Coming up don’t miss our exclusive interview with Frank Holmes of U.S. Global Investors. Frank and Mike Maharrey cover a lot of ground in our special conversion this week. They’ll dive into the divergence between physical bullion and minting stocks and whether Frank expects the underperformance in mining stocks to continue into the new year. He also tells us about how much gold is bought around the world by people who accumulate it due to having an affinity for the yellow metal, compared to those who buy it out of fear. And finally, he talks about why and how he’s betting on war. Frank will explain.
So be sure to stick around for our special interview with the highly respected Frank Holmes of U.S. Global Investors, coming up after this week’s market update.
Well, after a rough couple of days for gold and silver following this week’s Fed meeting, the metals seemed to have finally stabilized, recovering some of their losses here on Friday.
For now, gold is off just 0.9% for the week thanks to today’s rebound with spot prices currently comes in at $2,635 an ounce.
Turning to silver, despite being up nearly 2% on the day here on Friday the white metal is still down over $1 or 3.6% on the week to trade at $29.64 an ounce.
For the second consecutive week platinum is unchanged at $944 as it continues to grind sideways. And finally, palladium is off 3.8% to come in at $956 as of this Friday morning recording.
The Fed cut interest rates by another quarter point on Wednesday, but at the same time, Chairman Jerome Powell suggested to the markets that there may only be a couple more cuts next year. The market did not like that — and gold, silver, and the general stock markets all tumbled on the news.
Meanwhile, the Federal Reserve note dollar strengthened against other fiat currencies.
Our own analysis here at Money Metals points to continual Fed easing, even as inflation readings continue to run high. The federal government’s ongoing massive budget deficits and rising debt service costs make it a near impossibility that higher interest rates can be maintained.
Contrary to the jawboning that Fed officials may do, a loose money environment should be expected. Such conditions will continue to provide a tailwind to precious metals, which usually perform quite well when interest rates are lower than the rate of inflation. That’s something our guest Frank Holmes will touch on in today’s interview in just a moment.
Well, the holiday gift giving season is winding down, but Money Metals is still standing by to ship your order immediately as it comes in — assuming you pay by credit card. Go to MoneyMetals.com and you’ll see the link for our gift shop right at the top of every page. We still have good stock on lots of gold, silver, copper and even some non-precious metals items that could fit the bill for that special someone. Again, order soon if you’re buying for that reason and we will ship immediately if you pay by card.
Well now, without further delay, let’s get right to this week’s exclusive interview.
Mike Maharrey: Greetings. I’m Mike Maharry, a reporter and analyst here at MoneyMetals, and I’m here today with Frank Holmes. Frank is the CEO and Chief Investment Officer at US Global Investors. He’s also the Executive Chairman of Hive Blockchain Technologies, and I really appreciate you taking a little time talk with me today, Frank. How are you?
Frank Holmes: Outstanding my friend, and happy holidays. Merry Christmas.
Mike Maharrey: Yes, yes, Likewise, likewise. I’m ready for a little break, I’ll be honest with you. So I want to kind of start off, we had the last Fed meeting of the year wrapped up as we’re recording this yesterday. And the Fed cut rates again, another 25 basis point cut despite the fact that inflation is still looking pretty sticky. And I think because of that Powell & company came out, I guess a lot of people would describe it as hawkish and they’ve cut the projected number of rate cuts for the upcoming year down to two from four. And I’m just curious about your take on all of this Fed maneuvering and open mouth operations as I like to call them. What do you think is going on here? Everybody seems to think everything’s under control.
Frank Holmes: I think that it’s a bifurcation. The GDP numbers came out stronger than people expected, that there’s such a negative narrative that was going into the election cycle. And I think that they have to get rates down to roll over a lot of debt because the cost of debt has become very expensive for the government and it’s also starting to hurt a lot of retail stores and consumer buying. So I think that that’s the conundrum is as they have to drop rates to get some economic stimulation and some relief from the government rolling over their debt, they’re going to go to negative real interest rates and that’s going to bode well for gold. And I think that that’s really what the Bitcoin ecosystem is saying because it ran up to $108,000 before this recent correction, is the G20 continue to have this MMT momentum, modern monetary theory, to solve all their problems.
