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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.

The Top Six Things You Should Know About Royalty Companies Now
July 3, 2017

franco nevada royalty companies big truck

This past week was an exciting one for U.S. Global Investors. If you haven’t heard, my team and I had the distinct honor of ringing the closing bell at the New York Stock Exchange on Thursday to mark the launch of our latest ETF.

While in New York last week, I had the privilege of seeing many colleagues face-to-face. It’s always a pleasure for me to be able to talk gold with industry friends and experts. One stop during my trip that I thoroughly enjoyed was to chat with Pimm Fox and Lisa Abramowicz on Bloomberg Radio. Our discussion was dynamic as always and I shared with them my outlook for gold in the second half of the year, along with the opportunities I continue to see with royalty names.

discussing gold with lisa abramowicz and pimm fox at bloomberg radio

I still find it curious that many investors don’t realize what a significant role royalty and streaming companies play in the mining business.

Last year I wrote about some of my favorite royalty names, and how I came to know about this business model in the gold mining industry early in my career. If you haven’t read that blog post, I encourage you to go back and explore the groundbreaking work done by Seymour Schulich and Pierre Lassonde, the two founders of Franco-Nevada.

I think that now is a good time to take another look at royalty companies. Here are the top six things I believe investors should know about this specialized sector.

1. What Is a Royalty Company?

Royalty companies, sometimes called streaming companies, serve a special role in the mining industry. Developing a mine property to start producing gold or other precious metal is an expensive, often time-consuming process. Infrastructure needs to be built out, permits applied for, laborers hired and more.

A royalty company serves as a specialized financier that helps fund exploration and production projects for cash-strapped mining companies. In return, it receives royalties on whatever the project produces, or rights to a “stream,” an agreed-upon amount of gold, silver or other precious metal.

bhow does the royalty and streaming financial work
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2. Many Gold Royalty Companies Have Still Been Outperforming Gold

When looking over the last 12 months, many of the royalty companies have outperformed gold. While this is indeed remarkable, it is important to remember that royalty companies do have a robust business model. Their ability to generate revenue in times when the gold (or other precious metal) price is both rising and falling is what makes them attractive.

royalty companies outperformed gold
click to enlarge

3. Remember Real Interest Rates

There’s no question that the gold price is volatile, and in any given 12-month rolling period, historically it’s not unusual for the price of the yellow metal to fluctuate up or down by 20 percent. It’s important for investors to remember that gold historically shares a strong inverse relationship with real interest rates. You can see in the chart that as rates rise, the price of gold falls, and vice versa.

gold historically shares an inverse relationship with real rates
click to enlarge

This is another reason why I like the royalty model. Since royalty companies set fixed, lower-than-market prices for mining output, they can better manage the volatility that is inherent in the gold market. For example, Wheaton Precious Metals’ 19 agreements in 2016 entitled the company to buy silver at an average price of $4.42 an ounce and gold at $391 an ounce.

4. Speaking of Revenue

Last time I wrote about these companies, I shared with you that the three big royalty names boast impressive sales per employee. This is still true. Take a look at the 12-month revenue per employee of Franco-Nevada, Royal Gold and Wheaton Precious Metals. Wheaton has only around 30 employees, but has one of the highest rates in the world, generating $25.8 million per employee. By comparison, Newmont, which employs around 30,000 people, generated $310,000 per employee during the same period. Barrick also falls short by comparison.

royalty companies have greater revenue per employee model than procedures
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5. Friendly to Shareholders

Paying dividends is important to investors, as it reflects the health of a company in terms of its cash flow and profits. Even more favorable in the eyes of investors is a company that is growing its dividends. Between 2012 and 2017, royalty companies had a combined annual dividend growth rate of 17 percent. Compare that to 11 percent growth for the S&P 500 Index, and as low as negative 23 and negative 32 percent for global and North American precious metal miners.

royalty companies dividend rates have been growing
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In fact, 2017 marks Franco-Nevada’s 10th straight year of dividend increases since the company went public in 2007.

