Would You Do This to Pay Zero Income Taxes for Life?

Hungary has one of the lowest fertility rates in the world
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This could have a number of negative economic and financial consequences. For one, the country could face serious demographic risk as its workforce is squeezed and the share of elderly, non-working citizens surges.

To be fair, Hungary isn’t alone. And it’s not even in the worst shape. According to UN data, the world’s top 10 countries with the fastest shrinking populations are disproportionately found in Eastern Europe. Bulgaria, the poorest EU member state, also has the ignoble distinction of ranking first in shrinkage velocity. By 2050, its population could contract as much as 23 percent—nearly a full quarter—followed closely by Latvia (22 percent) and Moldova (19 percent).

The reason why I’m focusing on Hungary is because I think policymakers there may have come up with an ingenious way to encourage young people to stay in the country, produce more children and grow the country’s labor workforce.

Interested in Paying No Income Taxes For Life? Start Making Babies

Hungarian Prime Minister Viktor OrbanPhoto: People’s Party/Flickr |

Photo: Chris Tolworthy | Creative Commons Attribution 2.0 Generic (CC by 2.0)

Hungary has a problem. Like many Eastern European and former Soviet countries, its population is shrinking thanks to a plunging birthrate and outmigration as young workers seek better opportunities and fatter salaries elsewhere in the European Union (EU). In 2017, the most recent year of data, Hungary had a low fertility rate of only around 1.4 live births per woman, significantly lower than what is considered the replacement rate. If nothing changes, the country’s population is projected to shrink 15 percent by 2050, from almost 10 million strong today to 8.28 million, according to the United Nations (UN).

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This could have a number of negative economic and financial consequences. For one, the country could face serious demographic risk as its workforce is squeezed and the share of elderly, non-working citizens surges.

To be fair, Hungary isn’t alone. And it’s not even in the worst shape. According to UN data, the world’s top 10 countries with the fastest shrinking populations are disproportionately found in Eastern Europe. Bulgaria, the poorest EU member state, also has the ignoble distinction of ranking first in shrinkage velocity. By 2050, its population could contract as much as 23 percent—nearly a full quarter—followed closely by Latvia (22 percent) and Moldova (19 percent).

The reason why I’m focusing on Hungary is because I think policymakers there may have come up with an ingenious way to encourage young people to stay in the country, produce more children and grow the country’s labor workforce.

Interested in Paying No Income Taxes For Life? Start Making Babies

Photo: People’s Party/Flickr | Creative Commons Attribution 2.0 Generic

The plan I’m referring to, dubbed the “Family Protection Action Plan,” was unveiled last week by Hungarian Prime Minister Viktor Orbán. Among its incentives is a waiver on personal income taxes for life for married women who give birth to and raise four or more children.

This could be huge.

Let’s look at what some eligible women could stand to save. Since 2016, Hungary has had a flat income tax rate of 15 percent. Admittedly, that’s lower than the 22 percent a single American making between $38,700 and $82,500 is obligated to pay in federal taxes. But as recently as 2010, all Hungarians were on the hook for as much as 40.6 percent—and there’s always the possibility that they could return to that level (or higher) at some later point.

For many women, a guarantee that they’ll never again have to pay income taxes in Hungary, at any rate, could be incentive enough to have that fourth child.

Other parts of the action plan include subsidies for some families to buy larger cars (presumably to carry all those extra children), a new loan program to help families with two or more children to buy homes, and childcare payments for grandparents who offer to look after grandkids during work hours.

“There are fewer and fewer children born in Europe. For …read more

Will 2019 Be the Year of King Copper?

Goldspot

Summary

Corporate purchasing of copper-gobbling renewable energy more than doubled from 2017 to 2018.
Sales of electric vehicles, which use three to four times the amount of copper as traditional vehicles, are booming in China.
Copper miners get upgraded by the big banks.

Because of its wide availability and exceptional conductivity, copper is found in everything from consumer products to automobiles to semiconductors. Last year global demand for the red metal stood at 23.6 million tons, and by 2027, it’s projected to reach just under 30 million tons, representing an average annual growth rate of about 2.6 percent.

This phenomenal growth is attributable not just to the rise of middle class consumers. It’s also thanks to our steady rotation into clean, renewable energy such as wind and solar—which is good news for copper demand going forward.

As I’ve shared with you before, renewables require many more times the amount of copper as traditional energy sources. A typical wind farm—those that blanket whole areas of West Texas, California and some other states—can contain as much as 15 million tons of the metal.

