NEW YORK, NY – February 22, 2021
Midas MarketScope: As of September 30, 2020 the federal debt was $26.9 trillion – up $4.2 trillion from last year. Between 1994 to 2007, U.S. debt was relatively moderate, averaging 60% of GDP over the time frame. This ratio has since seen a drastic increase, with debt climbing to 95% of GDP in 2012 and to 127% as of the end of Q3 2020. Governments deal with excessive debt in a various ways, such as escalating taxes to pay its debts, influencing higher inflation to devalue current obligations, and, potentially as a last resort, reneging on promises. For instance, in 1972, the top bracket earning $100,000+ had an income tax rate of 70%. Over the same period, from 1972 – 1980, inflation increased 97.1%, meaning the purchasing power of the dollar decreased by nearly 50%. Lastly, although the United States is not expected to renege on obligations, the Carter bonds, a series of Treasury bonds issues by the United States in 1978, were denominated in West German Deutschmarks and Swiss Francs, rather than US Dollars, contrary to the dollar’s position as the world’s reserve currency. Further in April 1979, the United States may have technically defaulted on $122 million in Treasury bills, which was characterized as a delay rather than default. Nonetheless, the delay still had consequences for short-term interest rates, which jumped 0.6%.
Midas Fund The Fund’s holding of Galiano Gold Inc., a Canadian gold mining company with an interest in the Asanko Gold Mine, located in Ghana, performed well in the last month. Shares of Hummingbird Resources Plc, an African gold producer, developer, and explorer, 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 Sleep Number Corp., a designer, manufacturer, and marketer of bed mattresses, performed well in the last month. The Fund’s holding of Anthem Inc., one of the largest private health insurance organizations, offering employer, individual, and government-sponsored coverage plans, 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.