Bitcoin or gold?

The price of gold is finally moving higher. And if you’re like most investors, you’re wondering whether gold or Bitcoin is a better investment today…

Frank Holmes, CEO and chief investment officer of U.S. Global Investors, shares his thoughts on Bitcoin… and explains the tailwinds that will push gold to new highs. Plus, he gives us his favorite gold sector to invest in now [4:21].

There are two other major factors affecting gold right now. In my educational segment, I break down why you need to pay attention to them—and give you lots of data to back it all up [44:55].

This isn’t something you’ll hear in the mainstream media…

Transcript

Wall Street Unplugged | 683

Bitcoin or gold?

Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street, right to you on Main Street.

Frank Curzio: How’s it going out there? It’s August 21st and I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets. I have a great show for you today and the theme is one that so many of you are emailing me about, and that’s gold. Now fair warning, this podcast is not going to be about the end of the world, which is a big reason why so many diehards tell you, “You must be invested in gold. Invest all your money in gold.” So I’m not going to tell you that ATMs are going to stop working, that our banks are going to go bankrupt, which they’re not. Our financial system’s on the verge of collapse again. I mean these are some of the arguments you’ll be hearing out there.

There’s going to be riots in the streets. You should go buy a cave that has a nice space inside where you could store gold or buy a huge shovel where you could bury all the gold you buy. Whatever. Whatever it is. Whatever I hear. Whatever I read out there. I love it. Entertaining and people love that. But no. This isn’t going to be about that. This is not the gold segment that you’re used to hearing. This is about looking at the data. Analyzing the factors that really drive gold and gold prices. Determining what segments within the industry you should be investing or not investing in. Like the majors, mid-tier producers. Royalty streaming companies. Junior minors. Because we’ve seen a massive move up to 1500 just this year, from 1200 to 1500, announcing gold prices. Not all the … If you look at the segments that I just mentioned, not all of them have the same percentage moves higher.

For example, royalty companies are on fire. Have outperformed all those segments and most junior minors have yet to have major moves which is different from past cycles. Or bullish cycles that we’ve seen in gold. Where the junior minors usually move a lot higher than royalty companies and majors. Not happening this time, which is interesting. We’ve seen a move in gold prices. We’re going to cover those reasons. Go over why that’s happening and which sectors you should be invested in. Or segments within gold. This is going to be an awesome podcast. Starting with an awesome guest. And that’s Frank Holmes. Frank’s a CO, Chief Investment Officer of US Global, been on this podcast a lot. But if you don’t know Frank, he’s a brilliant analyst. Also really great guy. Surrounds himself with young analysts who are quants. He’s a boots on the ground guy, even though he’s been managing money for over three decades. A lot of those guys tend to stay in their offices and let other people do the work.

But I know he’s a boots on the ground guy because when I’m in the field, Frank is on the same trips as me. You know what? I love that. Shows passion. Shows that he still loves his job. And today, he’s going to talk about a lot of topics I mentioned above when it comes to gold. Along with his prediction on where gold prices are going to head over the next six to 12 months.

Important, which I know you guys love, he’s going to tell you which stocks would benefit the most … And believe it or not, you’re going to be surprised by his answer to that question. So really great interview coming up. Then after my interview, I’m going to give you my take on gold. Not just where prices are heading, where I think many gold stocks are heading. Now quick warning. This educational segment. My opinion on this is not shared by many of analysts covering this space. As you know, I don’t have an agenda. I’m not a perma anything. I’m a data driven analyst. I let the numbers do the talking. And when they do, you’re going to be surprised to hear the real factors that would drive gold prices over the next few years. Factors most people never mention when they recommend that you have to buy gold and hold it forever.

And this is a cyclical industry. Not a secular grow where you buy and hold forever. It’s cyclical. That’s commodities. It’s going to be a great educational segment coming up. Again, different from mainstream, from what you’re hearing, definitely give a listen. But first, let’s bring in Frank Holmes, someone I’m a big fan of, not just as a person, but he is one hell of an analyst. And let’s get to that interview right now. Frank Holmes, thank so much for coming back on the podcast.

Frank Holmes: Great to be with you.

Frank Curzio: Well, I think the last time I had you on was a few months ago and what a difference, right? A few months make from probably like four, five months. But you’re looking at gold surge higher. We’re looking at … I’ll guess we’ll start there, right? From a macro perspective, what’s your take on what’s going on with the markets, both US, global, as nearly every central bank is in full cut mode and that’s not going to change any time soon. We have 16 trillion negative yielding bonds. Can this be sustainable? What’s your thoughts? And I know that you’re a big player in gold. Is gold the play here and will it continue to go higher?

Frank Holmes: Go gold. That’s the theme. And there’s no doubt about the 10% golden rule. That 10% of your portfolio has got to have some of that gold exposure. You’re just showing that you’re prudent. Like Ray Dalio, which is the biggest hedge fund in the world, is always advocates a six to 10 percent exposure to gold and gold stocks. So I think it’s prudent and wise. And I think more investments are waking up to that importance. Having that. And I think the other part is over the past 20 years, Morgan Stanley came out recently with a piece on gold, but the other factor is that over the past 20 years, the best performing asset class have been reits. And number two has been gold. So, it is always such a negative connotation when I got to New York City and from your old hood, anti-gold, outside of the Jimmy Cramers of the world. But the basic thesis is gold is an antique relic or something, but I think has proven itself. It’s a great investment.

And these gold stocks are … Smart Beta ETF has just been on a tear since we launched it two years ago. It’s done exact what the model said it would do and it’s outperformed the GDXJ by 16% and year to date, it’s beating it by 10%. And so no past performance still a guarantee of future results, but I think that it’s just dangerous to go buy a big ETF, S & P 500, or you go buy the GDXJ because good money buys both good stocks and bad stocks in those. There’s no sifting and sorting and cleaning. But let’s talk back. Let’s go back Frank and talk about flying at 50,000 feet and watching the world turn. And we like to write about these macro factors.

And what drives gold and there’s some other factors I think is important to be aware of. 40% of the world’s population is in China and India. Affectionately known as Chindia. And Chindia, when you’re looking at the consumption of rice or food or products, etc. It’s very significant when you have these two countries just eating every day. And having babies every day. And their GDP per capita continues to rise, so they’ve become a real significant economic force when looking at consumption patterns globally.

Two, on the macro forces, is trading. Global trade. So when you look at that, you’ve got to look at China and America. So China and America combined are 40% of all global trade. So now what happens when 40% gets into punch out contest and it has a big impact and we started seeing this originally coming out of Europe last year when the PMI, the Purchasing Manufacturers’ Index which, as you know, I write about every month. I think it’s one of the best forward looking indicators for commodities. And we’ve done document and written it, when the one month is about three months, commodities start to rise. When it’s below, commodities start to fall. And the global PMI went below 50. And a lot of that’s coming out of Europe and being accelerated now with China.