And so will in the next two years, will be the test for President Trump and Elon Musk and group to use AI to shrink the number of regulations and the overlap. And basically not so much they cut all these workers like they did in Argentina, but really streamline regulations which will unleash entrepreneurialism. It will be a big benefit to the country. And we can see this in a microcosm say, between California and Texas. Why do head offices are not leaving Texas to go to California and why are they leaving California to come to Texas? Because of excessive regulations. So this is a really interesting to see within the fishbowl, these two differences. And we continue, if you get HR, if you want to have a small business and you want to go and hire and outsource your HR, do you have to buy insurance when you’re in California? These contracted companies, they can operate very fluidly, easily in the state of Texas, but they immediately have you to go buy more costly insurance because of HR lawsuits.
Mike Maharrey: Yeah. How optimistic are you that the Trump Administration and DOGE, how optimistic are you that they can really bring about some meaningful streamlining and cutting given the possible resistance that we’re going to see in Congress?
Frank Holmes: Well, it’s not just Congress. You’re going to see it by the state departments. Really at any time a president has gone against, they like to call the Deep State, the Deep State causes problems. Jimmy Carter went against them and they caused him a lot of problems, made it easier for Reagan to usher in. And the same thing when Trump first came in. They make it difficult for you. And I think that that’s the reality. I think most of them are Democrats according to data I read, et cetera. And their unions always give back to the Democratic Party. They like regulations. Any government organization likes more rules and regulations because the unions they belong to, they get more workers, they get more fees, and it becomes a sort of horrible cycle that you see that’s really afflicting Europe.
Well maybe this time, maybe the sweep of the election will allow it. The difference is AI. There is no doubt and unequivocally AI is a game changer for looking at a hundred thousand regulations, 10 million pages. How can they stream that down to 3 million? I know in my experience, I took the first AI company public for gold mining exploration. It was called GoldSpot just before COVID. And what they could do is they could take the data and huge amounts of data, run it through systems, and then do what’s called Bale’s Theorem [inaudible 00:05:34]. And they didn’t go find gold spots like you say, “Hey, they’re going to find more gold.” No, they stopped wasted exploration dollars.
So if you thought you had to spend $10 million on all this territory to look for that gold that you think is there as a geologist, well they would turn around and be able to de-risk that, then it’s only $2 million. So they can streamline and that’s really powerful because I think there’s a lot of overlap. And I think even the government workers know that and would actually make their life easier if they dealt with regulations that were going to have a positive impact in the economy.
Mike Maharrey: Yeah, that makes a lot of sense when you think about it. I’ve seen some of the photos of these stacks of government regulations. There’s no way any human brain can comprehend all of that. And yet, as you point out with AI, it’s now possible to parse through that and say, “We’ve got three regulations here and two departments doing the same thing. Cut some of that out.” That’s a really good point. And I hadn’t really thought about that.
Frank Holmes: I know this is happening in healthcare that they were able to take CAT scans, especially for women’s breast cancer, and they went back over and they started going back and back. And when you look at the data, it looks like a carpet. It’s all it does. A carpet at a hotel, you can’t tell, it’s like a smorgasbord of dots. They know now that those dots aligned this way are predictive for cancer.
Mike Maharrey: Wow.
Frank Holmes: So they’ve been able to go and say, “Do these CAT scans.” And I had a friend that just went through an MRI, complete body scan. It’s a big push now, and she’s healthy, she’s never smoked, and all of a sudden they found 20% of her right lung had cancer.
Mike Maharrey: Oh, wow.
Frank Holmes: And she had no issues. She just did this and 65 took this new medical diagnostic and they went in, they took it out and there’s no cancer. It was a tumor. But the fact is, is the MRI could detect that as a precursor. Well, it’s even more advanced for women’s breast cancer now.
Mike Maharrey: That’s amazing when you really think about it, as my stepdaughter is fond of saying, “What a time to be alive!”
Frank Holmes: Absolutely.
Mike Maharrey: You mentioned real rates, and I know that that’s really, I’ve seen that you’ve talked about that’s really the most favorable environment for gold when you have negative real rates. Where are we right now in terms of real rates and how do you see things kind of playing out as we move into the next year with the Fed still apparently cutting to some extent in what I would call a relatively inflationary environment?
