused to answer the question.

I think these agencies’ refusal to answer Mooney’s questions is quite revealing. And notably, mainstream financial journalists don’t find any of this curious. They have a rule never to put a critical question to any central bank about anything. Theoretically, somebody could do it. It’s being attempted by alternate news agencies and research organizations, but you can’t get an answer. That’s a good indication, I believe, that central banks are doing things they don’t want the markets to know about.

My next question has to do with central banks and their consumption of gold. They’ve been net buyers since 2010. The United States continues to be the single largest holder of gold of any institution on the planet. How do we reconcile that? If they own all this gold, wouldn’t it go against their self-interest to suppress its price?

global central banks have been net buyers of gold since 2010
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That seemed to be a paradox to GATA some years ago, but we don’t believe it is any longer. To suppress the price of gold, you need a certain amount of inventory to knock the market down. You can’t do it entirely through the naked shorting that they do in the futures market. You always need to be bleeding a certain amount of the metal into the market to maintain the appearance of a gold market. You can’t just be trading paper all the time—it’s not enough.

The U.S. economists Paul Brodsky and Lee Quaintance wrote a paper a few years ago that floats a plausible hypothesis of what’s going on. The two hypothesized that the policy in recent years has been to redistribute world gold reserves among central banks so that those banks that have been overweight in U.S. dollars and Treasuries could hedge themselves in anticipation of an inevitable devaluation of the dollar and revaluation of gold. Central banks, the two allege, intervene together in the futures market to drive the nominal price down to facilitate easy acquisition of gold. They would prefer to keep the public out of acquiring the metal.

Full disclosure, I don’t have any particular evidence from government sources that confirms Brodsky and Quaintance’s hypothesis. But it certainly fits the facts as we understand them.

As you likely know, a JPMorgan trader is awaiting sentencing right now for his participation in gold price rigging. What’s your reaction to this?

His sentencing has been delayed twice now. It was delayed again the other day for another six months.

I’m not sure what to make of it, to be honest. There’s some confusion here because a few years ago, the chief executive of JPMorgan, Jamie Dimon, and the woman who was running its commodities desk at the time, Blythe Masters, both gave interviews saying that JPMorgan has no position of its own in the monetary metals markets. They were trading them only for clients. Of course, nobody in journalism followed up by asking Dimon or Masters who the clients were. I would have wondered if the bank was acting as the broker for the U.S. or Chinese government. That was certainly implied from the answers they gave.

Now this trader, John Edmonds, apparently had to admit that he was rigging the gold and silver markets while trading at JPMorgan. He was allegedly doing it with the knowledge and counsel of his superiors, and if it were done on behalf of the government, presumably it’s legal under the Gold Reserve Act. But as Charles Peters, former editor of the Washington Monthly, used to say: “The scandal is never what’s illegal. The scandal is what’s perfectly legal.”

So why is Edmonds being prosecuted? Because he was front-running government trades? Was he doing it just for himself? I can’t imagine the Justice Department would be prosecuting him if his trading was being conducted on behalf of the U.S. government.

Where do you think gold prices would be right now if not for this manipulation? What’s the true value of gold?

The true value of gold is whatever our free market wants it to be. Our attitude toward money is very libertarian. Let there be free markets and currencies, and if governments are intervening, they should be transparent about what they’re doing.

Having said that, the disparagement of gold for years is that its price has not kept up with inflation. Everything keeps up with inflation. That in itself is pretty powerful evidence of government intervention. It’s not keeping health insurance costs and medical care prices down. It’s not keeping college tuition down. It’s not keeping grocery prices down. How come gold is the only thing that doesn’t keep up with inflation? Silver, too? All of the traditional ratios of monetary metals values compared to stock market levels and other prices have been thrown off in recent years because of government intervention.

global central banks have been net buyers of gold since 2010
click to enlarge

So what would those prices be if the traditional ratios were enforced again? I can’t say for sure, but obviously they would be far, far higher than they are today. And the government knows this. If the government ever got out of the futures market and abandoned its manipulation scheme, metal prices would remonetize in as little as a week.