So you’ve seen the commodities being sold off and rates from the US remaining high. And then all of a sudden European rates start falling. And they’re going negative. And you add up the EU block as a GDP, it’s quite big as a block. But I think that what’s interesting for me is that they refuse to streamline their regulations and what they’re addicted to is cheap money. So they go and try to induce you to buy their 10 year government bond with minus 50 bases points yield. And you’re not going to buy it. So the government just buys it and they create two billion dollars overnight out of funny money. And you’re seeing this in Japan. You’re also seeing that the stock market in Switzerland, I think is, owns 15% of the stock market. Same thing with Japan. That they print this funny money. And not only do they go out and buy gold, they’re buying the stocks too.

And you’re seeing … Another important factor is in Eastern Europe countries in particular, they’ve been much bigger net buyers of bullion through central banks. So I think from that idea and that concept of that it’s a flawed thinking by the EU that they can just print money to try and go zero interest rates to get sort … Get the economy turned around.

And now we have America. The big GDP of the world. The thought leaders of the world. The innovators of the world. The most powerful military had positive real interest rates. And now they’ve gone negative. And any time that happens, gold starts to move up in US dollars. So for your listeners, what is a negative real interest rate? Well, let’s talk about that. Right now, the US government is trying to seduce you or induce you to buy their two year government bond which is paying you 150 base points yield.

But the CPI number just came out at 1.8. So that means you’re going to lose 30 bases points on your money over the next two years. And if you go to 10 years, the yield is only 155. 155. And the CPI is 1.8. That means you’re losing money for 10 years in a row. So that’s a negative real rate of return. And that’s the real significance of why all of a sudden gold is, in dollar terms, is on a tear. As is been going with all these other countries’ currencies. And we have President Trump today come out and say rates should fall 100 bases points. What would that do? Well, the last time gold hit 1900, the 10 year government bond real interest rate was minus three percent. That’s 300 bases points. So it looks like we’re in that trend to go there. And that looks like if we had inflation run back up to 2.5%, and you saw interest rates fall 100 bases points, then all of a sudden, gold’s going to be 2000.

And I think that that’s the real … Not the head wind, but the back of the tail wind that’s hitting the sails and making gold that sweet asset to protect yourself from all this money printing. So I remain that positive [inaudible 00:11:38] with gold, the supply of gold is basically peaking. You have to have recycling of gold to really add to the supply. It’s very difficult to have new discoveries. You do not have the factors here. That technological and break through innovation which has put a cap on oil prices has not taken [inaudible 00:11:58] yet with gold or the other metals. And I think that any type of resolution with China and America that the commodity that’s going to have the biggest pop is going to be copper. Because copper is very much sensitive to settlement and a PMI turning. And copper has been in deficit for two years. It’s now going for its third year and that means any global economic activity, it jumps 50 percent over night. That’s what it can do in the blink of an eye. So I think that that’s one of those pent up commodities that you buy.

And if you believe in electrification of the world. And electric cars, etc. You have to re-wire everything with copper so that’s another big pent up demand that’s coming out. And there’s a deficit supply.

Frank Curzio: Yeah, now that’s great. Copper. Because you don’t really hear copper. Everyone’s like on the gold bandwagon now. But I want to get to more depth in gold. Because you created something called, it’s an ETF of Go Gold. A lot of people are familiar with, when it comes ETF, GDX, yet you found a way to provide better returns, both in bear and bull market when you back tested this and you’re seeing it right now. You launched this thing. You invited me to New York Stock Exchange to see you ring the bell. What? I think it was a closing bell. Or opening bell, I forgot. I think it was a closing bell. It was fantastic.

Frank Holmes: It was.

Frank Curzio: Talk about your methodology behind this. Because when people see a Gold ETF, they just kind of “Well, it’s maybe a couple of producers. And maybe a couple of juniors. Is it market cap weighted?” But you’ve come out … I mean there’s a lot of work that you’ve done on this. You can even talk an out the quant thing about Go Gold. Why is that better than GDX? What’s different from that than GDX, which has over 10 billion assets. And I know you have probably maybe up to 100 million and maybe a little bit more than that now in assets. But why is yours so much better? Why is it outperforming?

Frank Holmes: Well, there the whole part is when you buy an S & P index, money goes into both good and back stocks. And we all know that the factors are who are the most profitable companies over any three year cycle of revenue per share growth, those stocks outperform. The whole fang stock movement … A lot of that had to do with massive revenue per share growth. And EBITDA growing with it. Now when you buy those basket of gold stocks, then you just buy shitty stocks along with good stocks. And so you end up getting bad stocks and they drag your performance down. So what we found is that there’s way to sift the stocks. [inaudible 00:14:34] screen them. And then there’s stock picking factors. So good stocks screen would be I only want to buy, there’s 88 global gold producers. I only want to focus on the 44 gold stocks which have the lowest debt to equity ratio.

Now I’m going to take those 44 and I’m going to buy those that have revenue the last quarter is above the past four quarters. And their cash flow for the last quarter is above four quarters’ average. That’s momentum in top line and bottom line. And they have little debt to equity ratios. Those stocks outperform. So you’re basically if you looked at Amazon’s great growth, in the past 10 years, look at Apple. You look at Netflix. Massive growth in revenue per share.

And also book value which is showing up, profits and cash flows come back at the retained earnings. And what does that mean? It means that the quant guys are the ones buying these stocks. And they shift and sort much faster than the old school. When I go around and see these gold analysts and they talk about “Well, this company has an NAV of only this relative to that other stock.” And so when you say NAV, net asset value, well one of the key things with NAVs is your discount rate. So you find out that Bank of Montreal has a zero discount rate or is now eight percent and someone else is zero and then someone else is 12. And someone else is six. There’s no … The consistency in the discount rate when you’re doing an NAV and that’s the most important statistic. So it doesn’t work. The quant firms won’t buy NAV stories.

The other one was production. Production growth. It’s so difficult to say “Well we’re going to grow our production by 22%. Why is that? Because you can have government change the policies, tax policies. You can have in Latin America and Africa, a social area issue, strikes etc. We’ve had lots of disasters take place there. We’ve had the goal post move for taxation. And so, it’s very hard to predict. Or you’ve had Mother Nature come along and it can screw things up for you. An earthquake. So the ability to predict that production growth is going to now grow the revenue per share. It’s not been very successful. It’s actually quite deplorable. If the average company says they’re going to grow at eight percent, it’s like minus four. So don’t use that as a factor and the quants don’t. And most of the buyers today are generalists or quants. So what do they look for?

That what magic of Go AU is trying to find out what were the factors and we discovered that they look at income statements. Totally different than a gold analyst. And one of those other ones is why they love the royalty companies, which Go AU is 30% royalty companies. They love them because they have rising price to book value. Their book value is rising. And their revenue per share is rising. And their cash flow is rising. So they look like a financial company and they have revenue like Franco Nevada, 21 million dollars of revenue per employee and it has a royalty on Nevada. So it has a royalty on Nuan and Barack’s assets. And Nuan and Barack traded at let’s $600,000 of revenue per employee. And Franco Nevada’s at 21 million.

I mean, it’s breath taking numbers. It’s 20 times Goldman Sachs. So of revenue, that’s called the efficiency ratio. So we focused on those type of companies and we focused on those companies. So we high grate every portfolio. Every quarter, we want to know, outside the royalty companies, what are the 25 stocks from biggest market capped down at 200 million. And as we go to smaller market cap, we have a less dollar exposure. When we [inaudible 00:18:36] 8000 hours and we found five factors.

