NEW YORK, NY – January 21, 2021
Midas MarketScope: After the massive money supply expansion in response to the pandemic’s global spread, we may now be seeing signs of inflation with further inflation potentially around the corner. According to a United Nations gauge of food prices, global food prices reached a six-year high in December, jumping 18% since May. The UN’s Food & Agriculture Organization said that prices will likely climb further. Meanwhile, the US Dollar has been weakening and gold prices have been rising, lifting inflation expectations. For instance, bond market measures of expected inflation, the breakeven rate on 10-year treasuries, climbed above 2% in December, its highest level in more than two years. Despite many Fed officials predicting inflation will not hit the central bank’s target for the next three years, Kansas City Fed president, Esther George, said that she is worried inflation could surprise to the upside. Inflation may also be spurned forward by the reopening of the economy as distribution of the COVID-19 vaccine continues. Regardless, rising inflation risks and fears are positive for the price of gold, which is frequently used as a hedge against inflation.
Midas Fund The Fund’s holding of Hummingbird Resources Plc, an African gold producer, developer, and explorer, performed well in the last month. Shares of Alamos Gold Inc., a Canadian based gold producer with operations in Canada and Mexico, 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 MasTec Inc., a multinational infrastructure engineering and construction company, performed well in the last month. The Fund’s holding of Honeywell International Inc., a diversified technology and manufacturing 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.