I’ll add that if you want the gold or silver price to go up, you’ve got to buy real physical metal. Take it out of the banking system and weaken the futures market, which is where the manipulation takes place.

If readers are interested in learning more, where should they go?

They can go to our site, GATA.org. In the upper right-hand side, visitors can subscribe to our daily newsletter, the “GATA Dispatch.” That’s absolutely free. On the left, in the “Articles” section, you’ll find a link to “The Basics” and “Documentation.” All of the documentation of gold price suppression and secret intervention in gold markets by governments is contained there. And if they’re searching for anything in particular, I’d be happy to help them or refer them to someone who can. They can just email me at cpowell@gata.org.

Thank you for your time, Chris! It was a pleasure.

The pleasure was all mine.

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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.

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Yes, Gold Is Being Manipulated. But to What Extent?
May 20, 2019

Gold is being suppressed but to what extent

Another day, another banking scandal.

Last week the European Commission announced that it’s fining five big banks for rigging the international foreign exchange (forex) market. As many as 11 world currencies—including the euro, British pound, Japanese yen and U.S. dollar—were allegedly manipulated by traders working at Barclays, the Royal Bank of Scotland (RBS), Citigroup, JPMorgan and Japan’s MUFG Bank.

Altogether, the fines come out to a whopping 1.07 billion euros ($1.2 billion).

According to the press release dated May 16, the infringements took place between December 2007 and January 2013. Traders working on behalf of the offending banks secretly shared sensitive trading information. This enabled the traders—who were direct competitors—to “make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when.”

Financial services is already the least trusted sector among seven others worldwide, according to the 2019 Edelman Trust Barometer. News of the coordinated forex rigging—which follows other high-profile scandals such as the Libor scandal, Wells Fargo fake account scandal, gold fixing scandal (which I’ll get to later), among many more—is unlikely to improve public sentiment.

As I’ve said before, I believe that strong distrust in traditional financial services, especially among millennials, greatly contributed to early bitcoin adoption. With bitcoin, there’s no third-party risk. Transactions are peer-to-peer. Users of the digital coin find this sort of freedom very attractive, and because it’s built on top of blockchain technology, price manipulation is much more difficult to pull off.

That’s not to say that bitcoin hasn’t been, or isn’t still being, manipulated. There are those who argue that the cryptocurrency’s meteoric rise to nearly $20,000 in late 2017 was at least in part due to coordinated price manipulation. And early Friday morning, its price dramatically lost as much as $1,702, its worst intraday drop since January 2018, after breaching $8,300 on Thursday.

Bitcoin price sharply plunged friday morning
click to enlarge

Bitcoin Seen as a Threat to Global Fiat Currencies

None of this should come as a surprise to anyone who’s been paying attention, of course. I’ve seen and heard the aggressive stance bankers have taken against bitcoin and other cryptocurrencies, as I’m sure you have.

Quite simply, banks don’t want the competition. If you recall, JPMorgan CEO Jamie Dimon called people who buy bitcoin “stupid” and said he’d fire any trader caught trading it. (And then in an amazing about-face, his bank announced in February the rollout of its own digital coin, the “JPM Coin.”)

Also consider the comments made by Agustín Carstens, general manager of the Bank of International Settlements (BIS). The BIS, in case you’re unfamiliar, is often called the “central bank of central banks.” That’s because it provides banking services to as many as 60 financial institutions from all over the world, including heavyweights such as the Federal Reserve, Bank of England (BoE), European Central Bank (ECB) and Bank of Japan (BoJ). Its influence on global monetary and financial policy, in other words, is monolithic.

Ever since bitcoin hit $4,000 or so, General Manager Carstens has been on a global PR campaign to stop its momentum—because, again, it’s seen as a threat to sovereign currencies. As recently as November of last year, he laid out 10 reasons why central banks should discourage the use of digital coins.