And these five factors are like the your mother’s best pasta, Frank. The best. That’s a magic recipe. And so, we’ve tested in up cycles, down cycles, mergers and acquisitions, etc. And so any time management does a dumb acquisition or raises money that’s [inaudible 00:18:59] and doesn’t immediately show reserves for share growth or production for share growth or revenue for share growth we like to say, then it’s gone. It’s history. And in the couple years that we launched it, it’s interesting that our biggest turnover happened to be last year this time when Vanguard stayed at the very bottom. They were going to get out of the gold fund business.

And so we immediately compared it to our mutual funds, which have been around the same time as Vanguard’s gold fund. And we outperformed it, Frank, for one, three, five, and 10 years. But it didn’t matter. That their fund was just substantially bigger. Because everyone thought cheaper was better. But really, this is a big mistake that investors right now are running around and it’s a theory and they’re being told that to get the cheapest is the best way. It’s just not true. And we demonstrated that. But what we did see is that the new portfolio, the strategy, blew out most of the gold stocks. And there became some fantastic values. And that was our biggest turnover since we launched Go AU. And that allowed us to get position in some just phenomenal stocks trading at very low cash flow to enterprise values.

Strong revenue per share growth. Strong cash flow per share growth. And they’ve done what they said they were going to do. They outperformed, I think at one point, when I looked at a couple of weeks ago, it outperformed every gold fund manager, active and ETF, year to date.

Frank Curzio: That’s incredible. Let me ask you this though, because the way your methodology is and you’re talking about every corner of your screen where you’re seeing what companies with cash flows rising, revenues are rising, earnings are rising, but that doesn’t lead to your portfolio going to junior minors. And we talked about this before we started the interview where we’re seeing a market where companies, royalties, streamers go, royalties companies, even the majors are doing well, as we’re seeing gold prices pass through 1500 announced. But you’re not really seeing the level of interest in juniors. And even your methodology doesn’t really lead to a lot … I would say not a lot of juniors make it into that portfolio, into that fund. And that same case for other funds, you talk about regulation.

But when are we going to see the juniors move? Because this is a question I get from a lot of people. A lot of them are invested in really good quality juniors, but we’re not seeing that move that’s expected when you see gold prices rise as much.

Frank Holmes: Well I think you need discoveries. Any time you’ve had a discovery like back when I first got in the business of Hemlow. It triggers all this sudden excitement and fun flows going into success. Success attracts success. And the data shows there’s been very few three million ounce discoveries. And that’s the reason why I put money into another junior spec for myself and went on the board as the Chairman called Gold Spot. And they have 9 PhDs in Montreal that are all geo scientists. And another, I think the total number is another 18 scientists, that take the data and they’re applying AI and machine learning. And I believe that these guys will be like the frackers were for the oil industry.

And what they really do is they de-risk exploration and make you not waste a lot of exploration dollars. And so exploration dollars are extremely valuable. And Eric Sprott’s a big shareholder. Eric’s a big believer. Hofchild out of Peru. It’s also a big shareholder, a believer, and their CFO is on the board. And they get royalties in some of these exploration companies and they get work programs and they invest in some of them. So they can get shares. They can royalties. So I think that that new technology that a couple of companies have had discoveries from them. I believe that McEwen Mining recently had a discovery from using their services. Yamana uses their services.

So something like that I hope is going to be the new sort of frackers that come into that space to try to unlock value. Otherwise, I think you’re going to have to have gold trade another $100 more or so an ounce. Maybe $200 an ounce before people start taking a look at that phase. And then you’ll get during that period the mid cap companies will start buying some of the juniors that have reserves and resources in the ground. So, the magic today, the Marin’s our good friend and he’s one of those guys also that likes to look at the punch per dollar. How many reserves are you getting per share? And his management, do they have a track record of unlocking that value process?

So right now, we’re working on a detailed analysis of our new quant tool of use that at US Global and it’s looking at every junior mining company has to trade $10,000 a day. That’s still very high. And they have to have at least $300,000 in cash plus we want to have cash for exploration and that are lifestyle companies, I like to call them. And who has the most reserves per share. Because we notice that in the past couple weeks South Africa took off. South Africa ran falling … All of the sudden the marginal mines in South Africa, they exploded in valuations. I think in the past year, Anglo Gold is up 300%. And that’s a big move for a big cap gold stock.

And Sabina is another one that’s had some spectacular moves. And what happens, and when you start seeing the big cap marginal gold producers start to take off, then you get positioned for the juniors. It’s a trickle down approach that does take place on previous cycles.

Frank Curzio: Now we covered the macro. We covered juniors. Some nice easy questions for you. Now I’m going to get to some of the tough ones. Because I want to hear your opinion on this. And they’re not so tough. But you’re someone who’s followed gold for over three decades. Yet, when I talk to most people who are just this engulfed in the gold industry, why is it that they hate bitcoin so much? Because it’s … You’re seeing, even like the Peter Schiffs. I’m not going to talk bad anyone who can’t defend themselves. But he’s a guy that’s just bashing bitcoin. I see that a lot.

And I also see it on the other side where people who are just total die hards of bitcoin, they bash gold. You’re a person that’s in both of these industries. I don’t know if anyone knows that but you are the interim Chairman of HIVE Technolgoies. And I believe that’s the first data mining block chain to go public so you’re almost like a pioneer the space and you understand both of these markets. Why is it that people feel it has to be either/or when you could own both of these and how do you feel on both of these markets.

Because when I look at some place and not to get too far and ask you a million questions as once, but I just want to put things in perspective. Because when I see gold as an investment, I have money in gold. Like you said, the 10% rule. I have money in gold. But when I see people rioting … Well not really rioting, but it’s close to that in Hong Kong and protesting, if they own gold or physical gold, they can’t carry it. Good luck trying to carry out, but a lot of these … I mean bitcoin to me seems like a great option if you’re looking at Hong Kong where you could leave and then transfer that money and cash in … Exchange it someplace else.

But why is it that these two markets it seems like can’t work together? Because I think if they do, you’re going to see both of these markets take off. But I don’t know why it’s either/or for so many people. Do you get that as well?

Frank Holmes: Yeah. But it’s a marketing ploy by Gray Scale that came out with drop gold and that gets the gold bugs all wound up like the Peter Schiffs and the Roy Sebags and it’s like a poke in their eye. But the real, I found in my research, was that the early bitcoin buyer are actually really smart gold bucks. Not the emotional ones, ones that really understand economics. And they like the fact that it’s going to be capped 21 million coins. There’s only three more million coins to come out. So I know the strengths and weakness of it. I’ve always felt on the bitcoin only works with electricity and didn’t work in San Juan when they had a hurricane. You need electricity. So it’s important to recognize. Bitcoin has been an important part for many successful people in Argentina. Their currency devaluation. And Venezuela. So it’s another alternative.