6. Less Reliance on Debt

Royalty companies are better allocators of capital than some of the biggest gold miners. Take a look at Newmont Mining, which has a 43 percent debt-to-equity ratio, and Barrick has a massive 91 percent. By comparison, many of the royalty companies have much lower debt, and Franco-Nevada has zero debt. This history of profitability and fiscal discipline is one of the main reasons I find royalty companies so attractive.

royalty companies have less debt
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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.

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 03/31/2017: Barrick Gold Corp, Franco-Nevada, Newmont Mining, Osisko Gold Royalties Ltd., Royal Gold, Inc., Sandstorm Gold Ltd., Wheaton Precious Metals Corp.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Philadelphia Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.  The S&P/TSX Global Gold Index is an international benchmark tracking the world's leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies.

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Small-Cap Mining Stocks, Big-Time Opportunity
June 19, 2017

wesdome eagle river complex

Last month I told you about the upcoming rebalance of the hugely popular VanEck Vectors Junior Gold Miners ETF (GDXJ), and how it would distress shares of junior, small-cap mining stocks. I said then that the rebalance could create some excellent opportunities for astute investors to accumulate high-quality, well-managed producers at discount prices.

That day has finally arrived, bringing with it a tsunami in the junior resource space, as I told Collin Kettell on Palisade Radio the week before. It’s a buyer’s market—if you know what you’re looking for. The last time the GDXJ underwent a rebalance of this magnitude was in December 2014, so I see this as a rare event savvy investors shouldn’t miss out on.

But first a reminder of what’s been happening with the GDXJ. Basically, it had become too massive for its underlying index—composed mostly of Canadian junior gold producers—with assets rising close to $5.5 billion earlier this year, up from $1 billion only last year.

Mo Money Mo Problems

Normally this wouldn’t be such a concern. But the GDXJ was getting precariously close to owning a 20 percent share of several names in its index, which would have triggered all sorts of regulatory and tax conundrums in Canada and the U.S.

So the fund made several adjustments to its methodology, including raising the market cap threshold of allowable companies to $2.9 billion, up sharply from $1.6 billion. This means it can now hold large producers that don’t appear in its index, the MVIS Global Junior Gold Miners Index. It also means that a number of smaller constituents were down-weighted or divested altogether, giving investors less exposure to junior miners than what the fund’s name implies.

Before any of this took effect, though, many investors, hedge funds and other market participants acted on the rebalance news by indiscriminately selling down their junior mining assets. This introduced fresh volatility to underlying stocks and depreciated prices.

The selloff, I might add, was done mostly without regard for the phenomenal fundamentals and growth profiles some of these companies reported.

These Miners Get High Grades

Take one of our favorite names, Wesdome Gold Mines. The Toronto-based producer has been operating in Canada for 30 straight years as of 2017 and currently carries no debt. Two of its mines, Eagle River and Mishi, are among Canada’s highest-grade gold mines. Last summer, the company made headlines when it discovered gold at its Kiena property in Quebec, sending its stock up an amazing 49 percent to $2.24 on August 25.

wesdome eagle river complex

When Wesdome was added to the GDXJ in March, it cast newfound attention on the $417 million company. Only a month later, the rebalance was announced, and since then, its stock has eased about 19 percent.

GDXJ rebalance has created a buying opportunity for distressed smallcap mining stocks
click to enlarge

I see this as a can’t-miss opportunity for retail and institutional investors to start nibbling on Wesdome and other junior miners that have been similarly knocked down only because of fund flows.

That includes Gran Colombia Gold, the largest gold and silver producer in Colombia, and Klondex Mines, whose Fire Creek Mine in Nevada was estimated to be the highest-grade underground gold mine in the world. (According to IntelligenceMine, Fire Creek averaged 44.1 grams per metric ton (g/t) in 2015, double the ore grade of the world’s number two project, Kirkland Lake Gold’s Macassa Mine, at 22.2 g/t.)

Gran Colombia announced last week that it produced 15,444 ounces of gold in May, representing a new monthly record for the company. This brings the total amount for the first five months of the year to 68,783 ounces, an impressive 21 percent increase over the same period last year. The Canadian-based producer has a very attractive convertible bond that pays monthly.