Among them: “Cryptocurrencies are highly conducive to illegal activities.”

Anyone else see the irony? Fiat currencies are still very much used to conduct illegal activities, despite the enactment of anti-money laundering (AML) and know your customer (KYC) laws. In November 2017, Jennifer Fowler, deputy assistant secretary for the Office of Terrorist Financing and Financial Crimes (TFFC), testified before the Senate Judiciary Committee that the U.S. dollar “continues to be a popular and persistent method of illicit commerce and money laundering,” and that, although virtual currencies are also used, “the volume is small compared to the volume of illicit activity through traditional financial services.”

The BIS doesn’t stop at bitcoin, though. It’s also put gold in its crosshairs.

Gold Suppression: It’s Not a Question of IF but to WHAT EXTENT

First of all, let me say that gold price suppression (“fixing,” “rigging,” “manipulating” or however else you want to think about it) is not just a conspiracy theory. It’s a well-documented phenomenon, with real actors and real ramifications. In 2014, Barclays was fined nearly $44 million for failing to prevent traders from manipulating the London gold “fix.” Late last year, a former JPMorgan trader pleaded guilty to manipulating the U.S. metals markets. Remember the gold futures “flash crash” of 2014?

The best people to speak to about this subject are the folks at the Gold Anti-Trust Action Committee, or GATA. For 20 years now, Chris Powell and others at GATA have made it their mission to expose collusion by international financial institutions to control the price and supply of gold.

Last week I had the chance to sit down with Chris, GATA’s secretary/treasurer. I asked him how institutions manage to manipulate the price of gold on such a global scale.

“It’s done largely in the futures markets,” Chris told me. “It’s also done in the London over-the-counter (OTC) market. The mechanisms are gold swaps and leases between central banks and bullion banks, and through the sale of futures contracts.”

GATA’s Robert Lambourne reported on this in March of this year. As you can see in the chart below, gold rallied between November 2018 and February, when it peaked at around $1,343 an ounce. Ordinarily, you could expect inventory in the bullion-backed SPDR Gold Shares ETF (GLD) to continue to climb at least until then. But that’s not at all what happened. Three weeks before the price of gold peaked, the holdings in the GLD curiously began to fall, and by March 4, the ETF had lost approximately 57.8 metric tonnes. And because the GLD is the largest gold ETF in the world—its value stands at $30.2 billion, as of this week—such selling will naturally impact the price of gold. Sure enough, the yellow metal soon fell below $1,300. What gives?

Is the Bank for International Settlemenst BIS suppressing teh price of gold?
click to enlarge

The answer to that question may lie in the BIS’ monthly statement of account for February. According to Robert’s reporting, the BIS was still actively trading gold swaps, which it uses to gain access to the metal held by commercial banks. Specifically, the bank placed as much as 56 metric tonnes of gold swaps into the market in February.

If you ask me, that amount is remarkably close to the 57.8 tonnes that fled the GLD in the first quarter of this year.

Hard to believe? This is only scratching the surface. I’ll let Chris Powell be the one to elaborate, but it will have to wait until a Frank Talk later this week. Trust me when I say this is an interview you don’t want to miss! Make sure you’re subscribed to Frank Talk so you can be one of the first to read it.

 

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.

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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3 Mining Stocks for Investors Seeking Gold Exposure
May 14, 2019

3 Mining Stocks for Investors Seeking Gold Exposure

As the U.S.-China trade spat drags on, so too could the stock market volatility that has accompanied it so far this month. The S&P 500 and Dow Jones Industrial Average both fell 2.4 percent on May 13 – their worst days since January. The longer trade negotiations remain ongoing, the longer the geopolitical and economic risks remain.

One potential hedge against volatility and market risk is having an allocation to gold, which has historically moved in the opposite direction of equities. I often recommend having a 10 percent portfolio weighting in the yellow metal – with 5 percent in physical gold and the other 5 percent in gold mining equities, mutual funds and ETFs.

