For the past decade, citizens of Latin American countries have grown bolder in protesting their governments’ failed socialist policies. We’ve seen unrest in, among other states, Venezuela, Chile and Colombia, but until last week, we hadn’t heard a peep from Cuba, which has been under communist rule since Fidel Castro’s revolution in 1959. It’s hard to exaggerate the significance of Cubans taking to the streets to air their grievances against the government. Protests of this scale are unprecedented in the Caribbean island-state’s history. But living conditions are deteriorating fast, due to President Miguel Díaz-Canel’s mishandling of the economy during the pandemic. Echoing dismal scenes from past failed socialist-communist regimes, Cubans must stand in line for hours to buy food. Power
Frank Holmes considers the following as important: Blockchain, Cuba, Frank Holmes, Gold, gold and bitcoin, News, Socialism, Venezuela
This could be interesting, too:
SchiffGold writes Central Banking Is Rooted in Socialism
SchiffGold writes Price Analysis: Gold Diverges from Bonds as Critical Test Looms at 00
SchiffGold writes Comex Countdown: Quiet Before the Storm?
SchiffGold writes Ask Mike Anything: SchiffGold Friday Gold Wrap Oct. 22, 2021
For the past decade, citizens of Latin American countries have grown bolder in protesting their governments’ failed socialist policies. We’ve seen unrest in, among other states, Venezuela, Chile and Colombia, but until last week, we hadn’t heard a peep from Cuba, which has been under communist rule since Fidel Castro’s revolution in 1959.
It’s hard to exaggerate the significance of Cubans taking to the streets to air their grievances against the government. Protests of this scale are unprecedented in the Caribbean island-state’s history.
But living conditions are deteriorating fast, due to President Miguel Díaz-Canel’s mishandling of the economy during the pandemic. Echoing dismal scenes from past failed socialist-communist regimes, Cubans must stand in line for hours to buy food. Power outages can last for hours at a time.
As many others have pointed out, the protests offer hope that change may be right around the corner for the people of Cuba. Its young people—for whom the Castro revolution is fading in relevance—are well educated, active on social media and not shy about taking risks, even in the face of police violence and persecution.
What have they got to lose anyway that socialism hasn’t already stolen from them and their families?
Venezuela to Redenominate Its Currency… Again
Indeed, if you want to see a once-prosperous country’s economy destroy itself, there are few more effective ways than to install a hardline socialist government. Before the revolution, Cuba’s economy was larger than Singapore’s. But whereas the former’s decayed, the latter’s thrived under the free market policies of Lee Kuan Yew, who came into power the same year as Castro. Today, Singapore has one of the world’s highest GDPs per capita and ranks number one on the Heritage Foundation’s Index of Economic Freedom.
And then there’s Venezuela, once the wealthiest country in South America thanks to its fossil fuel reserves, the largest in the world. High oil prices may have helped keep Venezuela’s coffers well stocked during Hugo Chavez’s administration, but conditions tanked dramatically in 2014 when the bottom fell out of the oil market. Even when prices began to recover, the economy continued its downward spiral, fueled by unchecked government spending and rampant money-printing. GDP per capita is lower today than it was in 1985.
I’ve written extensively about hyperinflation in Venezuela, which continues to pummel people’s pocketbooks and savings. You think cash is trash? The Venezuelan bolivar is effectively worthless, a point well illustrated at this year’s Bitcoin 2021 conference in Miami when someone hauled in a dumpster full of 50-bolivar notes, which went ignored by attendees and passersby. According to Bloomberg’s Venezuela Café con Leche Index, a cup of hot coffee in the capital of Caracas now costs a little under 7 million bolivars, a 2,289% increase from just a year ago.
Besides destroying the value of the local currency, inflation has made making simple purchases absurdly complex. Calculator screens often cannot display entire figures, and credit cards must be swiped multiple times to complete a transaction.