And for Chinese. The guy that was supposed to have the lunch with Warren Buffett. Strangely enough, he couldn’t go. Well, why is that? Anyone that made hundreds of millions of dollars in bitcoin, they took their passports away. They’re not allowed to leave. That money can only be spent in China. And so they do try to do the nice [inaudible 00:27:53] but those people, those rights are gone if you’re in China.

So I think that the other interesting part on this whole, the bait. Is that these kids. The data point that really blew me away, Frank, was meeting behind Fortnite and people that created that these video mobile gaming. And these mobile games, if your son is good. He gets rewarded and they’ve been giving this now for 20 years. And it’s growing. In a currency, a digital currency. And he can turn around and go to conferences. With those digital money, he can upgrade and buy new products or service they have with this digital money. If he’s a good player. And so you have a whole audience of kids that are now young adults that are used to digital money. And they’re using their wits and brains and they’re speculative with it.

So I think that the whole bitcoin and the new cryptocurrency is an interesting theme. Because the numbers are mind boggling. There is more money spent each year on mobile gaming than there is all movies and music combined.

Frank Curzio: Numbers are incredible, yeah. They really are incredible.

Frank Holmes: You’re talking of the 30, 40 billion dollars now being played by all these young people. And predominantly men, young boys that play these games all over the world. And so, I don’t think that that’s going away. I don’t think that’s going to evaporate. So I think that the concept of digital money. And if you take a look at the cycle, the peak in bitcoin was when they came with the futures market. And that was used as a methodology to suppress bitcoin. And the very bottom came when JP Morgan launched their Stable Coin. It’s amazing. And all of a sudden, the bad mouthing of crypto stopped out of JP Morgan.

And then the second big wave when it went to 13,000 is when Facebook announced their libra. Well, for your listeners, are they aware that Facebook and Google stopped any crypto advertising because they’re working on their own coin.

Frank Curzio: Yeah, that makes sense.

Frank Holmes: And so, you sit there and there’s all these forces trying to position themselves and use their power to get positioned. And I think that countries are working feverishly on coming out with their own crypto. And what they don’t understand, the regulators, is that these kids … There’s no barriers to entry. There’s no fiduciary ruin interpretation. They can speculate. They can speculate in any coin they want. A kid that’s now going to date with Tinder. He’s used Tinder to hook up. And by the way, the date’s not working out well. So what does that kid do? Well, he goes and trades crypto currencies around the world. He arbitrages between South Korea and what’s happening in an exchange here or crack it or something else.

That’s a very different world. And they want to trade 24/7. The stock market doesn’t function that way. So I think the real issue that I saw was that there’s over five billion dollars of speculative money with young people that would have gone into mining or technology or bio technology all of a sudden was going into the crypto space. And you’re not going to stop alcohol. They tried that with prohibition. They had to reverse that law. That was a disaster. And I think the same thing is here is you’re not going to stop speculation. And young people, they’re going to have more fun speculating with them, with a new story, a new coin, then they are buying a lottery ticket. Or going to a race track. They’re not going to the race track. You go to a race track, you don’t see too many young kids there betting on the ponies. And the same thing is going to casinos.

Now they go to casinos for entertainment and a little bit of speculation, but I think the bitcoin space has attracted, with all these new coins that came out, a lot of speculative money even this past year.

So for your listeners, as bitcoin fell from 19,000 down to 3000, the number of wallets grew. That is the number of accounts continue to grow at a 45 degree angle. I experienced that in 2003. Gold went up. Gold had a big correction. But money kept coming into our funds. Now if gold has a correction, money doesn’t come into the funds like it used to. It only comes in an uptrend. And that [inaudible 00:32:36] so all of sudden in the next big move up, well we were number one by 60 percent. Like we just crushed all the competition. In 2003, we were the first of the five year warrant. Where it be financing and the creating of Silver Wheaton. We were the seed share holder. All that space.

And so you sort of can catch that trend that’s taking place. So what’s important is that even during this correction and all the negative news, the number of wallets grew. And that means when you get this next big real super surge, I think that we can see all the crypto space take off.

Frank Curzio: Now there was an interesting … You mentioned JP Morgan. I don’t know if you heard this news, but in November they came out kind of under the radar because I don’t think that they’ve mentioned anything since. But they said they’re looking to tokenize gold bars. I thought that was interesting because for me and I’m going to bring everything together here. Because you talk about the young kids in crypto. And for me, when I look at crypto, we launch our own security token offerings successful. And I’m a big believer in that industry in the US.

Now when I see the young crowd. And when I think young, I think like in the 20s. Under 30. Brilliant people with technology. As you know, you met a lot of these kids doing this. But yet there’s … And when we were that age. Listen you think yours is the biggest. You have the biggest ego. That’s fine. That’s cool. But then on the other end, you have say 55 plus who are into gold. And there’s like a stubbornness there. Like the old guard. This is the way it’s supposed to be. And I always thought like if these two groups could just merge together and learn from each other that you would see adoption, I think, not only would be good for gold, especially tokenizing gold bars. Making it easier for people to own this and transfer it and stuff like that. But do you sense that as well? Because a lot of times what I’m seeing is … And I get calls on this all the time, where the old guard they’re talking to these young crypto guys and they’re like, “Oh.” They think they’re too old.

But it’s almost like a back and forth where I think if they just stopped and listened to each other and worked together, I think you’ll see mass adoption to the point where institutions are going to be into block chain and into bitcoin. And I also think vice versa. That would be good for gold. Instead of like the old guard just bashing bitcoin all the time. And I think it would be an alternative for both them. But I wanted to get your thoughts on that. If I’m just like on an island by myself with that thesis?

Frank Holmes: I think the bashing stuff is just a distraction. You can’t pulled into that narrative. They’re different. Different audience. I think coming with a libra coin backed by gold. There was something that was … Forbes had written to them and suggested they think of doing that. So I think that that’s positive. If they were to do something like that, that would be huge to gold. That would be a game changer because you wouldn’t have to physically carry that bullion around with you. It would be securitized by it. And that would be the ultimate game changer. But I think that … Just don’t get caught up with the … President Clinton years ago said, “Don’t follow the headlines, follow trend line.” And I think the trend line. You’ve been successful in your launch. The wallets continue to grow.

There’s more sophisticated people that are coming into the space. Young people that got crashed with the crash. They don’t crushed out. A lot of them, it was never debt. That’s the other really important part, Frank. Every major bear cycle that lasts a long period to correct itself is just with credit. Credits take four years as a country’s currency like ’97 in Asia or ’98 in Russia. It takes four years to repair that. We have the housing crisis in 2008, it wasn’t really until 2012 that the overall economy really had repaired itself. And housing and banking and everything had turned.

This is a crash that was unleveraged. This was a crash that was sort of a hurting speculative process and I think that it comes back. And I think it comes back smarter and stronger.

Frank Curzio: All right. So last question here because we are running a little bit over time which is great because I always love talking to you. I think we could talk for a couple hours if we wanted to. But let’s … I want to get some of your ideas. I don’t know if you could mention individual stocks. I know that you have a lot of the Franco Nevada, the Royal Golds in your fund. You also created the Jets ATF which is on airlines. This is something that was created well before Buffett decided to say, “I’m all in our airlines.” Which I still think a fantastic investment. Cheap growing tremendously. But what are some of the areas maybe in the market or if you could share some individual ideas with the audience because I know that they love that when my guests do share ideas.