I’ve frequently praised Klondex for its frugality, strong revenue growth and exceptional management team. The last time I visited Vancouver, I had the opportunity to chat one-on-one with its president and CEO, Paul Andre Hurt, who has 30 years of experience in high-grade mining. Not only is Paul a highly-respected chief executive in the mining space, he’s also a devoted father of five.

A Golden Opportunity

The GDXJ rebalance represents a rare opportunity to accumulate high-quality junior producers at discount prices. I always recommend a 10 percent weighting in gold—5 percent in gold stocks or mutual funds, 5 percent in bars, coins and jewelry.

Commodity prices have lately underperformed equities mostly on subdued oil demand growth, with the S&P GSCI commodity index falling about 4 percent over the last month. If we separate the index components, however, we see that precious metals have posted positive gains year-to-date along with industrial metals.  

Precious metals have outperformed so far this year
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As I mentioned recently, gold imports in China and India, the world’s top two consumers of the yellow metal, have advanced strongly this year on safe haven demand. China boosted its gold purchases from Hong Kong as much as 50 percent this year to 1,000 metric tons, the most since 2013. India’s imports rose fourfold in May compared to the same month last year as traders fear a higher tax rate on jewelry.

With the GDXJ down-weighting junior producers, investors might wonder how they can get broad exposure to small-cap mining stocks.

 

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 S&P GSCI serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange.

The MVIS Global Junior Gold Miners Index tracks the performance of the most liquid junior companies in the global gold and silver mining industry.

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 3/31/2017: VanEck Vectors Junior Gold Miners ETF, Wesdome Gold Mines Ltd., Gran Colombia Gold Corp., Kirkland Lake Gold Ltd., Klondex Mines Ltd.

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Hope for the Best but Prepare for the Worst (with Gold and Munis)
June 12, 2017

Hope for the best expect the worst

Last week investors shrugged off even more drama coming out of Washington. Stocks continued to rally and hit record highs, even as former FBI director James Comey testified that, in his opinion, President Donald Trump fired him in an attempt to lift the “cloud” of the Russia investigation.

If true, this suggests obstruction of justice, an impeachable offense. And if impeached, or in the event of a resignation, Trump’s political agenda would likely be derailed. The last (and only) time a U.S. president resigned, the Dow Jones Industrial Average lost up to 40 percent, as a recent article in TheStreet reminds us.

But markets paid no mind to Comey’s insinuations, underscoring investors’ confidence that tax reform and deregulation will proceed as planned. And sure enough, just hours after Comey testified, the House of Representatives voted to repeal key parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which has contributed to an alarming number of small bank closures since its passage in 2010.

So once again, the wisdom of crowds prevails. If you remember, markets were forecasting as far back ago as last summer that Trump would win the November election.

This doesn’t mean, however, that Trump’s problems are behind him.

Last week I was speaking with Mike Ward, a top publisher with Agora Financial, who compared Presidents Trump and Ronald Reagan. It was suggested that, despite Trump’s apparent affection for the 40th president, he has so far failed to live up to the Great Communicator’s memory of optimism and deep respect for the office.

Whereas Reagan wanted to “tear down this wall,” Trump wants to “put up that wall.” Whereas Reagan insisted it was “morning in America,” Trump insists it’s “American carnage.” Reagan succeeded in building coalitions and unifying our allies against the Soviet Union. Trump has already managed to destabilize many of those alliances.

During the 1988 vice-presidential debate, Texas Senator Lloyd Bentsen famously ribbed then-Senator of Indiana Dan Quale for comparing himself favorably to John F. Kennedy. “I served with Jack Kennedy. I knew Jack Kennedy,” Bentsen said. “Senator, you’re no Jack Kennedy.”

Similarly, many observers are of the opinion that Trump is no Reagan.

Don’t get me wrong. I remain hopeful. President Trump wants to make America great again, and it’s still well within his power to do so—if he can practice some self-restraint and not get caught up in petty feuds. Voters support his vision. They gave him not only the Executive Branch but also Congress and most states’ governorships and legislatures.

