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America Remains the Land of Opportunity. For Everything Else, There’s Gold

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By Frank HolmesCEO and Chief Investment OfficerU.S. Global Investors In 1967, a woman then known as Svetlana Alliuyeva arrived by plane in New York. Moments after landing, she held a press conference during which she renounced her native Soviet Russia, describing it as “profoundly corrupt.” She burned her Soviet passport and called her father—who had died in Russia a decade earlier—“a moral and spiritual monster.” Her father was Joseph Stalin, the former dictator of the USSR. In case you weren’t around at the time, Svetlana’s defection to the U.S. was a very huge deal. Having changed her name after remarrying, Lana Peters became a U.S. citizen in 1978. She made millions from her autobiography—something that was categorically unachievable in her communist homeland. In 1991, she got to see

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By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

In 1967, a woman then known as Svetlana Alliuyeva arrived by plane in New York. Moments after landing, she held a press conference during which she renounced her native Soviet Russia, describing it as “profoundly corrupt.” She burned her Soviet passport and called her father—who had died in Russia a decade earlier—“a moral and spiritual monster.”

Her father was Joseph Stalin, the former dictator of the USSR.

In case you weren’t around at the time, Svetlana’s defection to the U.S. was a very huge deal. Having changed her name after remarrying, Lana Peters became a U.S. citizen in 1978. She made millions from her autobiography—something that was categorically unachievable in her communist homeland.

In 1991, she got to see the fall of the government her father once had ultimate authority over. Almost exactly 20 years later, Lana Peters passed away in Wisconsin.

Although Lana’s story is a lot more complicated than I make it out to be, I think it’s one that many Americans should remind themselves of and take to heart. She fled her father’s communist regime to seek a better life, and she found it in the U.S.

Communism and Socialism Gaining Favor Among Millennial Americans

I share this with you now because here we are nearly 30 years out from the collapse of the USSR, and the lessons of the past appear not to be resonating with some young Americans.

Need proof? For four years now, the Victims of Communism Memorial Foundation—a Washington, D.C.-  based nonprofit—has been polling Americans on their attitudes toward communism and socialism. What the group found in its most recent poll is that, between 2018 and 2019, millennials’ favorability of communism increased a whopping 36 percent.

America Remains the Land of Opportunity. For Everything Else, There’s Gold

What’s more, almost three quarters of millennials—those aged 23 to 38—said they were “likely” to vote for a socialist-minded politician in upcoming elections. Half of those surveyed said they were “somewhat likely,” while as much as 20 percent said they were “extremely likely” to support a socialist candidate in the mold of Vermont senator Bernie Sanders or New York congresswoman Alexandria Ocasio-Cortez (AOC).

We should all be alarmed about this.

It means, number one, that young Americans don’t feel as if capitalism is working in their favor. And number two, it means we’re not doing enough as a society to educate our citizens of the slippery slope that is collectivist thinking, which includes communism and socialism.

Absolute Power Corrupts Absolutely

In addition, there are some who try to explain away the USSR’s failure (or Cuba’s or Venezuela’s) by laying the blame not at the altar of communism, where it belongs, but at the feet of corrupt leaders  such as Stalin, Fidel Castro, Nicolas Maduro and others. “It’s not ‘real’ socialism,” some like to say when confronted with the ugly reality of Venezuela’s failed economy.

But such thinking is a fallacy, says famed psychologist and political commentator Jordan Peterson.

“It’s the most arrogant possible statement anyone could ever make,” he commented during a 2017 lecture. People who believe they have higher moral standards than Stalin, and who think they would have done a better job than him in his position, simply “don’t understand” how the system operates, according to Dr. Peterson.

And even if they did know the system backwards and forwards, “there would have been someone else right behind you waiting to shoot you the first time you actually tried to do anything good”—which is precisely what Stalin did.

“So even if you do happen to be that avatar of moral purity that you claim implicitly,” Dr. Peterson said, “the probability that you could get to act out your goodness in relationship to those possessed by your ideology is zero.”