2018 Was a Record-Breaking Year for Renewables

Whether you’re a believer in renewable energy or not, the tipping point may have already occurred. Among the fastest growing jobs in the U.S. right now are wind turbine service technician and solar panel installer, for whatever that’s worth. And according to a report by Bloomberg New Energy Finance (BNEF), corporate purchasing of renewable energy more than doubled from 2017 to 2018. Globally, companies bought 13.4 gigawatts (GW) last year, compared to the previous record of 6.1 gigawatts in 2017. Over 63 percent of the purchasing activity occurred right here in the U.S. Facebook alone was responsible for consuming 2.6 GW of renewables, three times as much as the next biggest corporate energy buyer, AT&T.

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The trend toward renewables is expected to accelerate at a white-knuckle pace for years to come. Take a look at the chart below, courtesy of McKinsey’s “Global Energy Perspective 2019.” Analysts believe that, by 2035, renewable energy will account for more than half of all power generation as its price falls below that of coal and gas-generated energy. Fifteen years after that, nearly three quarters of total energy consumed around the world will be derived from renewable means, chiefly wind and solar.

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If this is compelling at all to you, now might be an excellent time to start participating. One of the best ways, I believe, is with exposure to high-quality, well-managed copper miners as well as funds that have a large position in copper mining.

China Will Lead the Transition from Internal Combustion Engines to Electric Cars

And we haven’t even mentioned electric vehicles (EVs), which are notorious copper gobblers. As I’ve shared with you before, EVs consume between three and four times the amount of copper as traditional internal combustion engines.

China is leading the world in EV adoption and …read more

Gold Love Trade Could Set New Valentine's Spending Record

US China trade tariffs expected to divert trade to other countries
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Yellow Gold Gets a Royal Endorsement

But what kind of jewelry should you get your spouse or partner? You may have seen stories about how yellow gold jewelry—as opposed to white and rose gold, not to mention silver and platinum—began to fall out of favor in the 1990s, the attitude being that it was “tacky” or “old fashioned.” Personally, I don’t believe it’s ever fallen out of fashion, but we have been seeing its popularity gain additional ground lately. Look no further than Men?, the revolutionary 24-karat jewelry company

This Valentine’s Day might best be remembered for two things in particular. One, for the first time in 153 years, candy lovers won’t be able to pick up a box of Sweethearts, those classic heart-shaped candies bearing sweet nothings like “BE MINE” and “CRAZY 4 U.” And two, consumers are set to spend more than $20 billion on Valentine’s gifts for the first time ever, thanks in part to a surge in gold jewelry demand—specifically, yellow gold.

Regarding Sweethearts, they’ll be missing from store shelves this year because the candy’s manufacturer, Necco, sadly went bankrupt last May. But never fear! Its new owner, Spangler Candy Company—maker of Dum Dums lollipops—could bring them back as soon as next year.

As for Valentine’s Day spending, what I find interesting is that it continues to grow even as the number of people who admit to celebrating the holiday has been on the decline for years now, according to the National Retail Federation (NRF). It’s estimated that Americans will shell out an all-time high of $20.7 billion this year, easily topping the previous record of $19.7 billion set in 2016.

The increase in spending, I believe, can largely be attributed to the Love Trade, which is all about gold’s timeless role as a treasured gift. Of the $20.7 billion, an estimated 18 percent, or $3.9 billion, will be spent on jewelry alone, much of it featuring gold, silver and other precious metals and minerals.

Just take a look at the results of a recent WalletHub survey. When asked what kind of Valentine’s Day gift was “best,” most women said they preferred jewelry, beating out gift cards, flowers and chocolates. (Interestingly, a third of men said they preferred gift cards, with only 4 percent saying they thought jewelry was the “best” gift.)

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Yellow Gold Gets a Royal Endorsement

But what kind of jewelry should you get your spouse or partner? You may have seen stories about how yellow gold jewelry—as opposed to white and rose gold, not to mention silver and platinum—began to fall out of favor in the 1990s, the attitude being that it was “tacky” or “old fashioned.” Personally, I don’t believe it’s ever fallen out of fashion, but we have been seeing its popularity gain additional ground lately. Look no further than Men?, the revolutionary 24-karat jewelry company that’s disrupting the industry.