You could say I’m hoping for the best but preparing for the worst. I advise investors to do the same. No one can say what the future holds, and it’s prudent to have a portion of your portfolio in gold, gold stocks and short-term, tax-free municipal bonds, all of which have a history of performing well in volatile times.

Gold Poised for a Breakout

Following bitcoin’s breathtaking ascent to fresh highs, gold rose to a seven-month high last week on safe-haven demand, stopping just short of the psychologically important $1,300 level. Supported by Fear Trade factors such as geopolitical turmoil—both in the U.S. and abroad—and low to negative government bond yields, gold’s move here can be seen as a bullish sign.

As others have pointed out, the yellow metal breached the downward trend of the past six years, possibly pointing to further gains.

gold just breached key resistence
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Under pressure from a beleaguered White House and stalled policy reform, the U.S. dollar continued to sink last week, with gold outperforming the greenback for the first time since the November election. Because gold is priced in dollars, its value increases when the dollar contracts.

Gold outperforms the US dollar for the first time since election
click to enlarge

It’s also important for investors to remember that gold has often rallied when Treasuries yielded little or nothing. Why would investors knowingly lock in guaranteed losses for the next two or five years, or near-zero returns for the next 10 years? That’s precisely what Treasuries are offering, as you can see below:

Low to negative real treasury yeilds support gold
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Minus inflation, the two-year Treasury yielded negative 0.96 percent in April; the five-year, negative 0.38 percent; and the 10-year, a paltry 0.10 percent. (I’m using April data since May inflation data won’t be available until this Wednesday, but I expect results to look the same.)  

When this happens, investors tend to shift into other safe-haven assets, including municipal bonds and gold.

Year-to-date, the yellow metal is up more than 9.7 percent, even as the stock market extends its rally. This runs counter to what we’ve seen in the past. As I’ve explained before, gold usually has a low correlation to other assets, including stocks and bonds, which is why investors all around the globe favor it as a diversifier.

So what gives?

Top Money Managers Sound the Warning Bell

One of the most compelling answers to this question, I believe, is that stocks appear to be overvalued right now, in turn boosting gold’s safe-haven investment case. This is the assessment of Bill Gross, the legendary bond guru who currently manages $2 billion with Janus Henderson.

Speaking at the Bloomberg Invest New York summit last week, the 73-year-old Gross said markets are now at their highest risk levels since before the 2008 financial crisis. Loose monetary policy has artificially inflated stock prices despite weak economic growth, he said, adding: “Instead of buying low and selling high, you’re buying high and crossing your fingers.”

Doomsdayers bill gross paul singer marc faber trouble brewing capital markets

Marc Faber, the Swiss investor often referred to as Dr. Doom, echoed Gross’ thoughts, telling CNBC last week that “everything” is in a bubble right now, similar to the days of the dotcom bust of the late 1990s. And when this bubble bursts, Marc said, investors could lose as much as half of their assets.

That stocks appear overvalued could be a driver of gold’s performance right now, with savvy investors, anticipating a possible market correction, loading up on assets that have historically held their value in times of economic crisis.

A cadre of other top money managers and analysts share Bill Gross and Marc’s less-than-rosy market view.

At the same Bloomberg event, billionaire hedge fund manager Paul Singer—whose firm, Elliott Management, recently raised $5 billion in as little as 24 hours—warned attendees that the U.S. was at risk of another debt shock.

“What we have today is a global financial system that’s just about as leveraged—and in many cases more leveraged—than before 2008, and I don’t think the financial system is more sound,” Singer said.

Indeed, U.S. debt levels are higher now than they’ve ever been, according to the Federal Reserve Bank of New York. In the first quarter of 2017, total U.S. household indebtedness reached a mind-boggling $12.73 trillion. That’s $150 billion more than the end of 2016 and $50 billion above the previous peak set in 2008.

Low to negative real treasury yeilds support gold
click to enlarge

Even more concerning is the fact that the number of delinquencies grew for the second straight quarter as more income-strapped Americans binged on credit. We could be headed for a massive hangover.