That’s why, to simplify things, Venezuela announced it will be lopping off as many as six zeros from the bolivar’s value. So instead of one American dollar converting to 3,219,000 bolivars at present, it will convert to 3.2 bolivars.
This isn’t the first time the country has had to redenominate its currency. In 2018, Venezuela began printing a 1 million-bolivar note, the largest in country history, which isn’t even enough to buy you a single cup of coffee in 2021.
Gold and Bitcoin Could Be the Solution
Both Cuba and Venezuela are cautionary tales of hardline socialism, an ideology that, at its core, has no respect for civil liberties or private property. Citizens of these countries are tragically denied ownership over their own livelihoods, largely as a result of being locked into using disastrously mismanaged currencies.
Gold and Bitcoin could be the solution. These assets transfer ownership directly from governments and central banks to individual holders. When you buy a gold coin or a Bitcoin, you are granted access to real money that transcends borders, jurisdictions and regimes. This is what’s known as self-custody.
Historically, gold has literally saved people’s lives. Consider the Vietnamese “boat people” in the 1970s and 80s, who were forced to flee the country after the communists took control. Had it not been for gold, which became the de facto currency with the collapse of South Vietnam, many families wouldn’t have been able to make their escape past the Vietcong, Cambodian soldiers and even Thai pirates.
Today, Bitcoin is likewise extending a lifeline to desperate people in desperate circumstances.
Many allies of the Cuban protestors have been able to show their support by sending them Bitcoin. As I’ve pointed out before, Bitcoin adoption in Venezuela has been remarkably fast. Because there’s no third-party risk, the crypto “has become a tool to send remittances, protect wages from inflation and help businesses manage cash flow in a quickly depreciating currency,” according to reporting by Reuters.
Gold Continues to Look Undervalued
As for gold, it traded down this week, marking the first loss in five weeks, but support held at around $1,800 an ounce. I see this as an attractive entry point as the metal looks undervalued compared not only to equities but bonds as well. Ordinarily gold has traded inversely to bond yields, but as you can see below, it’s been underperforming. I’ve inverted the Treasury yield line so you can see the relationship more clearly.
On a final note, I’ll be participating in a webcast on gold and Bitcoin, and I will be joined by none other than Bitcoin evangelist Michael Saylor, founder and CEO of MicroStrategy. To get the link to book your spot for this exclusive conservation, email me at [email protected] with subject line “Michael Saylor webcast.” Demand has been higher than even I anticipated, so don’t hesitate to register!
- The major market indices finished up this week. The Dow Jones Industrial Average gained 1.08%. The S&P 500 Stock Index rose 1.96%, while the Nasdaq Composite climbed 2.84%. The Russell 2000 small capitalization index gained 2.15% this week.
- The Hang Seng Composite lost 2.98% this week; while Taiwan was down 1.80% and the KOSPI fell 0.69%.
- The 10-year Treasury bond yield fell 11 basis points to 0.85%.
Blockchain and Digital Currencies
- Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was EIFI Finance, gaining over 2 million percentage points.
- On Wednesday, the price of Ethereum rose following comments from Tesla CEO Elon Musk stating that he owns the popular cryptocurrency. Musk also repeated his support for cryptocurrencies in general, reports CNBC, despite potential environmental risks he has noted before. Musk added that as Bitcoin mining is increasingly powered by renewable energy, Tesla will likely move to accept the popular digital currency for transactions once again.
- Only July 20, Viridi Funds announced the launch of the Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (ticker symbol RIGZ). The fund is focused on investments within the cryptocurrency mining and mining infrastructure industries, explains the company’s press release. “We launched RIGZ to provide investors with an ETF that attempts to align purpose and profit by investing in the infrastructure that underpins the entire ecosystem with sustainability in mind,” said CEO Wes Fulford. HIVE Blockchain Technologies is currently around 4% of the ETF’s holdings.
- Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Golden Ratio Token, falling 93%.
