Frank Holmes on What Will Move the Price of Gold

- January 27th, 2017

Holmes discusses the fear trade, the love trade and interest rates.


Frank Holmes, CEO and chief investment officer of US Global Investors (NASDAQ:GROW), stopped by the Investing News Network (INN) booth at the Vancouver Resource Investment Conference (VRIC) to give his thoughts on the Trump presidency, catalysts that will move the gold price and how to pick winning stocks.
Overall, Holmes believes that President Trump will be good for mining as well as manufacturing, and said, “I think he’s very good for job creation.”
Speaking about the catalysts that will move the price of gold, Holmes said that the fear trade and love trade are crucial. “Any time the inflation is greater than what the government is willing to pay you, gold goes up. Any time inflation is less … it goes down. It’s very simple. Follow real interest rates,” he explained.
When it comes to picking stocks, Holmes thinks that looking at the track record of a company’s management is key, as they are “stewards of capital.” When asked what type of companies he likes best, Holmes said, “we like looking at companies that have low G&A to revenue. They just have a better probability of performing well.” He also gave some tips on evaluating junior resource companies.
Watch the video above for more of Holmes’ thoughts, or read the full transcript below. You can also click here to view the full list of INN’s VRIC videos.

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INN: I want to start off by talking about Donald Trump. There’s been lots of talk about what his presidency could mean for commodities, especially gold. What are your thoughts on that?
FH: When we look at gold, the biggest factor is real interest rates. So it’s much more of what’s going to happen with the central bank. That’s really what’s key for investors — the central bank. I think that the key for him is that he is very pro-America and developing mines and pipelines, everything in America. I think he’s very good for job creation in America.
INN: That’s kind of where I was going. I’ve heard some mining companies already saying that they think everything’s going to be just a little bit easier. Do you think that’s going to be true?
FH: Absolutely. When you take a look at who voted for him, it’s the owners of small businesses that represent about 60 percent of all job creation. And it was estimated by the Manufacturers Association of America that it was costing almost $35,000 [worth] of regulations per employee. So he is a big push back against that.
INN: Can we talk a little bit about other catalysts that will move gold this year? In some of your talks today you mentioned the fear trade and the love trade. Can you talk a little bit about those?
FH: Sure. The two drivers for gold prices are the fear trade and the love trade. The fear trade is what’s called real interest rates. What the government will pay you to buy one of their bonds, and you have to take away the CPI number, which comes out every month. Any time the inflation is greater than what the government’s going to pay you, gold goes up. Any time inflation is less … and you are going to actually have a positive rate of return, gold goes down. It’s very simple: follow real interest rates.

INN: In one of your talks this morning you were focusing on how to pick winning stocks, which is definitely a hot topic at a conference like this. If you had to give only one piece of advice to investors, what would it be?
FH: [Look at] management’s track record as stewards of capital.
INN: Could you talk a little about your favorite companies, or even what type of company you like best?
FH: So when we look at gold mining in the world, we like to look at companies that have low G&A to revenue. They just have a better probability of performing well. [We also like to look at] cash or return on invested capital, which is a key factor for Warren Buffett. So if you just pick the 10 best stocks every quarter that have the highest cash or return on invested capital, you’ll outperform most of the time and all indexes. So I like to look at those factors. Now the exploration, which will dominate this conference, and the mining companies, I like to look at the track record and burn rate of these companies, and how well do they protect the value per share. That’s what’s really important.
There’s very few people that can do what Frank Giustra can do. Frank Giustra is like a savant when it comes to taking capital. His new venture Leo Gold I think is a major home run. It will be revalued once this transaction is done with Goldcorp (TSX:G,NYSE:GG) and you’ll see it double and triple, and that’s why we’re shareholders.
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Securities Disclosure: I, Pia Rivera, 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.

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