Frank Holmes: When the airline … When we created that, that was my first experience at applying the quant approach. The new operative word, Frank, is quantamentals. Even as Bank of Nova Scotia Institutional Train Desk tell me they have quants on their desk. And they’re applying quant screens to picking their stocks. And so when we created, it was unique. It was lots of data mining again from both portfolio structure to stock picking which we applied to Go AU. So 80% of the assets are American, but 70% of the names are foreign.

Now why is that? Because we found it basically stopped foreign currency [inaudible 00:38:15] and it derisked the portfolio from attraction [inaudible 00:38:19]. And the goal was to outperform the New York Stock Exchange global airline index which it has done. And so what’s interesting is that the airlines continue to have a moat around them as a business model. They continue … So it’s very difficult. So a long cycle of build a new airport. And you know the headaches like La Guardia now just even upgrading is painful. So building a new airport is next to impossible. And people continue to want to travel. And this rising GDP per capita, I don’t about you, but if you’re in New York City and you’re from the New York Stock Exchange, who are the biggest group of tourists? They’re not from Brooklyn. They’re not with AOC and her groupies, they’re Chinese. There’s Chinese tourists.

And they’re traveling all over the world the way Americans were. And when I was in Milan the last month, it was packed with Chinese tourists. Switzerland packed. Every three star and four star hotel was sold out that the five star hotels which two years ago cost, I’m trying to think of the Hyatt wanted six hundred dollars, $2400 a night. I didn’t stay there. $2400 a night? Because all the other hotels are taken up by Chinese tourists. So that rising GDP per capita in China and India is not only buys gold for [inaudible 00:39:38] which is an important part of it. They also want to travel and that is how they’re discovering the world. And so now, the airline industry is just a growth industry with a moat around it as Buffett likes. It’s very hard to build a new airport.

And talk about data mining and quants, these airlines are the biggest at doing anything that’s quant driven. The recession fears, etc., immediately the flight tickets dropped. Hotels dropped. Because people canceled. They see the riots in Hong Kong and immediately the cost of flying to Asia is cheaper than flying from New York to LA. And it’s how fast all of a sudden it was only two million people who fly a day. There’s only X number of seats. Boeing has a problem. It’s getting lots of canceled flights with Southwest and American. But people are flying every day. So I think it’s really … It’s a unique industry that’s also now making a ton of money. Over 94 billion dollars from ancillary revenue. I mean it’s unbelievable. You hate that they charge you … Get your seat. They charge you to get a bag.

Frank Curzio: Everything.

Frank Holmes: Everything. And then they make a ton of money on your credit card, loyalty cards. You get your credit card from … They’re making a billion dollars a quarter with American Express Delta in revenue. A billion a quarter. So this is a very unique industry. It has an audience of traders that trade the 50 day moving [inaudible 00:41:11] oil. If oil falls below the 50 day, they jump in and buy the airlines since we find money coming into the ATF. And soon as all rallies and above the 50 days, they’re out.

And then you get another group of people that love such as a Jet Blue. I love that airlines, but I want to be short industry to be Delta neutral. And that’s serves their model. So we get those people that go short long, the ATF, to try to go against other … Their hedge fund position. So it’s great because it’s called an ecosystem of trading that different people have different interests, and it becomes very liquid based on people with different agendas. So I’m very thrilled about launching … They’re launching that. And that quant approach is working and I just really hope that Go AU really wakes up people. That it’s a smarter way to buy gold stocks.

Frank Curzio: Well, Frank, let’s finish with this. So if somebody wants to find out more information from you, I always as that question. But what are the ways … I mean the Frank Talk Block. Can you talk a little bit about that? Because that’s something … I love offering my listeners something for free. This way they get to know you first. Because once I get to know you and they see your [inaudible 00:42:20], see your enthusiasm, how long you’ve been doing this, and they could tell how excited you are just from this interview. You’ve been on so many site visits with me. I mean you’re out in the field. You could tell you love what you do. And I admire you and I know a lot of my listeners do. But there’s a way that they could actually read a lot of stuff that you’re writing.

Almost on a daily basis, at least two, three times a week and how could they do that?

Frank Holmes: Usfunds.com. U-S-F-U-N-D-S.com. Sign up at usfunds.com for the investor alert and Frank Talk. You get a weekly update of markets, what’s driving gold. You get a balance swat analysis every week on global markets, oil. Eastern Europe, Asia. Tax free bonds. What are the mitigating factors, etc. And so I’m very happy about what I’ve seen. That’s been growing steadily, Frank. So thank you for recommending that. And for your listeners. It’s real simple. Usfunds.com. Frank Talk.

Frank Curzio: Perfect. Love it. Love the name of it too. Well, listen, as always, love having you on the podcast. I know my listeners do as well. And hopefully join us again soon. Thank you for covering so much gold, airlines, Go Gold, so many different things and hopefully we’ll get you back on pretty soon.

Frank Holmes: Great. Thank you my friend.

Frank Curzio: Great stuff from Frank. I love how he explains everything right? Like what negative real interest rates are. Some of us already know that, but I’m sure a lot of people don’t. How to calculate reserves. How to use metrics like revenue per employee, a system that clearly works for him. And that’s why Go Gold, which is the ATF on gold, has outperformed just about … Not just about … It outperformed every major gold ATF. And will likely continue to do so for years and decades to come. And that’s a fund that he found. It re-balances every quarter. He went over his methodology. But this is a small fund few people know about. I mean GXJ, they’re going to the big names. And the multi billion dollars. What is it 10, 11 billion dollars in assets right now? GXJ, amazing. But that’s going to change. It’s going be a very big fund as more people catch on.

This is a much better form rather than just buying market weighted indexes, instead of just buying whatever and not really actively managed or this is a much … And it’s bat tested and it’s been tested so far since he launched this a couple years ago and it’s been outperforming every major gold ATF. So really great stuff from Frank. Love having him on. But remember, this podcast is about you, not about me so let me know what you thought of the interview by emailing me, frank@curzioresearch.com. That’s frank@curzioresearch.com.

Now let’s get to my educational segment. I’ve been doing a lot of research on gold lately. Like Frank said, there’s a lot of factors or tailwinds driving gold right now. The uncertainty in the marketplace where you have trade tensions, inverted yield curve, right? This is causing people to get worried about a recession. I mean middle east tensions. And Brexit coming up. Decision going to be there. So a lot of uncertainties. We also have just about every major central bank lowering rates right now. Resulted in 16 trillion. I think it might be up to 17 trillion now. Of government bonds and that’s 25% of the market trading at negative yields.

Turning to the US, we lowered rates by 25 base points last meeting. And we’ll likely lower rates by another 100 bases points over the next nine to 12 months. Yes a 100 bases points. Another one percent. Pretty crazy. That’s going to result in us having negative real interest rates here in the US. And again, real interest rates take into account inflation which is around two percent based on the CPI. Around two percent right now. Alto of different factors, a lot of tail winds. Now first things first before I really dial down into the data here.