- On Bloomberg Markets this week, Guggenheim Investments Chairman Scott Minerd said Bitcoin could drop to $15,000. In his interview with reporter Sonali Basak, Minerd explained that the standard bear market for Bitcoin has been about an 80% retracement, and given all the uncertainty in the space, along with all of the new competition (in terms of new coins, etc.), he thinks there is more downside to go in the price.
- In the futures market DeFi Pulse, where financial initiatives like lending take place on the blockchain, notes that trading activity has fallen to $54 billion compared to $89 billion at its peak in May. A big driver of staking coins was to earn more attractive yields than on treasuries, but that advantage has now narrowed.
- Fund managers are pushing ahead to get the first American Bitcoin ETF approved, writes CoinTelegraph. This week, New York-headquartered fund manager Global X Digital Assets filed an application for a BTC ETF with the SEC. The application indicates that the Global X Bitcoin Trust would, if approved, trade on the CBOE BZX exchange.
- A survey conducted by Goldman Sachs on family offices found that nearly half of respondents plan to add digital currencies to their portfolio of investments. A breakdown of the survey participants shows that 22% had assets totaling more than $5 billion and 15% of family offices are already investing in cryptocurrencies.
- Most major central banks trail China in the trials of rolling out a digital currency, which has already taken place in several cities. India is also looking to phase in a digital currency but is struggling on whether their system would provide anonymity or non-anonymity on currency transactions. Meanwhile, the U.S. Federal Reserve and the Bank of England are looking into possibilities of a digital currency.
- NatWest has followed some of its U.K. banking peers in blocking debit and credit card payments to crypto exchange Binance, writes CoinDesk. The move from NatWest comes following the warning from the Financial Conduct Authority last month that Binance was operating in the country without permission. A further blow to crypto in the U.K., the article explains, came on Thursday as the CEO of Starling Bank Anne Coden described some cryptocurrency exchanges as “quite dangerous,” while on a call to reporters.
- The European Union is proposing to prohibit anonymous cryptocurrency transactions as part of a broader plan to combat money laundering and terrorism financing, writes Bloomberg. The plan unveiled Tuesday would ban anonymous crypto asset wallets, with the European Commission saying systems like Bitcoin should be governed by the same rules as regular bank wire transfers.
- The U.S. Senate is set to investigate crypto’s use in the numerous ransomwares attacks that have crippled infrastructure. Both the Homeland Security branch and the Judiciary Committee will be conducting dual probes and the tone of the discussions seem to focus more on cryptocurrencies rather than on the attacks themselves.
This week spot gold closed the week at $1,802.15, down $9.90 per ounce, or 0.55%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 2.49%. The U.S. Trade-Weighted Dollar rose 0.25%.
|Jul-22||ECB Main Refinancing Rate||0.000%||0.000%||0.000%|
|Jul-22||Initial Jobless Claims||350k||419k||368k|
|Jul-26||Hong Kong Exports YoY||24.6%||—||24.0%|
|Jul-26||New Home Sales||800k||—||769k|
|Jul-27||Durable Goods Orders||2.0%||—||2.3%|
|Jul-27||Conf. Board Consumer Confidence||124.1||—||127.3|
|Jul-28||FOMC Rate Decision (Upper Bound)||0.25%||—||0.25%|
|Jul-29||Germany CPI YoY||3.2%||—||2.3%|
|Jul-29||Initial Jobless Claims||378k||—||419k|
|Jul-29||GDP Annualized QoQ||8.5%||—||6.4%|
|Jul-30||Eurozone CPI Core YoY||0.6%||—||0.9%|
- The best performing precious metal for the week was palladium, up 1.74%. Following the initial announcement of the agreement in principle (in June 2020), Kinross Gold has officially signed a definitive agreement with the Government of Mauritania, providing greater certainty on the fiscal terms and the economics of the Tasiast mine. The agreement confirms the same terms as stated in the previous announcement June 15, 2020, including tax exemptions on fuel duties, an updated sliding scale royalty rate, and payment from Kinross to the Government of Mauritania of $10MM to resolve previously disputed matters.
