NEW YORK, NY – April 22, 2021
Consumer prices, measured by the Consumer Price Index (CPI), are currently 2.6% higher than in March 2020. This is the largest year over year increase since the 2008 financial crisis. Although the jump in CPI this March may be explained in part by the overall lower price levels experienced last year, prices for specific products have risen more than be explained away by last year’s low level, especially those products used daily.
Likewise, the overall producer price index (PPI), issued monthly by the Bureau of Labor Statistics (BLS), shows prices rising at multiyear highs. The index for processed goods, for instance, moved up 4.0% in March, the biggest increase since August 1974. For the 12-month period, unprocessed goods exploded 41.6%, the strongest such growth since July 2008. The Producer Price Index for Plastic Resins and Materials has increased 26%. The price for lumber has increased 63%. Similarly, the price of residential heating oil has increased 34%. Prices of steel have increased 49%.
The UN Food and Agriculture World Food Price Index shows a 24.6% increase year over year. Futures for corn spiked above $6 a bushel for the first time since June 2013 on tight supply and strong demand from China and South Korea. Corn prices are now up 85% compared to the same time last year.
And getting all these products to market is getting more expensive. In March 2021, the global average shipping rate was nearly four times what it was in January of 2020, increasing from $1,200 to $4,500 per 40-ft equivalent unit.
As the prices for common everyday items remain elevated, businesses might push the increase in costs onto the consumer and prices might in turn consequently rise for consumer goods. In conclusion, while the CPI index’s recent year over year increase may not be too worrying at first glance, digging deeper shows a concerning trend towards future inflation.
Midas Fund The Fund’s holding of Endeavour Mining Corp., a gold mining company with operations in West Africa, performed well in the last month. Shares of Anglogold Ashanti Ltd., a gold mining company with operations across several countries, including the United States, have underperformed in the last month.
The Fund seeks primarily capital appreciation and protection against inflation and, secondarily, current income through investments primarily in precious metals mining and other natural resource companies, as well as gold, silver, and platinum bullion. Using a disciplined approach, the 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 currently is invested in a global portfolio of primarily large and medium gold and diversified mining companies, precious metals royalty companies, and ETFs holding gold and silver bullion.
Midas Magic The Fund’s position in Williams-Sonoma, Inc., a home furnishings and home accessories retail and e-commerce company, performed well in the last month. The Fund’s holding of Medifast, Inc., a global health and wellness 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 10% of the Fund’s net assets.
The Fund seeks capital appreciation. Relative to the S&P 500, the Fund’s portfolio currently is more weighted in cyclical companies, such as financial services, and is underweight in economically sensitive and defensive industries. The Fund generally focuses on companies that appear to have strong operations showing superior returns on equity and assets with reasonable valuations.
How to and Why Invest in Gold?
Gold investors have, essentially, three basic alternatives: (1) bullion; (2) individual equities; or (3) funds that invest in gold and gold-related equities (e.g., gold mutual funds, exchange traded funds, etc.) Equities of gold mining companies may offer greater upside than direct ownership of the metal itself due to operating leverage. Operating leverage arises when the percentage gain in a gold mining company’s earnings is greater than a percentage gain in the price of gold — a result of operating costs declining as a percentage of revenue per ounce of gold mined.
Potential benefits of an investment in gold and gold-related equities may include, among others, portfolio diversification, low correlation with the overall U.S. equity markets, serving as a hedge against other financial assets, and potential price appreciation fueled by demand from the jewelry industry, industrial markets, and central banks.
We believe that a reasonable allocation to a gold mutual fund in a conservative, diversified portfolio would be limited to 3%, or up to 10% for aggressive investors.