The Investing News Network caught up with Frank Holmes, CEO and chief investment officer of US Global Investors (NASDAQ:GROW), at this year’s International Metal Writers Conference to get more insight on the future of the junior resource sector, the gold market and his favorite stocks.
Speaking about gold, Holmes explained, “investors have to recognize that gold has a seasonal pattern to it. There is a 60- to 70-percent probability of gold rising between June and January next year.” He believes that if interest rates stay low the yellow metal will benefit.
Holmes also took the time to talk about how new investors can jump into the junior mining space, noting that they should always do their homework. “[Investors] have to be very conscious about the people behind [any] project, but there are a lot of opportunities,” he added.
Watch the video above or read the transcript below to learn more about Holmes’ thoughts on the topics above.
INN: There’s been a recovery in the resource sector and many investors are very optimistic about it. Is that optimism justified or are there any factors that could throw off track this recovery in the space?
Frank Holmes: I think the biggest fear you have to have is what is called (PMI) Purchasing Manufactures Index, and if Global PMI one month below three months it will stall. Do I think it’s over? No, but I think we’re going to have a stalling period where a lot of the base metals and energy prices. What you have to have is you have to have Global PMI and you have to have US PMI where that last one month is above the three and they do it for several months. That’s the only headwind I see otherwise take a look at China. They’re going to spend 100 billion dollars. Trump two weeks later runs over to the Middle East, and he’s now raising over a hundred billion dollars for global infrastructure spending. That’s all great economic engine work.
INN: What advice would you giving investors looking to jump into the junior mining sector? Can they still make big gains in this space?
FH: Well you have to do your homework and there’s no doubt you have to be really conscientious of the people behind the project. I think there’s lots of opportunities but I’ve always advocacy for simplicity with gold as you have a 10 percent weighting you rebalance each year. So if you go buy some of these junior names and they do have big moves you have to take profits off the table and diversify back.
INN: Speaking specifically about gold we know that the prices have been fluctuating since the beginning of the year, and some analysts are going bearish about how high prices can go. Are you still bullish on gold or not?
FH: Well I’ve always seen this 10 percent weighting in rebalance. I think it was important for investors to recognize is that gold has a real seasonal pattern to it where there’s a 60 percent probability of gold rising between June and January next year. And it will go up higher and then correct and higher and you have all these Indian wedding seasons, the Indian season of lights, you have Christmas, you have Chinese New Year, and it all starts around now with Ramadan. So we’re in the next part of the cyclical move. I think negative interest rates, if Trump cannot get through the deregulation he is pushing for then rates have to stay low and they have to go negative to stimulate economic activity and that would be very good for gold.
INN: That’s great. And aside from gold, are there any other commodities that you’re particularly excited about in 2017?
FH: I think copper and lithium. I think there’s no doubt more and more cars will be going to the battery charge and you going to need lithium and you need more wiring. So copper is going to be important. And if Trump is able to get through all this infrastructure spending you’re going to have big demand for copper in particular.
INN: Can you tell us a bit about what companies like right now or that you’re following?
FH: Well we love the company in Colombia called Gran Colombia (TSX:GCM) listed in Toronto, it did a big turnaround, and you can buy 2020 gold notes that give you convertibility and you make almost 10 percent get paid monthly. I love that piece of paper. Klondex Mines (TSX:KDX) will be here tomorrow. We think that’s just one of those great, great, inexpensive companies. They were sold down because of the restructuring of the GDXJ ETF (ARCA:GDXJ) that hurt them, but I think it’s just great value.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.