Photo: Mark Jones/Flickr | Attribution 2.0 Generic (CC BY 2.0) cropped from original

Much of the renewed interest in yellow gold jewelry is thanks to Prince Harry, who presented Meghan Markle with a gold engagement ring in late 2017. Speaking to the BBC, the prince said that choosing yellow gold was a no-brainer.

“The ring is obviously yellow gold because that’s [Meghan’s] favorite,” he said, adding that the inset diamonds are from his mother Princess Diana’s jewelry collection, “to make sure she’s with us on this crazy journey together.”

Industry experts are taking notice. Well-known designer Stephanie Gottlieb told …read more

This AI Company Is the Future of Gold Exploration

Goldspot

Gold mining is one of the very oldest human occupations. The earliest known underground gold mine, in what is now the country of Georgia, dates back at least 5,000 years, when people were just starting to develop written language.

Over the centuries, a number of innovations have emerged that disrupted and forever changed how we explore and mine for gold and other metals. Think dynamite, or the steam engine.

Lately, however, innovation has slowed. Mining companies are in cost-cutting mode, and many producers have favored generating short-term cash flow, often to the detriment of longer-term value. In last year’s “Tracking the Trends” report, Deloitte analysts observed that “miners from 50 years ago would find little has changed if they entered today’s mines, a situation that certainly doesn’t hold true in other industries.”

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Consider the earth-shattering change that’s taken place in oil and gas over the past two decades. Fracking and horizontal drilling have completely revolutionized how we extract resources from the ground, making hard-to-reach oil and natural gas accessible for the first time.

No equivalent technology exists in precious metals. Some companies are now using cutting-edge technology like blockchain to improve supply chain efficiency and transparency, but to date there’s no “gold fracking” method. As a result, metal ore grades are decreasing, and large-scale gold discoveries are becoming fewer and farther between.

One company thinks it has the formula to reverse this trend. I think it could be sitting on a gold mine, pun fully intended.

Meet Goldspot Discoveries

“Some people call it ‘peak gold,’ but I tend to think of it more as ‘peak discovery,’” says Denis Laviolette, the brains behind Goldspot Discoveries, a first-of-its-kind quant shop that aims to use artificial intelligence (AI) and machine learning to revolutionize the mineral exploration business.

A geologist by trade, Denis conceived of Goldspot while serving as a mining analyst with investment banking firm Pinetree Capital. His vision, as he described it to me last week, was to disrupt mineral exploration as profoundly as Amazon disrupted retail and Uber the taxi business.

“We have more data at our fingertips than ever before, yet new discoveries have been on the decline despite ever increasing exploration spending on data collection,” Denis continues. “We believe Goldpsot can change that. Harnessing a mountain’s worth of historic and current global mining data, AI can identify patterns necessary to fingerprint geophysical, geochemical, lithological and structural traits that correlate to mineralization. Advances in AI, cloud computing, open source algorithms, machine learning and other technologies have made it possible for us to aggregate all this data and accurately target where the best spots to explore are.”

Hence the name Goldspot—though I should point out that Denis considers the Montreal-based company “commodity agnostic,” meaning it collects and aggregates data for all metals, including base metals, not just gold.

Moneyball for Mining

Denis has the record to back up his extraordinary claims. In 2016, Goldspot took second place in the Integra Gold Rush Challenge, a competition with as many …read more

Will the China Bulls Turn Out for the Year of the Pig?

US China trade tariffs expected to divert trade to other countries
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“Overall, European Union exports are those likely to increase the most, capturing about $70 billion of the United States-China bilateral trade—$50 billion of Chinese exports to the U.S., and $20 billion of U.S. exports to China,” the report reads.

I think it’s safe to say that neither China nor the U.S. wants this, which drives me to believe that we’ll see a satisfactory resolution in the coming weeks. Hopefully then China’s manufacturing sector and gross domestic product (GDP) growth can recover.

How to Gain Exposure to China and the Surrounding Region

An excellent way to participate, I believe, is with our

Happy Year of the Pig! This week marks the start of China’s Spring Festival, during which an estimated 3 billion trips will be made using the country’s massive transportation network of roads and rail. That figure is a slight rise from the same period last year, despite slowing economic growth prompted by trade tensions with the U.S. and a strengthening dollar.

Ctrip, China’s largest online travel agency, forecasts that more than 400 million people will travel across the country for family reunions, while some 7 million will go abroad.