Frank Holmes: Well, let’s go back to when we look at rates and what are real and negative and positive as we like to say, positive real interest rates are important to have money flow into fixed income. Money flows out of fixed income when the real after inflationary rates. But what’s interesting for your listeners is the two-year government bond is probably the most sensitive to money flows. That when people left all the banks a couple years ago and they went bankrupt, as soon as interest rates hit 4%, money started leaving all the CDs and the banks had mismatched loans, there’s a magic number with that. When you look at dividend paying stocks, it’s the five-year government bond yield. And when you look at capital expenditure for a building or for buying heavy equipment, technology spend, it’s usually 10 years.
So when you’re financing a gold mine, everything’s off a ten-year discounted rate when you go get a bank loan for that gold mine or you do an equity funding for that. And so what we have to take a look at is what is the two-year now and how is a two-year relative to other governments and what is the inflationary rate? So right now, rates have went down, they came back up slightly. So they are above their fifty-day moving average for the two, five and 10. And that is always a cautionary note for the stock market.
Stock market’s going off of five, short-term flows and trading’s off of two. So you see that where they’re above their fifty-day moving averages, it just makes it that investments to see this correction we just had the stock market would be normal. It’s just a normal function. I think the big run that we had for four weeks was the enthusiasm of the Trump Administration coming in, going after the SEC for, basically that’s where they want deregulation and streamline regulations. Something like 54 laws were created by the SEC that were never at the request of the Congress. They just did it on their own.
Mike Maharrey: Sure. It happens all the time.
Frank Holmes: And that really creates a lockup on creativity of money flows is what I read and listen to lawyers and listen to Wall Street. I was recently in New York and listened to the bankers of how they think. So I think that that’s very positive for the stock market. I think the MMT is not going away. But what I really find interesting, I did an interview yesterday, the average person is really not aware that this century, that gold has been positive 80% of the time. Two, gold has outperformed the S&P 500.
That shocks people. I had to remind them now the gold stocks have not only those gold stocks that have really strong free cash flow or some of the gold royalty companies they’ve outperformed. Whereas a lot of the other companies did not have until only recently, I think 60% have a free cashflow yield. And to get that valuation for the gold stocks, they have to have a free cash flow yield to get the non-gold buyers. The quant funds all go towards growing free cash flow yields. That’s a really important metric they look at.
So the gold stocks have not been as robust for you as a diversified portfolio as bullion has been. And I don’t see that going away. I don’t see MMT going away. I think that the US is going to demonstrate technology advancements. If you look at productivity gains out of Europe versus here, they’re so far behind. If you look at their stock market, I had an Eastern European fund that had two dramas to it. It went from $4 million when I created 98 to $1.4 billion. And when Putin under President Obama first invaded Crimea, when we had President Obama here, all of a sudden we started getting redemptions. Didn’t matter that it was performing well, it was just we don’t want to take risks in that region.
And then on the second invasion, we sold all of our Russian stocks and 50% of the Eastern European indexes were all Russia. So we were out of it, didn’t matter. We protected the shareholders, they still kept redeeming. No one wants to be, so we shut it down. So there’s two things that are really important in my journey in the past 35 years and living in Texas has been, I opened the first China region fund. I opened the first Eastern European fund. Both of them were hugely successful, and I shut both of them down because Americans do not want to take the risk of the China region like they wanted it before. And they don’t trust the dictatorship and they don’t trust Eastern Europe even though countries like Poland are doing exceptionally well. But what you did see out of Europe is a socialist movement and really got a hold of tentacles that if you look at the London Stock Exchange, it’s bizarre, but they’re more promoting their CEO with ESG and DEI and putting those layers on companies.
The companies are leaving. 88 companies, big companies, left the London Stock Exchange last year. Why is that? Well, because all these sort of left regulatory, not revenue recognition, not EBITDA recognition or cash flow, not those issues which drive a stock price, but all these other social agenda issues and to go after climate change through ESG. Companies said, “We’re time out, we’re gone.” And they’ve been going to Amsterdam where there’s less of the sort of punitive regulations. And maybe under Trump, there’ll be a wake-up call and maybe there’ll be a change in Europe because when we look at productivity and we look at the big car companies, 86% drop in earnings. It’s horrible. Now it’s the first time that German carmakers are doing layoffs.