Gold mining stocks have been down so far this year, but I believe this represents a buying opportunity. The NYSE Arca Gold Miners Index, which tracks a diversified blend of small-, mid- and large-cap miners, is down 9.22 percent for the 12 months ended May 13.

To get additional insight on miners, I spoke with our portfolio manager and gold expert Ralph Aldis. Ralph has over 30 years’ experience in the gold space, and together we manage two mutual funds focused on the yellow metal. Some of Ralph’s top gold mining stocks as of late are Wheaton Precious Metals, Wesdome Gold Mines and K92 Mining – all three of which we own in our junior and intermediate miner mutual fund, the World Precious Minerals Fund (UNWPX).

Wesdome Gold Mines Ltd.

One miner that we really like is Canadian-based Wesdome Gold Mines. Ralph describes the company as having “delivered both operating and drilling results very consistently” and being disciplined when it comes to raising money.

The company just reported strong first quarter results, including revenue of CA$32.5 million – a 24 percent increase from a year earlier. Plus, its gold production increased 6 percent from a year earlier to 19,010 ounces. Wesdome operates two gold mining operations in Ontario and Quebec and trades on the Toronto Stock Exchange under the ticker symbol WDO.

As you can see in the chart below, the company has seen massive growth in the last 12 months with a total return nearly exceeding 100 percent. We believe it’s a good candidate for a takeover by a larger miner due to its strong drilling results, competent management team and safe jurisdiction in Canada.

In fact, Wesdome was the top holding in UNWPX as of the most recent quarter end. View all fund holdings here.

Wesdome gold mines up significantly in the last 12 months
click to enlarge

K92 Mining Inc.

Perhaps a less well-known name, K92 Mining is based in Vancouver and operates solely in Papua New Guinea. Ralph sums up why he likes the company: “I think K92 is another one that has a great deposit, high grade. The CEO spends time at the mine site. It's off on the other side of the world, but he goes and spends a week there every month working, so it's very much a hands-on management style.”

Strong management is an important factor for us when looking at companies. It’s one of our “5 Ms” for picking gold mining stocks: market capitalization, management, money, minerals and mine life cycle.

K92 has broken out so far in 2019 and could have further to go after reporting strong first quarter results. The company reported 19,125 gold ounces produced from its Kainantu mine in Papua New Guinea.

K92 Mining has broken out so far in 2019
click to enlarge

Wheaton Precious Metals Corp.

Although not technically mining stocks, royalty and streaming companies are a way to gain exposure to miners. These companies own streams on the production of precious metals, in exchange for helping finance the projects and providing upfront capital. One of our favorites is Wheaton Precious Metals Corp.

Wheaton Precious Metals CEO Randy Smallwood with USGI porfolio manager Ralph ALdis

In 2018 Wheaton faced a tax dispute with the Canada Revenue Agency (CRA) over income generated by foreign owned subsidiaries. The CRA claimed that the company owed back taxes and fines that could have been as high as $1 billion. Fortunately, an agreement was reached, and although Wheaton will face higher taxes, the company can now focus attention on operations and put the issue behind it.

Ralph is in close contact with much of senior management: “In fact, Chief Financial Officer Gary Brown was at our office in San Antonio a few weeks ago and explained to our team that the tax issue has been resolved, but that investors still haven’t woken up to the good news. That’s why we believe right now could be a good time to pick up this name before word spreads.”

Wheaton trades in both New York and Toronto, making it easier for investors to buy. The company focuses on silver – in addition to gold, copper and other metals – and currently has streaming agreements for 19 operating mines and nine development stage projects. We like to look at the price-to-book ratio, and based on that, Wheaton looks undervalued relative to some of its royalty and streaming peers, including Franco-Nevada Corp. and Royal Gold Inc.