- The gold industry continues to increase its output as it recovers from the impact of COVID-19. The industry’s aggregate gold equivalent output is forecast to increase 13.4% year-over-year in the second quarter of 2021. In the second quarter of 2020, gold output was impacted negatively as mines operated at reduced levels and were being placed on care and maintenance.
- Credit Suisse is bullish on gold stocks. The bank feels they are 25-30% undervalued on a price-to-earnings metric. The recent fall in TIPS (treasury inflation-protected securities) should help the price of gold by 5.5%. Should there be unsustainable debt levels, gold can be a protector against this. Gold is 20% below its prior peak and cheap compared to other commodities.
- The worst performing precious metal for the week was platinum, down 3.74%. Gold edged lower, extending its retreat from a one-month high, as the dollar and Treasuries rallied amid a deterioration in risk sentiment across markets. Gold prices also reacted in response to stocks continuing their rebound following a sharp drop driven by concerns over COVID-19 flare-ups.
- Yamama Gold’s Wasamac project timelines have been delayed by one year and the company now outlines initial production by the end of 2026. Post-acquisition in January 2021, Yamana outlined initial construction by late-2023 and production in 2025 within its 10-year plan. Timelines have been delayed one year to reflect initial construction in mid-2024, production by the end of 2026, and commercial production by the end of 2027. Permits are not expected to be received until mid-2024.
- The Kyrgyx government violated U.S. bankruptcy rules when it took legal action against Kumtor Gold Company, according to a recent federal ruling. The ruling related to a violation of the automatic stay.
- Bloomberg highlighted that gold mining stocks, based on their forward price-to-earnings ratio, are abnormally cheap in comparison with the relative value of global stocks. While the prior year’s return for gold mining stocks was strong, this year’s price action has been mixed, with current levels suggesting a better entry point for a global portfolio would be timely.
- Stifel anticipates production for B2Gold to be much stronger in the latter half of the year, due to better grades expected at Fekola and the Wolfshag pit at Otjikoto. Fekola continues to offer production upside opportunities, with mill throughput now expected to exceed nameplate capacity and Cardinal offering a new source of mill feed. With Fekola mill throughput at 8.5MM tons per year, analysts see a positive boost to B2’s 2022-2023 production estimates of 3-4%.
- Marathon Gold announced it has entered into an exclusive, non-binding, indicative term sheet with Sprott Resource Lending Corp. for a US$185 MM senior secured project financing facility. The facility is structured as a term loan with a 6.5-year tenor. Closing is scheduled for no later than March 31, 2022.
- The question of who controls more than $1 billion of Venezuelan gold stored in the Bank of England’s (BOE) vaults took another twist after the British government said that it continues to recognize the leadership of opposition figure Juan Guaido. A U.K. Supreme Court hearing that started Monday will decide whether the BOE must release the bullion to the Venezuelan central bank, controlled by the government of Nicolas Maduro.
- Two countries, Kazakstan and Turkey, have reduced their gold reserves. Reserves in Kazakstan fell to 12.4 million ounces from 31.1 million ounces. Reserves in Turkey fell from 23.2 million ounces to 22.9 million ounces.
- “Definitely there has been some distraction and tarnish taken as a result of the interest in cryptocurrencies,” Evolution Mining co-founder and CEO Jake Klein said in a Bloomberg TV interview, when asked if the surge in interest in the new asset class had impacted the gold market. “Cryptocurrencies do have a lot of energy — we need Elon Musk tweeting about gold rather than cryptocurrencies,” said Klein, while questioning whether they would ever replace gold as a store of value. “Maybe I’m old school, but I’m not sure how you wake up every morning and create an asset that is going up by 5% or 10% each day and you’re not sure why, and that’s cryptocurrencies”.
July 23, 2021
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors