NEW YORK, NY – December 17, 2020
Midas MarketScope: The price of gold has decreased around 12% from the August 2020 highs to the beginning of December 2020. Does this decline spell a buying opportunity for shares of gold or gold mutual funds? According to the World Gold Council there have been five bull and five bear markets in gold since the start of the 1970s. The average gold bull market has lasted 63 months with the gold price rising 380%. During the current gold bull run, the gold price has risen around 90% and is still a year away from hitting 63 months. If history repeats, there still may be room for gold to appreciate. For example, following the 1975-76 gold bear market, as inflation gathered pace and markets lost confidence in central bank policies, the gold price rose over 700%. Year-to-date through October 2020, the U.S. has added more than $4.8 trillion to the federal debt, the most ever for a single year. Federal debt is now a record $27 trillion, 143% of U.S GDP, and a staggering $218,450 per U.S. taxpayer. Current economic conditions may mirror economic conditions in those previous gold bull markets. With the recent pullback, now may be an opportune time to allocate into gold related investments such as shares of gold mutual funds.
Midas Fund The Fund’s holding of Steel Dynamics, one of the largest domestic steel producers and metal recyclers in the United States, performed well in the last month. Shares of Silver Lake Resources, an Australian gold producer and operator of the Mount Monger Gold Camp, 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 Medifast, Inc., an American nutrition and weight loss company, performed well in the last month. The Fund’s holding of AutoZone, Inc. an American retailer of aftermarket automotive parts and accessories, 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.