Wheaton Precious Metals looks undervalued compared to peers
click to enlarge

A consolidation bug hit senior miners late last year and early this year. When Barrick Gold bought Randgold Resources, then Newmont merged with Goldcorp, many analysts suspected there would be a selloff of assets and a flood of acquisitions and deals in the small- and mid-cap producer space.  

As Ralph puts it: “I do think a wave of consolidation is going to come because we know a lot of the seniors are going to try to spin assets off.  That could create a lot of interesting opportunities for smaller mining companies.”

Interested in adding to your gold exposure through an actively-managed mutual fund? Learn more about the World Precious Minerals Fund (UNWPX) by clicking here.

 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the World Precious Minerals Fund as a percentage of net assets as of 3/31/2019: Wesdome Gold Mines Ltd. 5.65%, K92 Mining Inc. 1.89%, Wheaton Precious Metals Corp. 0.30%, Franco-Nevada Corp. 0.54%, Royal Gold Inc. 0.00%, Barrick Gold Corp. 0.13%, Randgold Resources 0.00%, Newmont Mining Corp. 0.03%, Goldcorp 0.00%.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. 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 price to book ratio, also called the P/B or market to book ratio, is a financial valuation tool used to evaluate whether the stock a company is over or undervalued by comparing the price of all outstanding shares with the net assets of the company.

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Hard Truths in Resource Investing, According to Bob Moriarty
May 1, 2019

"The day you start thinking you are smarter than the market, you have made a giant mistake that will cost you dearly.”

“All debts get paid… They are paid either by the borrower or by the lender.”

“The mob is always wrong. All you have to do is figure out what they think and then do the opposite.”

“Listening to liars gets very expensive.”

I could keep going, but these are just some of the kernels of wisdom and hard truths I came across while reading Robert Moriarty’s latest book, Basic Investing in Resource Stocks: The Idiot’s Guide. I’ve known Bob for many years, and if there’s one thing he’s proven about himself time and again is that he doesn’t mince words.

Nor should he. Bob’s accomplished far too much in his life to worry about tiptoeing around the truth. Many people reading this right now probably know Bob best from his highly popular resource websites 321Gold and 321Energy. 321Gold, I should point out, has done a lot over the years to bring U.S. Global Investors to people’s attention, and I’m grateful to Bob for that.

Besides extreme contrarian resource investing, Bob also has a place in the history books as an aviator. Not only was he the youngest naval combat pilot, at 20 years old, during the Vietnam War, but he still holds the time record for flying from Paris to New York and back again, in 1981. Three years after that, he famously flew his Beechcraft Bonanza V35 under the Eiffel Tower.

But back to the book.

Beware of False Prophets

Perhaps what I admire most about Basic Investing is how refreshingly open it is. Again, Bob doesn’t mince words, and he’s more than willing to share what he describes as his own past errors so that readers might learn from them. (To be perfectly honest, though, the longer anyone spends in the capital markets, the more likely it is that he or she will make a bad bet or 10. No one gets it right all of the time.)

Just as he does in his 2016 bestseller Nobody Knows Anything,  he makes the case that you should be skeptical of anything the “experts” and “gurus” tell you. Otherwise, you could get seriously burned. In Bob’s experience, that’s amounted to placing too much trust in a junior resource company’s management team, some of whom go on to squander the money they raised.

“If you find a company with a story so compelling, so bulletproof that it simply cannot fail, rest assured that the village idiot is right around the corner looking for a job,” he colorfully writes. “When you believe [the company] would work even if someone spent 24 hours a day, seven days a week trying to screw it up, you will find that the village idiot ends up running the company and puts in a lot of overtime.”

No Alternative to Gold and Precious Metals

Despite the risk of having to deal with the occasional ineffective or destructive CEO, Bob says, “investing in resource shares may be the only logical investment for those looking to hedge other potentially more dangerous alternatives.”

