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2020: Gold’s Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

Summary:
One of the keys to being a successful investor is making sure you’re getting the right facts. Otherwise, you run the risk of making investment decisions based on poor or faulty information. The problem is, the media has a major trust issue. Many Americans put very little faith in the accuracy of the “news” they get from newspapers, TV, radio and social media. A Gallup poll in September found that 33% of Americans—a full third—don’t trust the media at all. This would be distressing in any year, but it’s particularly so during a pandemic and presidential election. I was curious to see if this distrust was turning up in people’s web searches. My suspicions were confirmed. Google inquiries for “media bias” have historically spiked around elections, but this year, people seemed to be more

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One of the keys to being a successful investor is making sure you’re getting the right facts. Otherwise, you run the risk of making investment decisions based on poor or faulty information.

The problem is, the media has a major trust issue. Many Americans put very little faith in the accuracy of the “news” they get from newspapers, TV, radio and social media. A Gallup poll in September found that 33% of Americans—a full third—don’t trust the media at all.

This would be distressing in any year, but it’s particularly so during a pandemic and presidential election.

I was curious to see if this distrust was turning up in people’s web searches. My suspicions were confirmed. Google inquiries for “media bias” have historically spiked around elections, but this year, people seemed to be more concerned with being misled than ever before. 

2020: Gold’s Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

I’m bringing all this up in response to an eye-opening piece this week by Andy Laperriere, head of U.S. policy research at Cornerstone Macro. Andy’s been doing policy analysis for more than 20 years, and he says the level of bias in news sources—those that lean left as well as right—is as high today as it’s ever been in the U.S.

The result is that “there is no common set of basic facts that most people operate from,” Andy says.
So what can we do as investors? Andy stresses that we need to be “intentional about consuming a balanced diet of news coverage.”

That may include going to sources you wouldn’t normally go to.

He rarely watches cable news, calling it “political junk food.” Instead, he prefers the Wall Street Journal. He also likes the editorial pages of the National Review and the Dispatch.

Maybe you agree with Andy, maybe you don’t. Either way, I think it’s constructive to do a regular audit, so to speak, of your preferred news sources. Make it a New Year’s resolution.

I’d be curious to know which news sources you depend on! Send your comments to [email protected].

Low Inflation in the U.S. Is Still “Fake News”

Speaking of fake news…

Earlier this month, the Bureau of Labor Statistics reported that consumer prices rose at an annual rate of only 1.2% in November. The weakness was driven mostly by energy prices, which are still down from the same time last year due to lower demand.

Other commodities, though—particularly food and building supplies—have soared in price this year, leading many people to wonder where the 1.2% inflation figure is coming from.

Take a look below. In the past six months alone, wheat prices have shot up more than 25%, corn 35%, soybeans 50%, as Chinese grain imports are hitting new record highs. I don’t know about you, but my Amazon food deliveries have gotten substantially more expensive in the past few months, so I have to question inflation being under 2%.  

2020: Gold’s Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

The same goes with building supplies, particularly lumber and copper. For the six-month period, lumber prices have increased 275%, as many mills had to close temporarily due to the pandemic.

Copper, meanwhile, is the best-performing base metal of the year, up more than 32%, beating out other metals such as zinc, nickel, tin, aluminum and lead. The red metal, universally found in electrical wiring and building construction, has benefited from global shortages and strong Chinese demand.

The price surge has been a boon to copper producers. Freeport-McMoRan, one of the biggest copper miners in the world, was among the top 10 best performing S&P 500 stocks of 2020, up 100%. (Tesla, which joined the S&P on December 21, was the number one stock of the year, having returned more than 755%.)

Is the consumer price index (CPI) “fake news”? Watch my video by clicking here!

Massive Stimulus, with No End in Sight

Looking ahead to 2021, I anticipate even higher inflation due in large part to easy monetary policy as well as additional government stimulus. Today, the combined balance sheets of the Federal Reserve and European Central Bank (ECB) total a head-spinning $16 trillion. Next year, the two central banks are expected to increase holdings at a combined $240 billion a month, or around $2.88 trillion, according to Evercore ISI’s Ed Hyman.

2020: Gold’s Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

Then there’s also the $900 billion fiscal stimulus that was just signed into law and the “likely” additional $500 billion in the second quarter of 2021, Ed says.