To prepare for the additional travel demand, China built as many as 10 new railways at the end of last year and expanded the length of its high-speed rail system to 29,000 kilometers, or around 18,000 miles. Meanwhile, the Civil Aviation Administration of China (CAAC) expects more than 532,000 flights to be scheduled during the week-long travel rush, a 12 percent increase from last year, according to China Daily.

Since the start of 2018, the National Development and Reform Commission (NDRC), China’s top economic planner, has approved 27 large-scale infrastructure projects, totaling nearly $220 billion. Among the largest is the expansion of the Shanghai Metro, already the world’s largest transit system by route length. The $44 billion project, to be completed by 2023, will add six new subway lines and three intercity railways.

Looking for a Resolution to the Trade Dispute

If you’ve been paying attention, you might have noticed that much of the news involving China right now is negative. Its manufacturing sector is slowing, and economic growth in 2018 was at a nearly-30-year low.

I believe this is only a temporary lull as we await a resolution to the U.S.-China trade war and a fall in the U.S. dollar, which has made American goods more expensive to its trade partners. So I remain bullish on China and the surrounding region, and I believe now might be an advantageous time to gain exposure.

The U.S. and China reportedly made “tremendous progress” during last week’s high-stakes talks between President Donald Trump and China’s Vice Premier Liu He. Although technology and intellectual property rights remain sticking points, China is slated to “substantially” increase its purchases of U.S. crops, energy and services.

Case in point: Just two days after the January 31 talks, Chinese state-run agricultural conglomerate COFCO Group and Sinograin reported purchasing at least 1 million tons each of American soybeans. This marked the Asian country’s first order of soybeans from the U.S. since summer of last year, when purchases were halted as a result of escalating trade tariffs.

The good news here is that the U.S. and China appear to be working toward a resolution. Official Chinese outlets called the talks candid, specific and fruitful. President Trump affirmed that, although “much work remains to be done,” progress is being made.

Looking ahead, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer will meet at least once with Chinese President Xi Jinping sometime later this month. And Trump is reportedly considering planning a meeting with Chinese President …read more

Central Banks Haven't Bought This Much Gold Since Nixon Closed the Gold Window

Net Central Bank Gold Purchases in Fourth Quarter 2018 Were Highest on Record
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As I’ve shared with you before, central banks have been

Something big is happening in the gold market right now, and nowhere is that more apparent than in central banks of emerging economies. Last year was a watershed in the size of official gold purchases, as banks added an incredible 651.5 tonnes (worth some $27.7 billion) to their holdings, according to the World Gold Council (WGC). Not only is this a remarkable 74 percent change from 2017, but it’s also the most on record going back to 1971, when President Richard Nixon brought a formal end to the gold standard. In the final quarter of 2018 alone, central banks purchased as much as 195 tonnes, the most for any quarter on record, according to leading precious metal research firm GFMS.

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As I’ve shared with you before, central banks have been net buyers of the yellow metal since 2010 in an effort to diversify their reserves away from the U.S. dollar. Last week, I had the opportunity to discuss the issue with SmallCapPower’s Vasudha Sharma. You can watch the conversation by clicking here.

Most Western nations already have a comfortable weighting in gold relative to their total reserves, so the demand is almost strictly from emerging markets. Among the biggest purchasers last year were Russia, Turkey and Kazakhstan, and we also saw China add to its holdings for the first time since 2016. Meanwhile, Hungary, Poland, India and a number of other countries took deliveries for the first time this century.

Central Banks Recognize Gold as an Effective Diversifier and Store of Value

With gold representing a whopping 74 percent of U.S. reserves, the Federal Reserve has historically had the largest position among global central banks. (Venezuela’s weighting, at 76 percent, has lately roared past the U.S., but that’s thanks solely to hyperinflation and its rapidly deteriorating economy. I’ll have more to say on Venezuela later.)

Other countries have a lot of catching up to do—i.e., gold buying—to get to the same level of diversification. Russia, for instance, has the fifth most gold in the world at 2,066.2 tonnes, but this amount represents only 17.6 percent of its total reserves. In sixth place is China, whose holdings (a reported 1,842.6 tonnes) represent a very small 2.3 percent of reserves.

Below you can see Russia’s ongoing strategy of “de-dollarization.” To date, the Eastern European country has liquidated nearly its entire position in U.S. Treasuries to fund its rotation into gold. According to the WGC, Russia bought 274.3 tonnes in 2018, its greatest amount on record, and the fourth consecutive year of purchases above 200 tonnes.