Government, corporate and household debt are all at record highs, and the “Yellow Vest” revolution in France threatens to spill over into the rest of the world. The coming financial meltdown could make 2007-2008 look like a dress rehearsal, and Bob sees gold “as a solution to our continuing financial chaos. It worked for much of history and nothing says it won’t work again.”

“If you don’t own some gold (or silver or platinum or palladium or rhodium) that you can lay your hands on, you may regret it. Precious metals are the most secure insurance policy that you can buy to protect your financial house, even as it begins to burn down.”

Trading Metals and Resource Stocks 101

Bob’s book is rich with practical advice on trading precious metals and resource stocks. Timing is key on both sides of the trade, and Bob uses a number of tools to help him make as large a profit as he can. Obviously you want to buy low and sell high, but sometimes that’s easier said than done. That’s where metal price ratios come in.

In the chart below is the gold-to-silver ratio. What it shows is the number of ounces of silver it takes to buy one ounce of gold. Since January 2000, the average has been about 64. But in the past few months, it’s spiked up to an incredible 85 or 86—meaning silver is “dirt cheap” relative to gold. Buying silver at this time, then, might make a lot of sense if you believe silver prices will soon go up or gold prices will go down.

Silver is dirt cheap relative to gold
click to enlarge

“All commodities deviate from the mean at times, and always regress to the mean,” Bob writes. “Prices naturally go up and naturally go down, but they always go back to the mean eventually.”

Chapter 14 of Basic Investing includes a helpful list of other tools and websites Bob uses on a regular basis to track commodity prices and trends, and to time his trades.

Hard truths, practical guidance, invaluable insight. It’s all there in Bob’s book, which, I should add, is also a delightful, often humorous read. Order your copy today!

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 standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. Mean reversion is a theory used in finance that suggests that asset prices and historical returns eventually return back to the long-run mean or average level of the entire data set.

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What Ballooning Corporate Debt Means for Investors
April 8, 2019

Frank Homles speaking at the Money Map Press Black Diamond Conference in Delray Beach Florida

Last week I was in Delray Beach, Florida, where I presented at Money Map Press’ Black Diamond Conference.

What I love about this event, and others like it, is that it gives investors a chance not only to hear from their favorite newsletter writers but also speak with them face-to-face on a wide range of topics, from metals and mining to bitcoin and cannabis, and so much more. Among the most sought-after presenters this year were early-stage tech investor Michael Robinson, who I interviewed last year; Money Map Chief Investment Strategist Keith Fitz-Gerald; and Sprott CEO Rick Rule.

In case you didn’t get the chance to attend, I’ll be sure to cover the highlights in the coming days.

Right now I want to share with you the latest from Metals Focus. The London-based commodities research group just released the 2019 edition of its widely-read Gold Focus report, and the big news is that global gold demand will climb to its highest level in four years. The uptick is expected to be driven by an increase in jewelry fabrication, with India, China and Italy leading consumption higher.

Global gold demand forecast to edge marginally higher in 2019
click to enlarge

Interest in gold jewelry has indeed improved in recent years, a phenomenon we’ve noticed with the success of such companies as Menē. Late last year, Google inquiries for “gold jewelry” hit an 11-year high.

But there’s more to the story than the Love Trade. Metals Focus analysts see gold also benefiting from a more dovish Federal Reserve and fears of a global economic slowdown.

“We expect U.S. real gross domestic product (GDP) to slow in 2019 and 2020,” comments Metals Focus Director Nikos Kavalis. “This reflects a natural tapering, following two very strong years, the fading of windfall gains from the late-2017 tax reforms and, eventually, also the impact of trade wars on U.S. consumer spending.”

Are We Headed for Another Recession?

Few people know the risks in today’s economy and marketplace as much as David Rosenberg, chief economist and strategist at Canadian wealth management firm Gluskin Sheff & Associates. For years he’s educated investors with his popular “Breakfast with Dave” newsletter, which you can subscribe to here. He’s also a regular contributor to the Globe and Mail and the Financial Post.

