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Frank Holmes Reveals Why He’s So Bullish on Gold, Kudlow’s “Inherited Bias”

March 31, 2018

Mike Gleason: It is my privilege now to welcome in Frank Holmes, CEO and Chief Investment Officer at U.S. Global Investors. Mr. Holmes has received various honors over the years, including being names America's best fund manager by the Mining Journal. He's also the co-author of the book, The Goldwatcher: Demystifying Gold Investing. And is a regular guest on CNBC Bloomberg, FOX Business, as well as right here on the Money Metals podcast.

Frank, welcome back, and thanks for joining us again today. How are you?

Frank Holmes: Outstanding, my friend. And it's great to see that gold's up for starting the year off, and everyone's a negative naysayer.

Mike Gleason: Yeah, well we'll get into lots of that here. And to start out here, Frank, I wanted to ask you about what appears to be a trade war that's heating up with China. President Trump hit China with tariffs on steel and aluminum. And it looks like China will be retaliating to some degree with its own tariffs on U.S. Agricultural exports. Where does this all lead? And what does it mean for the dollar, inflation, and global trade in general, Frank?

Frank Holmes: Well I think the tariffs are always tough on a country's currency. So I don't think it's ever proven to be beneficial. And I wrote about it last week, and what my thoughts were, is that it's really not about steel, spelled S-T-E-E-L. It's about stealing. S-T-E-A-L-I-N-G. And when you look at steel as a percentage of the GDP, it's de minimis. Steel and aluminum account for only two percent of the world trade. And in the U.S., it's a de minimis amount for the GDP. But technology, now that's 17 percent. And we throw in the military industrial complex, and all of a sudden we're pushing close to 25 percent of our GDP.

And I think that's a real concern, the Chinese J-31 fighter is thought to be a knock-off of the Lockheed Martin's F-35 in every aspect. And then Microsoft is lamenting, complained, and other people have complained that they just keep copying and stealing our technology. So I think that's the real beef.

Mike Gleason: Against this backdrop, I know you're optimistic about gold here, Frank. Give us your thoughts on that, and can the yellow metal break out from its trading range and finally bust through some of this key overhead resistance?

Frank Holmes: Yeah, I think a couple things. One is Paulson is getting out of the business, closing down his gold fund, and returning the money. That's a good contrarian sign. And then I think Kudlow's kerfuffle over gold. I mean, from 2001 and '07, I appeared on a show in various times on CNBC. And I, he always struck me as very highly intelligent, informed, and accomplished. He served as Bear Sterns’ chief economist and advised Ronald Regan. But he's clearly has a real strong biased against gold, and thinks a strong dollar will solve all of our problems. And he's anti-China, the way the New York Times is anti-China. And I told him when I was on his program many times that gold's now gone from $285 to $385, are you still bearish? Yes.

$485, he’s still bearish… $585, so (then I asked him) when are you eventually going to throw in the towel (when it was trading at $700)? Then it went to $1,900. So, he's just got this inherited bias, and even after he talked the strong dollar, dollar king. Gold rallied from there. So, I think that we're going to see two things are going to drive this rally from the fear trade… (one) is going to be a weaker dollar, and I think we're going to start seeing more data that the CPI number is understated. And the New York Fed has come out with comments, and they have their own inflation indicator. But I just know my cost of travel, my legal bills go up every year, faster than the rate of inflation. My accounting bills go up every year, faster than the rate of inflation.

And just running that business, the cost of travel… that’s another reason why I start the JETS ETF, because I saw the cost of travel more than double over the past few years. So I think the CPI number's way understated. I've wrote about a couple weeks ago that if you went back to the 1990 model, not the 1980 model, but the 1990 model, you're pushing 8 percent CPI. Well that means even with raising rates right now, it means nothing, it means we have negative real interest rates. And I think that The Wisdom of Crowds by Surowiecki is basically saying that the market is forecasting the CPI is muted. So, they are my bullish reasons.

Mike Gleason: Obviously we hear the Fed talking about how they want more inflation and they just raised interest rates last week. What do you think Fed policy over the remaining part of the year? What does it do to the markets? And then, what kind of effect will that have on gold?

Frank Holmes: Well, this is the first time in a long, long time we've had a Fed chairman that is non-academic. And so, you really have to understand his experience and private equities, a lawyer by discipline, and then his knowledge of working in the private equity world etc. He's very savvy, both in the capital markets and the real (markets)… not what the market should do but based on his reality. So, I think that he'll be a breath of fresh air. But I think as employment numbers remain strong, there's a bias for rates to rise. But I still think they're negative, so I don't think it's a big issue.

Here's what it's done though. Is that when the 2-year government bond yield went above the S&P dividend yield, the markets started to explode. Now what is that telling you? It's saying that that pension fund money etc. is saying "I'd rather go on and buy guaranteed two-year return of my money than buying dividend paying stock, the S&P 500.” That's a safer bet and if rates threaten to continual rise above that S&P rate then we're going to have a VIX much more volatile. But that doesn't deter gold. And I think short term, I wrote about a piece, I went back and did some pattern analysis and noticed what we like to call it the Fed rally. And after each time, there's been a rate hike then gold rallies and sells into the rate hike. And then has that big rally to it. So, I remain very bullish on gold and I think it's going to test $1,500. A year ago, I said I thought it would test $1,350.

