NEW YORK, NY – July 22, 2021
The Federal Open Market Committee (FOMC) recently had a meeting to discuss topics such as asset purchases, short term interest rates, and inflation. Throughout the meeting the Committee acknowledged that inflation was much stronger than anticipated in March and April, however they see the current trend as transitory. We think savvy gold investors recognize that inflation pressures in the economy are building and will continue for some time. It appears that the minutes of the FOMC meeting reflect a committee ignoring price instability in favor of continued lower interest rates. Unfortunately, the Committee’s record of correctly anticipating the economy is less than perfect and market forces may become too much for the committee to overlook. For instance, in the late 1970s and 1980s, commodity prices rose dramatically even as the Fed raised rates in excess of 13%. The Fed had let the inflation genie out of the bottle and was hard put to get it back under control.
Midas Fund The Fund’s holding of Shanta Gold Ltd., an East Africa focused gold mining company with operations in Tanzania, performed well in the last month. Shares of B2Gold Corp., a gold mining company with operations across several continents, 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 AutoZone Inc., a retailer of automotive replacement parts and accessories, performed well in the last month. The Fund’s holding of MasTec, Inc., an engineering and infrastructure construction 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.