So there’s these structural imbalances in Europe that give America that big advantage. And so I think that the leadership is going to be different. The classic would be this. Recently Trump and Elon Musk, he’s not the president show up in France, and then all of a sudden they are in south Texas watching a rocket take off. And then Elon Musk enjoying his rockets landing safely. That didn’t happen when Trump was coming into power the first time. There was nothing but this sort of negative narrative. Now there’s a cautious, but we’re seeing a change of more conservative mindset in Europe happening. And I think that they’re going to have to embrace technology. They’re going to have to embrace it in another way, and they’re going to have to really embrace their energy needs in a different way. And that’s not climate change energy needs. Where they’re getting their sources of energy, how are they relying on Russia. And hopefully Russia is going to find a peace with Ukraine and they’ll get the pipelines going again and get some peace of prosperity.
But it’s really difficult with a Putin because Putin was head of their KGB and remembers the good old days, and he’s a Bolshevik and he wants it all back. And while he is running that country, it’s very difficult to see him slow down. Poland is spending more than their NATO 2% for war, for preparing for it. They’re more pushing close to 5%. And now there’s a training program for high school kids how to use rifles and guns because they’ve been invaded for the past 200 years by the Russians on a regular basis through Ukraine. So they’re doing everything to protect themselves from this aggression, and that sets it up for these dynamics in the world.
Mike Maharrey: It’s interesting, and I’ll use this to pivot to something that you’ve got coming up. There’s a new ETF that’s coming out from U.S. Global Technology or called the U.S. Global Technology in Aerospace and Defense ETF. And this is interesting. The NYSE is going to be WAR. And tell me a little bit about that.
Frank Holmes: Well, it’s a new WAR and there’s games. If you take a look at Nvidia chips, they really grew at the beginning for gamers that were playing Minecraft and other war games in forms of war games. Then there’s the evolution of drones. And all of a sudden now Nvidia’s chips, AI is booming for medical, for military medical. It is booming for satellite recognition for enemies. The AI component is going to be very important. So in this particular ETF are NVIDIA and other companies that are providing chips for the AI because AI is critical for drones and it’s critical for cybersecurity.
If we look at companies like Palantir, one of the best performing S&P stock this year, I believe up 380%. Palantir is originally data management. And now it’s switched over to recognizing from data, an enemy, an enemy threat, especially for cybersecurity. Well we see nothing but cybersecurity attacks go on. There’s a war in cybersecurity and that’s not going to go away. And this evolution for me comes from launching Hive Digital Technologies, the first crypto mining company. Well, if you’re in Bitcoin mining, you are in data centers. It only exists, and we’ve taken our NVIDIA chips and gone into AI is data centers, but a different type of data center. And so you start to recognize when my global travels, I talk about being in northern Sweden, very close to the largest data center in all of Europe is Facebook’s. And it’s the third largest in the world and it’s huge.
And this little sleepy town called Boden, it was an old military base which was inactive until Russia invaded Ukraine. And now when you’re there, the hotels that are basic and hotels are all packed with soldiers. They’re now part of NATO. And what does that mean being part of NATO is that American companies can go in and sell to them. Before they only bought from Saab. So there’s going to be this huge buildup, but they all need NVIDIA chips. They need these most recent chips. They are going to need cybersecurity. That’s another real important threat to have, and they’re going to need aerospace and defense.
So that was the whole idea of saying, “Okay, how do we bundle?” And we spent thousands and thousands of hours like we did on our other products of back-testing, of looking at those key industries or key components for the new world to protect yourself from war. It’s really much about protecting yourself from war, but you can’t get a ticker that long. So we had to go with WAR.
Mike Maharrey: Right. Yeah. And that’s interesting because I think some people will see it and they’ll be like, “Oh, I don’t want to invest in war.” But I think you make a good point. In a sense, it’s a crisis hedge. Is that a fair way to look at it?
Frank Holmes: It is. And it comes from the fear trading gold. The 60% of gold demand is love. And that’s highly correlated to GDP per capita in Asia, India, Indonesia, Middle East, China, and that’s a different cultural affinity. The other 40% of the gold move is fear. Fear from war. Because if you’re in war, you’re going to have negative interest rates, so you’re going to be printing a lot of money. So this whole concern has led me down and say, “Well, where will it go? How will it go?” And the operative word is we don’t want war. But the ticker is that’s what it is, makes it easy,
Mike Maharrey: Right. We can not want something all we want to, but that doesn’t necessarily change the reality of things. And so I think that’s a really good point.
