October 26, 2023
Yields on 10 year U.S. Treasury bonds briefly reached 5% on October 19, 2023. Yields have not reached this level since early 2007, making the cost to borrow generally higher than at any other time since the Great Financial Crisis. For the U.S. government, with a current debt load of $34 trillion and an operating deficit of $1.7 trillion, the higher yields mean higher borrowing costs, which exacerbate an already difficult predicament. For perspective, consider that 2023 U.S. defense spending was about $774 billion while estimated net interest expense on U.S. public debt was $711 billion. And the problem is only getting worse: net outlays for interest on U.S. debt for the fiscal year ended September 2023 increased 33% or $177 billion compared to fiscal year 2022 according to the Congressional Budget Office’s September 2023 report. In total, the federal budget deficit increased $315 billion in 2023 compared to 2022, meaning the increase in net interest expense accounted for over half of the total increase. Really concerning, U.S. government interest expense for the month of September 2023 alone increased $29 billion, or 75% compared to September 2022. With President Biden recently requesting a further $100 billion in spending for Ukraine and Israel, the government does not seem to be making lowering the deficit amid higher borrowing costs a priority. When Fitch Ratings downgraded the U.S. government’s credit rating in August 2023 from AAA to AA+, Fitch noted that “further near-term progress containing the growth in public spending . . . is less likely than we previously assumed.” This note from Fitch may remain relevant. As a store of value, gold may be considered a safe haven from U.S. dollar risk amid ballooning U.S. debt and interest expense.
Midas Fund (ticker: MIDSX)
The Fund’s holding of Northern Star Resources, an Australian gold mining company with operations Australia and Alaska, performed well in the past month. Shares of OceanaGold Corporation, a Canadian gold mining company, underperformed in the past month.
The Fund seeks primarily capital appreciation and protection against inflation and, secondarily, current income.
Under normal circumstances, in pursuit of its investment objectives, the Fund’s investment strategy is to invest principally in (i) securities (e.g., common and preferred stocks, bonds, convertible securities, etc.) of companies primarily involved, directly or indirectly, in the business of mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum, other precious metals, or other natural resources (“Natural Resources Companies”); and (ii) gold, silver, and platinum bullion and coins; provided, however, that the Fund’s investment adviser, Midas Management Corporation (the “Investment Manager”), may invest in any type of equity security (e.g., common and preferred stocks) and in companies of any size, industry or sector, including both domestic and foreign companies, that the Investment Manager believes may achieve the Fund’s investment objectives. Up to 35% of the Fund’s total assets may be invested in fixed income securities of any issuer, including U.S. government securities, of any credit quality or maturity, although the Fund has no current intention of investing more than 5% of its total assets in fixed income securities rated less than investment grade (also known as “junk bonds”). The Fund concentrates its investments by investing at least 25% of its total assets in Natural Resource Companies.
Midas Magic (ticker: MISEX)
The Fund’s position in UnitedHealth Group Inc., an American multination managed healthcare and insurance company, performed well in the past month. The Fund’s holding of Enova International, Inc., a consumer lending company, hindered the Fund’s performance in the past month. Each of Mastercard Inc. Class A and Alphabet Inc. Class A currently comprise more than 20% of the Fund’s net assets.
The Fund seeks capital appreciation. Under normal circumstances, in pursuit of its investment objective, the Fund may invest in any security type (e.g., common and preferred stocks, bonds, convertible securities, etc.) and in companies of any size, industry, sector, including both domestic and foreign companies. Relative to the S&P 500, the Fund’s portfolio currently is more weighted in economically sensitive sectors, such as communications, and cyclical sectors, financial services, and is underweight in defensive industries, such as utilities.
How to Invest in Gold?
Three alternatives investors often consider when seeking the advantages of gold are gold bullion, stocks of gold mining companies, and funds that invest in gold and gold-related securities, such as Midas Fund. Using a disciplined approach, Midas Fund seeks to emphasize gold and other natural resource companies offering financial strength, expanding production profiles, strong free cash flow, and promising exploration potential. The Fund’s portfolio is focused on what we believe to be some of the best companies in the sector and so we view Midas Fund as currently well positioned to seek capital appreciation and protection against inflation.
This release may contain certain “forward looking statements” as defined under the U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “should,” “plan,” or the negative of such terms, and similar expressions identify forward looking statements, which generally are not historical in nature. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from a Fund’s historical experience and its current expectations or projections indicated in any forward looking statements. These risks include, but are not limited to, equity securities risk, corporate bonds risk, credit risk, interest rate risk, leverage and borrowing risk, additional risks of certain securities in which a Fund invests, management risk, risks related to the negative impacts from the continued spread of COVID-19 on the economy and broader financial markets, and other risks discussed in each Fund’s filings with the Securities and Exchange Commission. You should not place undue reliance on forward looking statements, which speak only as of the date they are made. Each Fund undertakes no obligation to update or revise any forward looking statements made herein. There is no assurance that each Fund’s investment objectives will be attained.
Certain information contained herein has been obtained from third parties. While the Funds believe such sources are reliable, the Funds cannot guarantee the accuracy of any such information and does not represent that such information is accurate or complete.