Gold Had Its Best Year Since 2010

I’m optimistic that the U.S. will stand as a beacon of freedom and opportunity in the 2020s and beyond, but with more and more younger Americans supporting socialism over capitalism, I believe it prudent to proceed with caution. That means making sure you’re following the 10 Percent Golden Rule, which states that you should have 10 percent of your portfolio in gold—split between physical gold such as coins and jewelry, and gold mining stocks and ETFs.

I’ve always believed that if you love your family, and if you seek to protect their wealth against potentially disastrous government policies, it’s wise to hold gold.

America Remains the Land of Opportunity. For Everything Else, There’s Gold

The yellow metal had an excellent year, closing out 2019 on solid footing for 2020. While the per-ounce price of gold bullion increased more than 15 percent—its best year since 2010—gold mining stocks returned an impressive 40 percent for the year. That was enough to beat the S&P 500, which was up about 29 percent in 2019.

A new decade has begun, meaning now might be a good time to rebalance your portfolio. I recommend the 10 Percent Golden Rule, which you can learn more about by clicking here!

S&P 500 A Decade in Review - Take Our Latest Quiz!

Gold Market

This week spot gold closed at $1,552.20, up $41.64 per ounce, or 2.76 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 1.11 percent. The S&P/TSX Venture Index came in up 4.23 percent. The U.S. Trade-Weighted Dollar fell just 0.02 percent this week.

Date Event Survey Actual Prior
Dec-30 Hong Kong Exports -6.2% -1.4% -9.2%
Dec-31 Conf. Board Consumer Confidence 128.5 126.5 126.8
Jan-1 Caixin China PMI Mfg 51.6 51.5 51.8
Jan-2 Initial Jobless Claims 220k 222k 224k
Jan-3 Germany CPI YoY 1.4.% 1.5% 1.1%
Jan-3 ISM Manufacturing 49.0 47.2 48.1
Jan-7 Eurozone CPI Core YoY 1.3% 1.3%
Jan-7 Durable Goods Orders -2.0%
Jan-8 ADP Employment Change 160k 67k
Jan-9 Initial Jobless Claims 221k 222k
Jan-10 Change in Nonfarm Payrolls 158k 266k

Strengths

  • The top performing precious metal for 2019 was palladium, gaining 54.20 percent. In a weekly Bloomberg survey of analysts and traders, gold sentiment remained marginally bullish the first days of the New Year. The survey showed eight bullish, two bearish and seven neutral. At week-end, gold advanced toward a six-year high, climbing 1.5 percent to $1,551 an ounce in London, after a U.S. airstrike killed one of Iran’s most powerful generals, reports Bloomberg.
  • Gold had a strong finish to the year, recording its biggest annual advance since 2010 as the dollar weakened, reports Bloomberg, even amid optimism on the trade front along with signs of stabilization in China’s economy. In a statement from the London Bullion Market Association, the amount of gold held in London vaults rose 2.5 percent from a month earlier to 8,228 tons in September. That’s the highest in data going back to July 2016. In related news, Hong Kong’s purchases of gold coins from China surged last month as demand for haven assets soared amid the ongoing social unrest.
  • Weekly CFTC data on futures and options show that money managers have increased their bullish platinum bets by 2,655 net-long positions to 41,825, reports Bloomberg. Platinum futures also climbed as much as 1.7 percent to $1,001.40 an ounce in New York. This reached the highest for a most-active contract since February 2018.

Weaknesses

  • The worst performing precious metal for 2019 was silver, gaining only 15.21 percent. Gold holdings in Turkey’s central bank continue to fall, reports Bloomberg. The holdings are now worth $25.1 billion, as of December 27, weekly figures report.
  • Despite bullion’s rally, it isn’t doing much to aid in the sales of coins made from the shiny metal, reports Bloomberg. Purchases of American Eagle gold coins shrank to 2,000 ounces last month, the lowest since December 2015, according to data from the U.S. Mint.
  • A statement by water commission Conagua reports that Newmont Goldcorp’s Penasquito mine, along with the Mexican government, have reached an agreement to protect the Cedros aquifer in the state of Zacatecas. Penasquito had around 80 percent of the aquifer’s volume concessioned, part of which it gave up as part of the agreement.