Frank Holmes: It’s a war on drugs. It’s a war on terrorism. It’s a war on cancer. You hear all these things that have the expression. And so that’s where the thought process that it’s more of a protection. The open borders, that idea is an old Marxist idea that came out of the 1960s from what’s called the Frankfurt School. A group of Marxists said that we have to go in and not just focus on capitalism, we’re going to find ways to attack capitalism using psychology. So they end up using Freud and Erich Fromm, and they were able to infiltrate all the humanities, the universities. And now we have at Stanford, Harris’s father was a Marxist economist. Who would ever have thought that you would have a Marxist economist teaching at such an esteemed school? But that Frankfurt School had these models, and then one of them was have open borders so that poor people can come into richer areas and overwhelm the infrastructure of healthcare and education. And then there’ll be a quiet revolution.
And so you are seeing this stop in Europe, Poland is one of the first. They built a big wall. They have huge water guns to shoot people back when they try to come over. And we had Putin have 10,000 bicycles with people from the Middle East to come into Finland. It’s aiding. Do you think that we had 10 million, 12 million people come through Mexico from North Africa? They swam across the Atlantic, right? Do you think they swam across from China? No, they’re from China. They went to Ecuador. Ecuador, they could get a visa to come into Mexico, and then they walked across the border. And all that was just to create an instability. And the weapons that the Chinese and the Russians funded through various organizations and NGOs that are catering to them was just to destabilize America.
And they also did it in England. There was nothing but boat traffic. When the Prime Minister of Italy said to Xi that there’s no more China Silk Road deal, because it was not one-to-one, its five to one against us, immediately coming from North Africa are all these Africans with life jackets on. Who bought the life jackets? These are people from Cuba holding a styrofoam floating disk to try to get to a capitalist world and a freedom world like America. So I think that a lot of this stuff was planned. I think it’s now going to end. I think the open borders is going to bring a new level of security. Germany has now all of a sudden stopped their open borders. You’re seeing the Danish, you’re seeing the Germans, you’re seeing the Austrians of thinking of how do they package up and send the Syrians that came over back to Syria now that there’s supposed to be peace to go back to that country. Hopefully there is peace and hopefully they can go back to the country.
And because what’s happened in England and what’s happened in Germany is some of these small towns that are predominantly from the Middle East all of a sudden do not respect the culture. They do not want the culture, and they want Sharia law. They don’t want the law of the country, but they want all the welfare benefits and they want all the social benefits, et cetera. But so that creates a conflict. And it’s interesting when you call it a cultural defense mechanism, then people will say, “Okay.”
But there’s been two papers that come out of the UN that was pushing also for open borders. And the first time was it’s not fair that we’re a wealthier country and England’s a wealthier country. And then it became climate change is because we’re wealthy and therefore the border should be open. And who’s writing this stuff is something that’s planted and is mutated like a virus. It’s mutated many, many times since the sixties, and it’s infiltrated with the smartest brains in universities. So I don’t think in two years you’ll be able to cleanse that. But I think what you will be able to do is cleanse a lot of the duplicity that’s in regulations and streamline those and make taxes more efficient.
Mike Maharrey: Well, that’s I guess reason for optimism or at least cautious optimism, right? As we move ahead into the new Trump era. So I’m going to let you get out on this and just let people know where they can find more information from you about your company, about the new ETF. Where can folks go?
Frank Holmes: USfunds.com. It’s really simple. Sign up for investor alert, Frank Talk. I write all these sort of interesting articles of when I’ve been around the world, what I’ve seen and heard, and why I think they’re significant. And the investor alert comes out every Friday, goes out to a hundred thousand people in 80 countries.
Mike Maharrey: Well, awesome. We’ll send people over there and really appreciate your insights and especially kind of the bigger picture geopolitical stuff, because I think a lot of times we can get tunnel visioned on numbers and the latest data that came out and these broader geopolitical issues that are going on are extremely important for people to consider as they look ahead. So appreciate those insights, and again, I really do appreciate you taking the time out of your day to talk with us. And I hope you have a fantastic holiday season, a Merry Christmas, happy new year and all of that stuff.
Frank Holmes: Same. Same with you and all your listeners. Have a ho-ho season. Lots of love.
Well, that will do it for this week. Be sure to check back next Friday for our final Weekly Market Wrap Podcast of the year. And to listen to any of our audio programs just go to MoneyMetals.com/podcasts or find that on whatever podcast platform you prefer.
Until next time, this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a wonderful holiday… for unto us a child is born, Merry Christmas everyone.
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