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Gold Is the Only Thing Left of Value in Venezuela

Gold made even more headlines last week as it relates to Venezuela. The beleaguered South American country, as you probably know, is in the midst of a potential transfer of power, from current president and dictator Nicolas Maduro to the more centrist Juan Guaido, whom the …read more

These Emerging Markets Could Soar If the Dollar Falls

Emerging Markets and the U.S. Dollar Have Shared an Inverse Relationship
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But since then the investment case for emerging markets has vastly improved, and global investors are betting big that the U.S. dollar will ease on

Our fully-interactive Periodic Table of Emerging Markets has been updated for 2018! Check it out by clicking here!

Last year was admittedly a tough one for emerging markets. A number of currencies were under considerable pressure, with some of them falling to record or near-record lows against the strong U.S. dollar. Global trade tensions, threats of sanctions, rising U.S. interest rates and higher oil prices—before they began to crater in October, that is—also contributed to the selloff. From its 52-week high set in January 2018, the MSCI Emerging Markets Index sunk into bear market territory by the end of October.

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But since then the investment case for emerging markets has vastly improved, and global investors are betting big that the U.S. dollar will ease on less aggressive monetary tightening. This would relieve some of the pressure on emerging economies that must pay higher prices on imports from the U.S. when the dollar is strong. As of January 24, emerging market equity funds have seen positive inflows of over $3 billion for a remarkable 15 consecutive weeks.

Mobius and Gundlach Bullish on Emerging Markets

Some big-name investors have lately recommended that now might be the time to consider emerging markets, among them Mark Mobius and DoubleLine Capital founder and gold advocate Jeffrey Gundlach.

Speaking with Bloomberg this month, Mobius said he favors India, Brazil and Turkey as they’ve had a “terrific recovery” since the currency meltdown last year. Within a portfolio’s emerging markets allocation, he recommends 30 percent in India; 30 percent in Latin America, including Brazil, Argentina, Chile and Mexico; 30 percent in Eastern Europe countries such as Poland, Turkey and Romania; and the rest in China and other parts of Asia.

Some of Mobius’ picks were among the most banged up in 2018, as you can see in our updated Periodic Table of Emerging Markets. Turkey’s Borsa Istanbul 100 Index (BIST 100) was down around 41 percent for the year, priced in U.S. dollars. Argentina’s MERVAL Index fared even worse, losing slightly more than half its value on out-of-control inflation and interest rates as high as 60 percent—the highest in the world.

Eastern Europe Trading at Attractive Valuations

The best performing emerging economy in 2018 was Russia, which slipped only 1.5 percent. The country not only proved to be the most resilient to higher U.S. rates and trade war fears, but it also has both attractive dividend rates and strong valuation support. As you can see below, Russian stocks were trading at a very low 5.8 times earnings, a discount of nearly 50 percent against MSCI’s index of 24 emerging economies. Fellow Eastern European countries Turkey and Lithuania also had very attractive valuations, trading at 6.5 times earnings and 7.4 times earnings.

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On an annualized basis, Russia has been a good bet for the 10-year period as well, delivering 9.21 percent on average through December 31, 2018.

What’s more, Central and …read more

What Headwinds? Airlines to Book Their 10th Straight Year of Profitability

What Headwinds? Airlines to Book Their 10th Straight Year of Profitability

Summary:

Despite the government shutdown, airlines beat on earnings and offer exciting guidance for 2019.
Global airlines are expected to log their 10th straight year of profitability—an industry first.
With incomes expanding worldwide, air travel demand is projected to outpace economic growth for the next couple of decades.

Domestic airlines weren’t exempt from the rout that hit stocks in December, the market’s worst month since the Great Recession. Shares of all four major U.S. carriers—American, Delta, United Continental and Southwest—saw double-digit losses. Delta ended December down 17.8 percent, its worst month since October 2009, when it gave back 20.3 percent.

The losses appeared to extend into the new year. On January 3, Delta forecast slightly slower revenue growth on concerns of a global economic slowdown, not to mention the partial U.S. government shutdown. In its first month, the shutdown—which ended Friday as President Donald Trump signed a bill to extend spending for three weeks—cost the U.S. aviation industry about $105 million, according to consulting firm ICF. Delta’s stock lost almost 9 percent for the January 3 trading day. Shares of the other three major airlines fell as well, though not by as much.