Considered by many to be a Wall Street permabear, Rosenberg successfully predicted the 2007-2008 financial crisis.

Now he’s predicting another recession to make landfall as soon as the second half of this year. Why? In short, the Fed has been too aggressive tightening liquidity at a time when corporate debt is at an all-time high. What’s more, the Trump administration has already enacted fiscal stimulus in the form of tax reform, which has historically been reserved for times of economic turmoil, not expansion.

“How are we going to stimulate fiscal policy [in the event of a recession]?” he asked recently on CNBC’s Trading Nation. “We already did that at the peak of the cycle. We don’t have the fiscal ammunition.”

Corporate Debt Nearing Half of U.S. GDP

Rosenberg recently spoke at the CFA Societies Texas Investor Summit in San Antonio, U.S. Global Investors’ hometown, where he laid out his thought process.

Since the last recession, nonfinancial corporate debt has ballooned to more than $9 trillion as of November 2018, which is nearly half of U.S. GDP. As you can see below, each recession going back to the mid-1980s coincided with elevated debt-to-GDP levels—most notably the 2007-2008 financial crisis, the 2000 dotcom bubble and the early 90s slowdown.

Non-financial corporate debt to GDP has exceeded record levels
click to enlarge

Through 2023, as much as $4.88 trillion of this debt is scheduled to mature. And because of higher rates, many companies are increasingly having difficulty making interest payments on their debt, which is growing faster than the U.S. economy, according to the Institute of International Finance (IIF).

On top of that, the very fastest-growing type of debt is riskier BBB-rated bonds—just one step up from “junk.” This is literally the junkiest corporate bond environment we’ve ever seen.

Combine this with tighter monetary policy, and it could be a recipe for trouble in the coming months.

During his presentation, Rosenberg reiterated the saying that business cycles don’t die of old age, but rather they’re killed by the Fed. Take a look at the chart below. It shows commercial and industrial loan delinquency rates, overlaid by fed fund rates shifted 10 quarters ahead. What it suggests is that roughly 10 quarters after the Fed began to tighten, loan delinquencies surged.

Corporate loan delinquencies have surged following rate hike cycles
click to enlarge

The good news is that it’s been more than 10 quarters since the Fed started lifting rates in December 2015, and so far we haven’t seen a noticeable increase in delinquencies.

Could this be because the rate hikes this cycle have been small relative to those in past cycles? Not likely, says Rosenberg. According to him, it’s not the amount that matters so much as the change. Whether rates go up 2.50 percent or only 0.25 percent, it can still be a shock on the financial system.

To be clear, I’m not predicting a recession any time soon, only passing along Rosenberg’s expert opinion.

But if his position makes sense to you, it might be time to consider your options on how to prepare. Rosenberg recommends overweighting fixed-income and REITs (real estate investment trusts).

I would add gold to that mix, as it’s performed well as a store of value during economic pullbacks. As always, I recommend a 10 percent weight in gold, with 5 percent in gold bars, coins and jewelry, and 5 percent in gold stocks, mutual funds and ETFs.

Concerned about Brexit? Read my thoughts on how it could impact gold prices 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.

A bond’s credit quality is determined by private independent rating agencies such as Standard & Poor’s, Moody’s and Fitch. Credit quality designations range from high (AAA to AA) to medium (A to BBB) to low (BB, B, CCC, CC to C).

Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

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 12/31/2018: Menē Inc.

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Net Asset Value
as of 05/24/2019

Global Resources Fund PSPFX $4.31 0.05 Gold and Precious Metals Fund USERX $6.53 0.04 World Precious Minerals Fund UNWPX $2.51 0.01 China Region Fund USCOX $7.91 0.05 Emerging Europe Fund EUROX $6.53 0.05 All American Equity Fund GBTFX $23.95 -0.02 Holmes Macro Trends Fund MEGAX $16.43 0.14 Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change