You know, if you looked at standard deviation models, it'd be a non-event. The DNA of volatility of bullion is plus or minus 20 percent – exactly the same as the S&P – over any rolling 12-month period going back a decade, or longer. So, it would be nothing for it to rally 20 percent under this scenario, and so that's why I remain bullish.

Mike Gleason: I'd like to switch gears here and talk a little bit about one of the other precious metals, that being silver. Now, there's been some reporting in recent days on how commercial traders have unwound most of their shorts and speculators are now net short in a big way. In the past these circumstances have been followed by a big rally in silver. Do you look at these indicators or any other technical indicators and what does the current market set up tell you about the direction of silver, if anything? And basically, what are your thoughts on the white metal here, Frank?

Frank Holmes: Well, it has greater volatility than gold, so it's basically a warrant on bullion. And so, any type of a rally towards $1,500 (for gold) when it gets going, that’s where you'll see silver even have a bigger, more explosive move. And I think the silver demand is quite strong. And with the PMI's, they've seen them slow down, that's Purchasing Manufacturer’s Index, is always a good precursor of what's going to happen six months out. But I think when you look at the global economy, that silver looks like the trade's higher. The other thing that's really important, in this sort of global world, is that whenever the dollar is weak, it's really interesting because it's good for the metals. It's good for commodities, but it's actually also good for exporting.

Boeing was the best performing Dow stock, it was up 80 percent last year. Even after Trump knocked it down with his attack on management and what they're charging for Air Force One. It just rebounded and had an incredible yea. Why? Because, it's a lot cheaper to buy than an Airbus. And we export a lot of high end quality precision tools, which is a big part of our high paying manufacturing sector. So, a weak dollar is good for our overall economy. And interesting enough, when we went back over 20 years of data analysis, the emerging markets always do well with a weaker dollar. So, I think that bodes well for rising GDP per capita and rising GDP per capita in China and India is very important for the love trade, which is 60 percent of all demand for gold. And also good for silver. So, I think from that end we could probably see this continuous buying like we've been seeing out of China.

Mike Gleason: We talk a lot about the dollar versus gold and also stocks versus gold, and things like the Dow to gold ratio, for instance. Any comments on what you're expecting there, will we see the Dow to gold ratio narrow in the favor of gold over the rest of this year? And maybe any other final comments as we begin to wrap things up?

Frank Holmes: I that you look at their compression, but I think it's going to be the greater opportunity is gold stocks. And we launched a smart beta and highly intelligent gold EFT called go gold, GoAU, on the New York (Stock Exchange) and we did ten years of regressional studies and it out performs the GDXJ 92 percent of the time in a rolling 12 month (period), and do you know why? Because it focuses on the value factors per share and what we've found is that too many companies have done dumb financings, poor acquisitions that they've destroyed, their revenue growth per share, their reserves per share of growth, and so we eliminate those and that's why since we've launched it, it's still far out performed the GDXJ and I think it will continually do so along with the royalty companies.

Mike Gleason: Well, thanks again for joining us Frank, it's always enlightening to get your thoughts. I know it's been too long… first time we've had you on this year. It's good to revisit with you and we always appreciate it. Now, before we let you go, please tell listeners a little bit more about your firm… maybe more about that GoAU fund you alluded to a moment ago… your services, and then also mention that Frank talk blog that I enjoy so much, and definitely people should be checking that out as well, tell them how they can do all that.

Frank Holmes: Well you're very, very kind. Thank you on the Frank Talk Blog. It is simple and sign up for Frank Talk in the investor Alert at and also we write every week. I'm off to Hong Kong next week to get a flavor for Asia, what's happening over there. I will be speaking at Minds of Money, so I will comment on my global travels for those people who want to live vicariously. And then GoAU is simple, G-O-A-U – “go gold” – it’s listed on (the) New York (Stock Exchange). And then the other part, because I do all of this global travel, I launched the first airline ETF global one, and it's called JETS. And so it also participates in that global growth. And that's what I think are the really exciting parts. For your gold investors, I am so proud of that product, because we spent 8000 hours doing data analysis to really understand what was the best model for picking those gold stocks. And GoAU has 30 percent in the royalty companies, which is a superior business model. In addition, it goes right down to some of the small mid-caps, which I think are going to see more take overs this next year.

Mike Gleason: Yeah, well excellent stuff Frank. It's nice to hear how well things are going there, with that fund. We talked about it last year, a couple of different times. And it's great to hear that that's off to a roaring start. Continued success there and for your firm and keep up those great market commentaries. I look forward to catching up with you again and rehashing some of those. Take care Frank.

Frank Holmes: Thank you very much my friend.

Mike Gleason: Well that will do it for this week. Thanks again to Frank Holmes, CEO of US Global Investors and manager of the GoAU gold fund. For more information, the site is Be sure to check out the previously mentioned Frank Talk blog while you're there for some of the best market commentary you will find anywhere on gold and other related topics. Again, you can find all that at

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Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

It is estimated that the total amount of gold mined up to the end of 2011 is approximately 166,000 tonnes.
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