Cumulatively, these warnings stress the importance of hoping for the best while planning for the worst. In the past, there have been few ways as effective at preserving wealth as gold, gold stocks and tax-free, short-term munis.  

Gold Vaults a Sign of Increased Demand

Demand for safety deposit boxes is surging as more savers and investors convert cash into gold

The world’s two largest consumers of gold by far, China and India, are currently importing enormous amounts of the yellow metal on safe-haven demand. Bloomberg reports that China could boost its gold purchases from Hong Kong as much as 50 percent this year over concerns of currency devaluation, a slowing real estate market and shaky stocks. Imports could advance to 1,000 metric tons, which would be the most since 2013.

Meanwhile, India—whose affection for gold goes back millennia—saw its imports of the yellow metal rise fourfold in May compared to the same month last year as traders fear a higher tax rate on jewelry. Imports climbed to 126 tons, versus 31.5 tons last May.

As impressive as this news is, there’s no sign more compelling that investors have an insatiable appetite for gold right now than the growing demand for safety-deposit boxes. According to Bloomberg, companies in Europe are scrambling to meet customers’ needs for a safe, inexpensive place to store their bullion in the face of negative interest rates and rising inflation. Two firms in particular have plans to build additional facilities capable of holding 100 million euros ($112 million) each in bars and coins.

Daniel Marburger, CEO of European coin dealer CoinInvest, told Bloomberg that he had just finished working with a German customer whose bank account was charged negative interest rates. To prevent this from happening again, the customer converted his cash into gold and silver, which he sees as a more reliable store of value.

Negative rates are “definitely a driving factor and will lead to more sales and also more storage clients,” Marburger said.

 

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 Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

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In Gold We Trust
June 6, 2017

With the U.S. dollar taking another hit last Friday on a weaker-than-expected jobs report, gold closed up 1.12 percent for the day. A Bloomberg gauge of 72 junior miners, however, has lost 15 percent since the end of January, and the rebalance of the VanEck Vectors Junior Gold Miner ETF (GDXJ), which I previously wrote about, is also having a depressing effect on many gold names.

This was a major concern among investors at the International Metal Writers Conference in Vancouver, which I presented at last week. Despite gold gaining 9 percent so far this year, junior gold miners have not followed through with those gains as the GDXJ is set to cut in half its exposure to the junior mining space on June 16.

We’ve Only Just Begun

Other investors aren’t so pessimistic. Every year for the past 11 years, Liechtenstein-based investment firm Incrementum has issued its closely-read “In Gold We Trust” report. The 2017 edition, released last Thursday, raises a number of interesting observations that add some shine to gold’s investment case.

 

For one, its analysts firmly believe that gold’s price turnaround last year “marked the end of the cyclical bear market,” adding that “the rally in the precious metals sector has probably only just begun.” To illustrate this, the group tracked the performance of every gold stock bull market going back to 1942, using the Barrons Gold Mining Index. The bull market that began last year, highlighted in red below, does indeed look as if it has much more room to run.

Will Todays Gold Stocks Track Previous Markets
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Among the reasons why “prudent investors” should consider accumulating gold and gold stocks now, according to Incrementum, are excessive global debt, the “gradual reduction of the U.S. dollar’s importance as a global reserve currency” and what the group sees as a high probability that the U.S. is close to entering a recession.
Interestingly, the investment firm shows that nearly every U.S. recession, going back 100 years, was preceded by an increase in interest rates.

“The historical evidence is overwhelming,” Incrementum writes. “In the past 100 years, 16 out of 19 rate hike cycles were followed by recessions. Only three cases turned out to be exceptions to the rule”—one in the 1960s, one in the early 80s, the last in the mid-90s.

The U.S., of course, is currently at the start of a new cycle, though the ho-hum jobs report for May—138,000 jobs added, versus expectations for 185,000—casts doubt on a rate hike this month. Nevertheless, Incrementum’s research makes a compelling case that a recession could be imminent, making gold even more attractive as a store of value.