And it’s going to be interesting. It’s not going to be all numbers and you’re going to fall asleep. This is important to say. Because you need to put your personal feelings aside. This isn’t about whether you agree or disagree with the QE, with the feds lowering rates in an economy that’s relatively okay. I’m not going to say it’s great, but it’s definitely not bad. I mean that was confirmed this week by Wal-Mart, Target Home Depot, Lowe’s, four of the top 10 retails reporting strong numbers. You can argue Home Depot wasn’t as strong, but they were better than expected but you look at Target blowing it out. Wal-Mart blowing it out. Lowe’s great. Again, four of the top 10 retailers.

It doesn’t matter if you hate Trump because he’s trying to control the fed. It doesn’t matter. Put your personal feelings aside. Because the fed’s going to lower rates probably by 100 bases points. I mean the futures are actually pricing this in. But this is close to a certainty. Since our rates are way too high based on the way corporate yields are trading and based on where rates around the rest of the world are. Everyone’s lowering it. I know that’s tough to put your personal feelings aside. But if you’re pissed off at Trump and the fed, go on social media. Go post whatever you want, you could find so many different groups to have fun with that.

Go stand in front of the White House with a big sign that says, “Donald Trump Sucks.” Whatever floats your boat. It doesn’t matter. [inaudible 00:47:28] podcast. It’s about making you money. That’s my job. And when you look at where interest rates are, they’re going to go lower. They will go lower. Whether you agree with it or not, it’s going lower. Again, you could be that person that bitches about it. That complains and hates it. Or you could be the person that makes money off of it. Who do you want to be? I want to be the guy that makes money off of it. That’s just me.

You could listen to what other complain about it. You just go on Twitter, Facebook, whatever and it’s awesome. Now so many people say negative real interest rates will drive more money into gold. So not only is it negative real interest rates counting for inflation. I mean you’re looking at negative yields at 16 trillion. 16 trillion to 17 trillion. Holy cow. Who would have thought? It’s crazy when you think about that. If you’re looking at what’s happening at central banks lowering rates, and people saying, “Wow, that should drive more money to gold.” That thesis makes sense. Right? Given that gold doesn’t pay you interest. So if you could buy treasuries and earn a five percent real return, risk free, just saying, you can’t do that now. Then why put your money in gold? I mean right? Treasures make for a much better safe haven.

But when you take a closer look at the data, negative real interest rates does not drive gold prices. I’ll say that again because I know it’s hard to believe. But negative real interest rates do not drive gold prices. And I can tell you, there’s not one gold CEO out there of a company that would … That’s going to agree with that statement there.

But let’s look at the data. For example, in 2007 when the you know what started hitting the fan. I’ll the say the shit started hitting the fan. This is a podcast. I can curse sometimes. The fed funds rate, you know where it was? It was over five percent. That was hard for me. I didn’t know it was over five percent in 2007. I know we were raising … That’s where Kramer went nuts on TV. And the fed knows nothing. One of his blowouts which turned out to be rate. But they were over five percent in 2007.

By the end of 2008, right? Now we’re getting to the credit crisis. The heart of it. By the end of 2008. They lowered them close to zero where rates stayed basically at those levels for eight straight years. Right? Into 2016. Or through 2016. I mean the Fed first start lowering rates in 2007 and then 2008, what they’re doing right now, gold prices started to surge. Went from around $600 an ounce. I bet you didn’t know that either. Gold was at $600 an ounce in 2007. I actually thought it was higher, if you guys didn’t know that.

But it went from $600 an ounce to $1900 an ounce in 2011. I mean that’s a remarkable move for any stock or commodity in such a short time frame. In a few years. I mean it tripled. And something interesting happened. In 2011 on, gold prices started to crash. So from 2011 to 2016, gold prices fall from $1900 an ounce to $1100 an ounce. And remember, interest rates were basically zero through that time period. So with the real interest rate negative from 2011 to 2016, based on the thesis that this drives gold prices higher, why did gold prices fall around 25% over that time frame?

I mean after all negative real interest rate, they should have pushed gold to $2500 to $3000 an ounce. Even higher over this time frame. That’s the belief. Negative real interest rates drive gold. But they really don’t based on the data.

Another funny thing. During the same time frame, from the end of 2011 to 2016, while gold prices were crashing, what did the stock market do? It surged higher by 75%. This tells me and should tell you that when stocks go higher, people don’t give a shit about gold and want to own it. And I can’t blame those investors. I mean when you could earn five percent a month buying Amazon, Apple, Facebook for years. I mean that’s how fast those companies were going up. And so many more. Netflix in there. Tesla in there during its prime before it really started coming down.

But why would you want to keep your money tied up in gold that generates no interest when you’re seeing the massive returns you could generate in the stock market. It’s very difficult for people to stay there and just say, “Well, I’m going to buy while the stock market’s doing good. And economic numbers are good. Unemployment’s at an all-time low.” It’s not easy. But you could see, when go higher, people don’t really care about gold. And when stocks fall, there’s definitely that nervousness in the market, that’s definitely something that drives gold prices.

But you know what else drives gold prices? The dollar. If you look at the bull market from 2008 to 2011, stick with me here. I’m not going to throw a ton of numbers at you. It’s very important that you know this because you’re not hearing this any place else. People thing negative real interest rates 16 trillion, our debt, you have to buy gold. Those are the wrong reasons for buying gold. It’s the wrong reasons based on the data. It’s not what drove gold higher. It’s not.

When you look at the bull market from 2008 to 2011, that’s the period when gold prices are just higher. The dollar crashing. I mean there’s no coincidence, the absolute bottom in the dollar over the past 10 plus years was in late 2011. And that’s the exact same time gold prices hit their all-time high. Then what happened? The dollar started to strengthen from 2014 through 2016 and that’s when gold prices really fell hard, hitting its worst levels over the past 10 plus year.

So what do we have? We have stocks and the dollar which are the real drivers of gold. Based on the data. It’s not negative real interest rates. It’s the not the massive debt we’re accumulating since analysts have argued that, what? Since the 70s, 80s? That the US is eventually going to go bankrupt because of our enormous debt load and we continue to hit new highs, decades and decades and decades after. But if increasing debt really drove gold prices, then gold would be over $10,000 an ounce right now. I mean maybe even higher. It’d be the secular, bullish trend since the 70s and 80s because we’ve just been accumulating more and more debt since that time. And this has been the argument seriously. If you look at some of the people that have been in the market for the last 40 years who are gold bugs, they are arguing the same exact thing, they argued in the 70s and 80s. It’s the same speech. Go look. I’m not kidding.

Leave the country. Get out of here. The dollar’s going to crash. All this stuff. It’s the same thing. None of that happened. So you can’t say, “Well, as we accumulate more debt, it’s better to own gold.” That has not been the case. It’s a cyclical commodity. I mean if that really was the case, I mean look at our debt levels and how much higher they’ve gone since the 70s and 80s. Yet gold prices didn’t go straight higher along with that. So that’s not a factor. Although people will tell you that. You might think I’m crazy. Again, this is a religion to people. And if it’s a religion, shut this podcast off. It’s not worth it. Because no matter what numbers I throw at you or what facts I give you, you’re going to have your beliefs and that’s fine. I’m trying to challenge those beliefs. You don’t have to agree with me. But I like to let the data do the talking.