These programs push up asset prices, from stocks to commodities, and that includes housing. Home prices, as measured by the S&P/Case-Shiller Index, rose to a new all-time high in October, the most recent month of data. At an annual rate of 8.4%, home prices are surging much faster than the headline inflation rate of 1.2%.

2020: Gold’s Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

Gold Had Its Best Year in a Decade; Ethereum Beat Bitcoin

Like other hard assets, gold and Bitcoin had a very good 2020 as investors, worried about currency debasement from all the money-printing, sought stores of value. Gold surged over 25%, its best year in a decade. The yellow metal has now ended the year up in 16 of the 20 past years, or 80% of the time.

As for cryptocurrencies, all the attention has been on Bitcoin due to it hitting a new record high of just under $30,000. But don’t overlook Ethereum. The world’s second biggest digital coin actually beat Bitcoin in 2020, by a factor of 2.5.

2020: Gold’s Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

These prices have been a tailwind for crypto miners such as HIVE Blockchain Technologies, the only publicly traded firm that mines both Bitcoin and Ethereum. I’m pleased to tell you that HIVE ended the year up an incredible 2,400%. The company remains the most liquid of any listed crypto firm, having traded more than 1.7 billion shares in Canada in 2020, half a billion in the U.S.

Heard the big news about HIVE Blockchain? Read the press release here!

 

Gold Market

Spot gold closed the year at $1,898.02, up $381.0. per ounce, or 25.11%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the year higher by 22.50%. The S&P/TSX Venture Index came in up 51.57 percent. The U.S. Trade-Weighted Dollar fell 3.16%.

Date Event Survey Actual Prior
Dec-22 GDP Annualized QoQ 33.1% 33.4% 33.1%
Dec-22 Conf. Board Consumer Confidence 97.0 88.6 92.9
Dec-23 Initial Jobless Claims 880k 806k 892k
Dec-23 Durable Goods Orders 0.6% 0.9% 1.8%
Dec-23 New Homes Sales 995k 841k 945k
Dec-28 Hong Kong Exports YoY 1.8% 5.6% -1.1%
Dec-31 Initial Jobless Claims 835k 787k 806k
Jan-3 Caxin China PMI Mfg 54.7 54.9
Jan-5 ISM Manufacturing 56.5 57.5
Jan-6 Germany CPI YoY -0.2% -0.3%
Jan-6 ADP Employment Change 75k 307k
Jan-6 Durable Goods Orders 0.9%
Jan-7 Eurozone CPI Core YoY 0.2% 0.2%
Jan-7 Initial Jobless Claims 787k

Strengths

  • The best performing precious metal for 2020 was silver, up 47.86% as investment demand and the outlook for more solar power improved. Gold had its biggest annual advance since 2010, up 25.11%, after a tumultuous year that included four straight months of declines before snapping back in December. Bullion hit a new record high in August above $2,000 an ounce as investors feared unprecedented stimulus by central banks globally. The yellow metal finished 2020 up, aided by the U.S dollar’s decline to the lowest since April 2018. How might gold fare in 2021? A weaker dollar and low real interest rates are likely to provide support despite the worldwide vaccine rollout. The Federal Reserve has signaled ultra-easy monetary conditions throughout the next year.

2020: Gold’s Best Year in a Decade; Ethereum Beat Bitcoin; Inflation Higher Than Reported

  • Platinum and palladium saw gains. Palladium hit an all-time high above $2,700 an ounce and ended the year up 26.08%. Demand should continue to remain firm but the push for electric vehicles could be a headwind at some point perhaps.
  • Numerous gold companies saw triple digit gains in 2020. U.S. Global Investors portfolio manager and gold expert Ralph Aldis’ top performers for 2020 include: K92 Mining, up 168.82%; GoGold Resources, up 284.21%; Calibre Mining, up 161.55%; and Metalla Royalty & Streaming Ltd, up 132.59%. Ralph predicts these precious metals companies could perform strongly in 2021: RoxGold, Revival Gold, Magna Gold and Barksdale Resources.