As for gold stocks, Incrementum favors “conservatively managed companies which are not merely pursuing an agenda of growth at any price, but are instead prioritizing shareholder interest.”

This is an apt description of the kinds of gold companies we prefer—frugal, small- to mid-cap names such as Klondex, Wesdome Gold Mines, Kirkland Lake and many others.

 

Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every invest.

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 03/31/2017: Klondex Mines Ltd., Kirkland Lake Gold Ltd., Wesdome Gold Mines Ltd., VanEck Vectors Junior Gold Miners ETF (GDXJ).

The Barrons Gold Mining Index is the longest-running gold index, going back seven decades.

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5 Things You Need to Know from Last Week (Look What Gold Just Did!)
May 30, 2017

Hedge Fund Managers Pour SALT on U.S. Stocks, Look to Europe

It was a whirlwind week. After attending two big conferences, I landed in Vancouver Friday where I presented at the International Metal Writers Conference. Markets continued to close at record highs, even as political uncertainty remained and the threat of terrorism loomed large over Western nations. Last Monday, gold flashed a bullish signal we haven’t seen in over a year.

There’s much to talk about! Below are five things you need to know from the week now behind us.

1. Quants Now Control Wall Street

A special report by the Wall Street Journal last week confirmed what I’ve been saying for a while: Wall Street is now run by the quantitative analysts, or quants. Numbered are the days when traders and fund managers picked stocks on gut instinct. Today, a decision is made only after whole oceans of data have been processed using sophisticated algorithms.

And yet quants’ role has even further room to expand. As the WSJ reports, quant hedge funds now represent 27 percent of all U.S. stock trades by investors, up from 14 percent in 2013.

To get some idea of the type of analysis quants conduct, take a look at the matrix below. Of course, their methods are far more sophisticated, their data crunched in a matter of nanoseconds, but it’s helpful to see how they might codify many points of data.

Investment analysis decision matrix

We aspire to conduct the same sort of analysis, from technical to tactical, to make better, more strategic investment decisions.

2. Paul Singer Says It’s Time to Build Up Some Dry Powder

Paul Singer

Last week at a Chief Executives Organization (CEO) event, I had the privilege of hearing billionaire hedge fund manager Paul Singer speak. His firm, Elliott Management, has one of the most impressive long-term track records, generating a compound annual growth rate (CAGR) of 13.5 percent since its inception in 1977, with only two down years.

Elliott Management currently manages close to $33 billion—not including the $5 billion it raised this month in as little as 24 hours. Yes, billion with a b. Singer, suggesting a potential investment opportunity in distressed stocks could soon open up, recently called on investors to commit a fresh infusion of cash. The resultant $5 billion in dry powder, the most ever raised in the firm’s history, is expected to be deployed at some later date.

Singer continues to be a huge advocate for gold. At the event, he mentioned that he still holds the yellow metal, noting its attractive diversification benefits. This is in line with what I frequently say: You’re unlikely to get rich investing in gold, but as a diversifier it helps to reduce some of the volatility in your portfolio. I like to recommend a 10 percent weighting in gold—5 percent in bars and coins, the other 5 percent in gold stocks—with annual rebalances.

Gold posted a “golden cross” last week, which is what happens when the 50-day moving average climbs above the 200-day moving average, often seen as a bullish move.

gold posts a golden cross
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The metal is up about 10 percent year-to-date on a weaker U.S. dollar, which has declined more than 5.5 percent over the same period.

 

3. BBH: Just Say No to Overdiversification

Diversification can sometimes help minimize volatility, but too much of it can lead to mediocre returns. That was the main theme of another speaker at the CEO event, this one from Brown Brothers Harriman (BBH), one of the largest private banks in the U.S. BBH research shows that, if your investment goal is to get rich, a highly-concentrated portfolio is the surest way to achieve it. An S&P 500 Index fund, while possibly delivering positive returns, is unlikely to make anyone a millionaire.