And say, this is what the data’s saying here. Look at the numbers. Go back and do the research that I’m telling you. Now let’s look at the macro backdrop. Now we determined that stocks and the dollar really drive gold price. Because when you look at the macro backdrop, we have negative interest rates everywhere, except the US. We’re about to lower rates. Probably below one percent again. What does that mean? That’s a stimulus to the economy. People say, “Well, it didn’t really drive.” It did. Are you kidding me? Low interest rates. It drove the housing market. Unemployment’s at record lows.

You could say, “Well, it didn’t have the effect on the inflation that we wanted.” Well, the markets are at their all-time high. I mean home prices rebounded tremendously. Consumer spending is really strong. There’s a reason for that. When money’s cheap, they’re going to borrow. Businesses are going to borrow. Consumers are going to borrow. They’re going to buy houses with lower interest rates and mortgage rates. They’re going to buy furniture, cars. Go on more trips. You just look at the airlines. People are flying everywhere. I just saw a commercial the other day for all the Nutrisystem services and all the Weight Watcher services and food delivered to your home?

There’s like hundreds of them now. I actually saw a commercial the other day that delivers dog food to your home. Dog food. Like dog food that you cook special ingredients. We’ll deliver it to your house every day or every week or whatever. Are you kidding me? If that’s not a sign that the economy’s okay. That you’re getting delivered food to your house for your dog. Are you kidding me? Things like that don’t happen unless the economy’s pretty good. I’m not saying it’s great. I’m saying it’s pretty good. But getting back to the macro backdrop, right? Negative interest rates everywhere, except US. About to lower rates probably below one percent again.

Now think of it this way. If you’re a sovereign wealth fund, right? You have hundreds of billions in assets under management. Or if you’re a money manager, a hedge fund manager with billions and 10s of billions, even 100 billions. If you’re Renaissance, KKR, private equity, whatever, with assets under management. Where are you going to put your money? Tell me. I want to know. Give me an option. Because as you know, money has to go somewhere, right? Money managers don’t generate any fees by keeping money in cash. They have to allocate it somewhere? Where they going to allocate it? Negative yielding bonds? They’ve been doing that right now. I can’t see that increasing that much. In treasuries? Which also have negative yields if they’re counting for inflation. Where you going to put your money? It has to go somewhere. And you know where it’s going to go? It’s going to go into US stocks. Stocks that are trading at 16 times forward earning. Which is around the five year average.

But you’re looking at that and say, well the five year average, the 10 year average, allow 15.5 on forward earnings, 15.3 around … Again this is what I do. I love earnings season and going over the numbers. You can find a lot of this on fact set. If you go into Fact Set. If you go into Google, put Fact Set Earnings. They have a nice PDF they update every three, four days. All the earnings, everything. It’s like a 20 page free report. Guys, take a look at it. It’s awesome. All the sectors that are doing good. Who’s growing earnings faster. What’s expectations are for sales and earnings next quarter, next year. It’s awesome. It’s for free.

Getting back to stocks, 16 times forward earnings. Now you say, okay that is the five year average. But Frank you’re saying that that’s kind of cheap. Well it is kind of cheap compared to the rest of the world. And considering the easing we’re going to see over the next 12 months in rates. You’re throwing the fact that S & P 500 companies are going to buy back more than a trillion dollars in stock this year. What’s the full value? 20 trillion, I think, of the market. A trillion in stock this year. And probably over the next two, three years going forward. Which is a huge jump believe it or not compared to past years. 500, 600 million. Or 600 billion.

A trillion dollars they’re going to buy back. So if your account for buy backs and the current yield on stocks for the S & P 500 which is around two percent, but if you throw in the buy backs, it amounts to around a five percent plus yield, by putting your money in S & P 500. Where else are you going to earn a return like that? Especially when companies are buying back their stock like crazy almost putting a floor under it. And that’s all you’re seeing where every single pull back that we have in the marketplace dating back since the credit crisis has been a buying opportunity. Where else are people going to put the money?

Again, these buybacks. Not expected to slow any time soon since balance sheets are strong. And sure, you could say, “Well, if you look at the debt levels on these companies’ balance sheets, they’re bigger.” Yeah. Because they’re taking out more debt at super low rates. That’s why Microsoft Apple with tens of billions … Sorry, Microsoft, hundreds of billions of cash on its balance sheet. For Apple, why they taking out debt? Because it’s super cheap to borrow money. It makes sense. They know they could earn a better rate of return than the interest they’re going to pay on that money.

And a lot of that money may be used for buy backs like they will be. Again, I don’t care if you agree with it or not and say, “Well, the only reason why stocks are higher if you take out buy backs.” You can’t take out buy backs. It’s like saying, “Oh you know what? New England’s rate for the past 10 years, but if you took Tom Brady off that team, they wouldn’t be so good.” But you have Tom Brady. So that’s why they were great every year. And he’s the [inaudible 00:59:59] of all time. And they won how many Superbowls under him? Six now? Geez.

Whatever it is. But you have to factor in buy backs. That’s what companies are doing. Also, what do you think our dollar’s going to do? You think it’s going to get stronger or weaker. Again, it’s a fact that our dollar, compared to every other country or currency out there. If you look at it, who’s doing better than us right now. The S & P 500 went higher, right? Hit new records as our dollar strengthened from 2014 through today. And even today, when we’re less than five percent off our highs. But does anyone believe the US dollar is not going to get stronger from here?

And again, it’s not that the US things are great. But it’s the dollar, right? You compare it to everyone else around the world. And we definitely have the strongest economy right now. With the exception of a few small countries that again are meaningless. But we’re looking at developed, emerging economies and we’re the strongest.

So let’s get back to the point here. If the dollar goes higher or just remains strong which I think if you really think it’s going to get a lot weaker, it’s hard to argue that case. It really is. When you look at the rest of the world, it’s very difficult to argue that case. You could be right. Maybe that will happen. I don’t know. To me, I see the dollar going higher. But if it goes higher and stocks move higher, which again, I think there’s a really good argument for this to happen, at least over the next 12 to 18 months, through 2020, given that interest rates are going to go much lower and stocks are not that expensive. Especially relative where interest rates are going to 12 months from now and how the rest of the world is seeing much, much slower growth.

If that happens and stocks move higher and the dollar moves higher, which again, I think we made a pretty good argument that that could happen, most likely happen. It may not. You may disagree and that’s fine. But if that happens, you’re not going to see gold prices move as high as so many people are predicting. And they already moved tremendously higher. So the moral of this education segment is not to trash anybody, debunk anything. It’s showing you how you need to do your own homework.