Opportunities

  • RBC Capital Markets thinks that the price of gold could tack on another 11 percent to its 19 percent gains over the last year, reports Bloomberg. The bank’s strategists led by Christopher Louney wrote in a note that although gold prices have historically been volatile and could see some fluctuations over the next two years on a quarterly basis, the yearly story could paint a different picture. On a yearly basis, the trajectory is likely higher. And with gold’s rally potentially continuing, silver can also rally further, reports Bloomberg. The two metals are highly correlated, and with a comparative beta 1.3, silver offers greater potential upside.

America Remains the Land of Opportunity. For Everything Else, There’s Gold

  • Tyler Durden of Zero Hedge provided an analysis this week shedding some light on how the Fed is already conducting “Helicopter Money.” His article notes that the Fed’s charter prohibits it from directly purchasing bonds or bills issued by the U.S. Treasury, but what’s to stop the Fed from purchasing such U.S. debt just after the issuing trade settles? Apparently, that is okay.  With some sleuthing, Durden dug through the government filings and traced debt issuance on December 16th, 19th, and 20th where T-Bills were sold to the broker/dealer and as soon as the trade settled, the Fed bought the debt back from the broker /dealer circumventing the hurdle that prohibits direct purchases. Obviously, the broker/dealers aren’t likely doing this for free.
  • Several companies have released news of strategic investments heading into the New Year. Manitou Gold Inc., for example, announced the closing of a $3 million financing and strategic investment by Alamos Gold Inc. and 03 Mining, reads one press release. On Tuesday, similarly, Red Pine Exploration said it closed a brokered C$3.78 million private placement of flow-through and common share units that included an investment in the company by Alamos Gold – which took a 19.9 percent stake in the company. Clearly, the established gold mining companies are actively buying stakes in exploration and development companies. Other company news includes drilling numbers from Scottie Resources Corp. of 73.32 g/t gold and 71.01 g/t silver over 4.38 meters, which announced that drilling continues to confirm and expand the Bend Vein target on its Bow Property. Lastly, Bob Moriarty from 321Gold highlighted recently TriStar Gold and its Witwatersrand lookalike deposit in Brazil – check it out in Streetwise Reports.

Threats

  • S&P Global Ratings was the most bearish on U.S. corporate debt in 2019 than at any other point in the last decade, reports Bloomberg. In fact, 2019 saw the most credit rating downgrades for U.S. companies relative to upgrades since 2009, according to S&P data. Energy names bore the brunt of the downgrades.
  • Thomas Barkin, President of the Federal Reserve Bank of Richmond, says a potential escalation of U.S. tensions with Iran is among the shocks that could threaten America’s record-long economic expansion, reports Bloomberg, which he says for now looks “quite healthy.” “There’s always the possibility of a heart attack or a shock, perhaps caused by global risks,” Barkin explained in a speech on Friday in Baltimore. “Imagine an escalation with Iran or a collapse in international economies.” Such events raise the possibility that the Fed might actually cut rates in the coming year.
  • DB Macro, in a research note, outlines six things on Iran for the week that investors should be aware of following the big geopolitical event overnight. While all six points are of important context, the first really stands out to us. Coming from Oliver Harvey, U.K. Macro Strategist: he notes this is by far the most worrying escalation of a simmering conflict between the U.S. and Iran since the U.S.’s withdrawal from the JCPA in May 2018. He says it is almost analogous to Iran assassinating Vice President Pence in terms of importance of Soleimani.

Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average lost 0.04 percent. The S&P 500 Stock Index fell 0.16 percent, while the Nasdaq Composite climbed 0.16 percent. The Russell 2000 small capitalization index lost 0.49 percent this week.
  • The Hang Seng Composite gained 0.80 percent this week; while Taiwan was up 0.16 percent and the KOSPI fell 1.26 percent.
  • The 10-year Treasury bond yield fell 8 basis points to 1.79 percent.

Read the remainder of the article at http://www.usfunds.com/investor-library/investor-alert/america-remains-the-land-of-opportunity-for-everything-else-theres-gold/

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