This is good to know, but the problem is that most investors can’t stomach the volatility inherent in a portfolio that holds only a few assets. With minimal diversification, daily swings can be dizzying. Professional money managers and investment banks such as BBH know how to use this volatility to their advantage, but for everyone else, it’s prudent to be diversified in gold, municipal bonds and other assets often seen as havens.

For more on how to deal with market volatility, download my whitepaper, “Managing Expectations.”

4. Want Volatility? Look No Further Than Bitcoin

Markets watched in amazement last week as bitcoin, the online-only currency, soared to a fresh high of $2,740, more than twice the value of an ounce of gold. On Thursday alone, it traded within a $510 range, underscoring the nearly 10-year-old cryptocurrency’s high levels of volatility and speculation.

Bitcoin's meteoric rise
click to enlarge

Some bitcoin analysts forecast even higher gains, while others see the formation of a bubble they liken to the dotcom crash of the late 1990s and early 2000s. Since only March, when it surpassed gold, the digital currency has doubled in value.

These were among some of the discussions at Consensus, a bitcoin technology conference, which I also attended last week in New York. One of the highlights of the conference was hearing from Fidelity CEO Abigail Johnson, who surprised many attendees by embracing the digital currency and supporting its growth. I admire Johnson, head of a traditional financial firm, for recognizing the fact that bitcoin is already disrupting our industry and will likely continue to do so for some time. Not only does Fidelity now allow its workers to buy their lunches using bitcoin, but there are also plans to make it possible for clients to see and manage their bitcoin assets.

Paul Singer

Fidelity isn’t the only firm trying to position itself as a bitcoin pioneer. Both Nasdaq and the Chicago Mercantile Exchange (CME) were sponsors of the conference, indicating cryptocurrencies’ gradual shift from fringe curiosity to legitimate speculative asset.

I was shocked to learn that there are now somewhere in the neighborhood of 700 cryptocurrencies, all of them locked in a race to see which ones will come out on top. They’re collectively up more than 400 percent so far this year, the market having risen from $17.6 million in January to $88 million today, according to cryptocurrency and blockchain technology news site CoinDesk.

To “mint” a new cryptocurrency, I learned, speculators raise capital not through conventional means but through crowdfunding, like a 21st century Gold Rush. All regulatory oversight and governance is therefore bypassed. The currency is then issued in an initial coin offering (ICO), after which it can be “mined” using powerful, energy-hogging computers. Naturally, the cheaper the electricity, the better. The hunt for the world’s cheapest kilowatt hour has taken “miners” all over the globe, from parts of Russia to Iceland to Finland to rural China.

5. Make American Wheat Great Again

America wheat on top

It looks as if wheat exporters are great again. After being displaced by Russia in August 2016, the U.S. has regained its title as the world’s top exporter of the grain—for now. Interestingly enough, the investigation into possible collusion between Donald Trump’s campaign and Russia has driven the U.S. dollar’s devaluation since the start of the year, which in turn has made U.S. exports cheaper for overseas buyers. Egypt, Algeria, Mexico and Japan all reportedly increased their purchase amounts of American wheat.

U.S. once agin the world's top wheat exporter. But for how long?
click to enlarge

Two years ago, it was the Russian ruble’s weakness—prompted by the dramatic decline in oil prices and international sanctions following Russia’s occupation of Ukraine—that gave Russian exporters an edge. Coupled with a bumper crop, the country outpaced both the U.S. and European Union, then the leader.

As I said earlier, the dollar has declined 5.5 percent year-to-date, helping to give American exporters an edge. According to Bloomberg, the U.S. is expected to ship more than 28 million metric tons of wheat this season, an increase of 34 percent compared to the same time last year.

 

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Net Asset Value
as of 06/15/2018

Global Resources Fund PSPFX $5.83 -0.08 Gold and Precious Metals Fund USERX $7.61 -0.07 World Precious Minerals Fund UNWPX $3.89 -0.06 China Region Fund USCOX $11.80 -0.04 Emerging Europe Fund EUROX $6.72 -0.10 All American Equity Fund GBTFX $25.97 0.05 Holmes Macro Trends Fund MEGAX $20.22 No Change Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change