You can’t believe everything you hear out there. Because a lot of people just go there. They’ll listen to their guy and it becomes a religion and then they’re like okay. Listen, this is your money. This is your money. They don’t care about you unless you have your money with them and they’re earning fees off of you. They don’t care about you unless you’re subscribing to their newsletters. This is a free podcast. Nothing gained or lose, if you’re going to subscribe to my products, then subscribe to my products. But this is a religion to them and this is your money, your money. So do your own homework. It’s not that difficult. That’s why I try to help you out here. Because I have to tell you this. There’s not another analyst out there that’s going to tell you negative interest rates, or real negative interest rates really have little to do what gold prices trade. Nobody will tell you that.

But if you look at the data, it’s true. If that was the case, gold prices would have surged from 2012 to 2016. And they crashed 25% when the market went 75% higher. So you can’t tell me that because more countries are lowering rates, that’s more reason to put money into gold. No. We’ve seen weakness of the dollar. We’ve seen uncertainty in the marketplace when stocks took a hit, and that’s what’s really been driving gold.

At least right now. And at least over the past 10, 12, 15 years. And I know. It doesn’t make sense. Negative real interest rates. But until you look at the numbers. But it’s true. So my thesis, bring it all together here as we lower rates over the next year, which is going to happen. It’s a fact. Gold prices are likely going to move higher. Just like they did in 2007, 2008, 2009, as we lowered rates and got down to zero. And that really, really pushed gold prices higher. So I still think we have some room there as we’re lowering rates into next year. But I don’t see gold prices moving much higher after that.

If my thesis on higher stock prices and a stronger dollar come to fruition. Maybe they do, maybe they don’t. So stay the course for now. The trend is your friend. Hate that term. But it is. Frank is right. I mean juniors look attractive here. They really haven’t moved that much higher considering where gold prices are up $300, $400 since the beginning of the year. And maybe taking some profits or suggest taking profits from royalty companies since they had some amazing moves. Franco Nevada, Wheaton, Royal Gold, a sector I cover a lot.

And by the way, the reason why they’re having major moves, if you know about royalty companies or streaming companies, right? They take a percentage of a project and they put up money up front. They’re finance companies right? So you don’t have to worry about drilling or anything that costs like that. But what happened over the past six, seven years is these guys used … Before seven years, they used to have to go … They really didn’t get any deals with majors. Maybe Franco Nevada a little bit and Royal Gold. But it was difficult because the majors had great projects. Why am I going to give a piece of a great project?

I don’t need that. It’s basically financing, right? So if you have an asset and you’re selling off 20% of it. And you’re taking money in and based on that percentage or whatever deals of the term, the royalty company’s going to be able to buy gold off this project for say $500 an ounce going forward, right? And it’s worth it to them.

But over the past six, seven years, these majors were so leveraged and in so much trouble that they almost went bankrupt that they turned to the Franco Nevadas and Royal Gold for financing. And they gave away pieces of some of their greatest projects. And now you’re seeing that with gold prices rebound, the majors are doing well, but the reason why you’re looking at the royalty companies, the big ones, is their streams, their royalty agreements … I mean these aren’t projects that could developed. These are projects that are developed and they took pieces on amazing, amazing projects from Gold Corp to Newmont Mining to Barack. Because these guys were in a lot of trouble. They needed to raise cash. They needed to cut costs. That’s the easiest way to do it. Let’s sell off a little bit of an asset, bring in some money, help us out.

Now that they’re in good standing, they’re not doing that and giving the juniors a piece of those assets anymore. But that’s the reason why you’re seeing the Franco Nevadas, the Wheatons, Royal Golds, they’re doing great as prices go higher because they’re buying gold, whatever. At five, six hundred dollars an ounce. It was $1100 an ounce not long ago, $1200. Now it’s $1500. And what do they do, all those cash flows is, they look for good deals, streaming and things like that. And they can go to juniors, because juniors is still doing bad right now.

But anyway, not go get too much into it, but I would take profits … I mean these have moved tremendously higher, I’d take a little bit off the table. Nothing wrong with that. You deserve it. Majors still look attractive. Earnings are going to surge with higher gold prices. And even mid tiers should perform well. But just be ready to take some money off the table. Maybe in about six months. I mean not everything, and not all gold. I mean there’s going to be certain … I think there’s a great selection of stocks to pick. Great management teams. I went over that. And junior minors especially. Also, we have a major in our portfolio which we put in there like a year ago. It’s doing fantastic. Great timing on that.

But I just wouldn’t be all in on gold through 2020. Because if you’re looking at the factors that drive gold prices, I mean the stock market looks like it’s going to go higher. There’s just … That’s the place where people are going to put their money. It just makes sense. Especially with buy backs. With our current year S & P 500. The fact that we’re not really that expensive. And our economy’s not that bad, even based on the numbers that just came out with some of the leading retailers. Unemployment is still relatively low. Housing is not great, but interest rates are coming lower. You’re probably going to see a boom in that. Especially refinancing.

Going forward, as we continue to lower rates. But this is going to create another boom in stocks. At least now. Again, the shit may hit the fan later on when it comes to debt, when it comes to everything else. But again, we’re talking about gold. The factors that drive gold is the dollar and stock prices. And if both of those go higher, there’s a good shot gold’s not going to go higher, it’s going to go lower. That’s what happened over the past 15 years when you look at gold. An no one’s really talking about that. So don’t go all in, close your eyes, say gold’s going higher. I think gold’s going to … I mean $1600 an ounce. Maybe $1650. Should result in juniors doing great. A lot of these stocks doing great. But just be ready to take money off the table. Because if my thesis comes to fruition. I think it will. I think going to be a stronger dollar and higher stock prices over the next two years through the election, then gold prices are probably not going to go higher. They’re going come lower and a lot of these stocks will get hit.

A lot covered on this podcast. Different opinions. Kind of like for you to have. Sometimes people hate that. They just want to be told what to do. Just buy gold. That’s it. You’re good. But it’s good to have the analysis behind all of this. And then you guys make the choice. Again, it’s your money. You could say, “Frank, I think you’re an idiot and just whatever.” Put everything into gold and keep it there forever. Or you could just look at both of those arguments and say, “Wow, I want to do a little more homework on it.” Maybe Frank’s right. Maybe Frank Holmes is right. Maybe I’m right. Whatever. But you have two opinions there that I think makes sense. We’re both bullish on gold, at least over the next 12 months. I’m just a little bit worried after that once we stop raising rates.

Because once we stopped raising rates last time in 2012, the end of 2011 really, that’s when gold prices really, really crashed. It didn’t matter that we had negative real interest rates, that’s when gold really crashed. Gold prices. And a lot of gold stocks have crashed tremendously from that time frame. That’s nice to see that they’re rebounding.

Anyway, a lot covered in this podcast. Hope you enjoy it. Let me know what you thought. Frank@curzioresearch.com. That’s frank@curzioresearch.com. That’s it for me. Thanks guys so much for listening. I’ll see you in seven days. Take care.

Announcer: The information presented on Wall Street Unplugged is the opinion of its hosts and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility. Wall Street Unplugged produced by the Choose Yourself podcast network. The leader in podcasts produced to help you Choose Yourself.


Editor’s note: If you don’t have exposure to the gold sector yet, check out The Dollar Stock Club, where we bring you the very best ideas from Frank’s huge network of industry insiders… including several names in gold. One of our gold holdings is already up over 61%!

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