Weaknesses

  • The worst performing precious metal for the year was platinum, still up 10.79 percent.
  • 2020 saw a spike in money flowing into gold-backed ETFs, then an exodus toward the end of the year. Citigroup cut its forecast for net inflows into gold ETFs to just 800 tons for the year, 75 tons less that previously predicted, reports Bloomberg. The bank expects inflows to be 50% lower in 2020 and sees support for gold in the short term at $1,700 an ounce. The largest gold-backed ETF, the SPDR Gold Trust, had its largest monthly outflow since 2017 in November, losing over 50 tons.
  • Gold demand in the world’s second-largest consuming nation was a major weakness in 2020. This year due to coronavirus and weak economic growth, India’s gold jewelry sales fell below last year’s 194 tons to the lowest quarterly numbers since 2008, according to Metals Focus. World Gold Council (WGC) data showed purchases of gold jewelry, coin and bars fell by half from a year earlier in the first nine months through September. India, which also polishes nearly 90% of the world’s rough diamonds, says exports will fall by as much as a quarter in 2020. The Gem & Jewellery Export Promotion Council says supply disruptions and lower demand from the coronavirus could push exports down as much as 25% and that the current slump is worse than that in 2008-2009.

Opportunities

  • Both gold and gold equities had a banner year. The rally in bullion helped miners expand margins and generate record levels of free cash flow, allowing companies to pass on profits to shareholders already, according to Scotiabank analyst Tanya Jakusconek. Ironically, many of the gold mining stocks languished as the second half of the year wore on with gold largely trading sideways after setting a new high earlier in the year. Maybe it’s like the 1970s starting over again? Having a listen to 1970s hit “Ball of Confusion (That’s What the World Is Today)” performed by the Temptations takes a person to today in terms of the same issues that the world was facing coming out of the 1960s. The 70s was a great decade for gold, “and the band played on” as prices marched higher.
  • The 2021 gold bulls are here. Credit Suisse expects another strong year for the precious metal with an average price target of $2,100 per ounce. Goldman Sachs predicts gold at $2,300 next year. The bank is clearly bullish on the metal as it purchased the Perth Mint Physical Gold ETF and renamed it the Goldman Sachs Physical Gold ETF. In a Kitco News outlook survey, 84% of respondents said they see gold over $2,000 an ounce by the end of 2021.
  • Should investors look toward seniors or juniors in 2021? Ralph says “you might get more bang for your buck” with juniors or mid-tier miners. Seniors such as Barrick and Newmont have mostly flat gold production and will need to make acquisitions if they don’t find discoveries themselves, opening up opportunities for smaller players to get bought out. 2020 was largely a drought for M&A, and Ralph expects 2021 and 2022 to see more consolidation.

Threats

  • A rising threat for gold, and other safe-haven assets, is the mainstream adoption of cryptocurrencies. Money has poured into Bitcoin funds and out of gold-backed funds. JPMorgan expects this trend to continue as more institutional investors take positions in cryptocurrencies. The Grayscale Bitcoin Trust has seen inflows of almost $2 billion since October, compared with outflows of $7 billion for ETFs backed by gold, according to JPMorgan. Many investors view bitcoin and cryptos as an alternative to gold as a hedge in their portfolio against equities and other currencies.
  • Gold historically performs well during times of economic and geopolitical uncertainty. The yellow metal soared as COVID-19 spread and sent turmoil through global markets. The metal dropped after news of vaccine progress came out and after several vaccines were approved to fight the virus. Gold also historically moves in the opposite direction of the wider stock market. Should a global economic recovery take place in 2021, it could be a headwind for gold, although a positive for most others.
  • The battle for Venezuela’s gold reserves continued in 2020. A British appeals court ruled in favor of the Venezuelan government of Nicolas Maduro, saying the legal battle over the country’s $1 billion in gold in the Bank of England vaults should be reconsidered. Bloomberg reports the appeals court reversed a lower court ruling that recognized opposition leader Juan Guaido as the interim president. This ruling gives Maduro another chance at getting his hands on the gold, which he would likely sell in order to support the struggling South American nation.

 

Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average gained 1.35%. The S&P 500 Stock Index rose 1.49%, while the Nasdaq Composite rose 0.65%. The Russell 2000 small capitalization index lost 1.37% this week.
  • The Hang Seng Composite gained 3.24% this week; while Taiwan was up 3.17% and the KOSPI rose 2.37%.
  • The 10-year Treasury bond yield ended the week essentially flat.

You can read the the remainder of the article at http://www.usfunds.com/investor-library/investor-alert/2020-golds-best-year-in-a-decade-ethereum-beat-bitcoin-inflation-higher-than-reported/

December 31, 2020

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

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