I believe the selloff was overdone, and the market seems to have agreed. Investors who bought the dip were rewarded. From January 3 to January 25, Delta shares recouped about 4.5 percent. Over the same period, the NYSE Arca Airline Index soared about 14.7 percent.

Ancillary Revenues Helped Offset Higher Fuel Costs in 2018

Much of this enthusiasm was driven by better-than-expected full-year and fourth-quarter earnings reports from a number of domestic carriers.

For 2018, United reported an impressive earnings per share (EPS) of $7.70, up 9 percent from 2017. This came even while total fuel costs were 34 percent higher. The carrier is now projecting an EPS of between $10 and $12 this year, based not just on increased demand but also growing ancillary revenue.

As a reminder, “ancillary revenue” includes all non-ticket items such as baggage fees, assigned seating, credit cards, loyalty programs and more. According to consultancy firm IdeaWorks, such fees on a global scale stood at a mind-boggling $92.9 billion in 2018, an increase of 312 percent since 2010. Of that amount, the “big four” U.S. airlines netted close to $27 billion. Taken together, these additional revenues have helped airlines offset rising fuel and labor costs.

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Delta said as much in its own earnings report. For 2018, operating revenue was up 8 percent year-over-year to $44 billion “on an increasingly diverse revenue base, with 52 percent of revenues from premium products and non-ticket sources” (emphasis mine). The Atlanta-based carrier reported $1 billion in profits in the fourth quarter, an unbelievable increase of 240 percent from the same three months in 2017. That amounted to an EPS of $1.49, compared to $0.42 the previous year.

American also reported stellar earnings, and CEO Doug Parker tantalized the market with exciting guidance for this year. “At the midpoint of our guidance, 2019 diluted earnings per share, …read more

Why This Billionaire Just Bought Gold for the First Time in His Life

The amount of gold in major discoveries has been trending down for years
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We Believe Supply-Demand Fundamentals Look Constructive

As if to confirm Zell’s reasoning, the Canadian Imperial Bank of Commerce (CIBC) forecast in a report this week that a gold deficit will emerge in 2019 “on the back of stronger demand over the next two years, primarily from bar hoarding, net central bank buying and exchange-traded products (ETFs).” Peak production, according to the bank, will occur in 2021 at close to 34 million ounces, but then decline to under 16 million ounces by 2030.

World gold supply is expected to peak in 2021
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Demand isn’t abating, though. We’re seeing appetite grow for the precious metal, not just from investors but also central banks, which have been net buyers since 2010. According to CIBC, several central banks stepped back into the market last year, most notably the Reserve Bank of India (RBI), which until recently “has expressed negative sentiment around gold purchases.”

CIBC raised its gold price forecast this year to $1,350 an ounce, up from $1,300. The bank is also looking for $1,400 an ounce in 2020.

But These Gold Miners Could Be Even More Effective as a Store of Value

As attractive as I think gold bullion looks right now, there could be some incredible opportunities in gold equities, which are extremely discounted compared to the S&P 500 Index.

Among CIBC’s favorite gold equities are Agnico Eagle, Wheaton Precious Metals, B2Gold and SSR Mining—all of which we own in either our

Billionaire Sam Zell just announced that he bought gold for the very first time in his life because, as he puts it, “it is a good hedge.” In a recent Bloomberg interview, the Equity International founder and creator of the real estate investment trust (REIT) admitted to seeing an opportunity in gold’s increasing supply shortage.

“For the first time in my life, I bought gold because it is a good hedge,” Zell, 77, told Bloomberg. “Supply is shrinking, and that is going to have a positive impact on the price.”

He added:

“The amount of capital being put into gold mines is at most nonexistent. All of the money is being used to buy up rivals.”

I believe Zell’s reasons for investing in gold are sound, and I’ve discussed them in detail a number of times before. Supply is indeed shrinking. The “low-hanging fruit” has likely already been mined, and it’s become prohibitively expensive for many companies to look for large-scale deposits, to say nothing of developing them. As you can see below, the number of ounces in major discoveries has been falling for years, and exploration budgets are still far below the 2012 peak.

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We Believe Supply-Demand Fundamentals Look Constructive

As if to confirm Zell’s reasoning, the Canadian Imperial Bank of Commerce (CIBC) forecast in a report this week that a gold deficit will emerge in 2019 “on the back of stronger demand over the next two years, primarily from bar hoarding, net central bank buying and exchange-traded products (ETFs).” Peak production, according to the bank, will occur in 2021 at close to 34 million ounces, but then decline to under 16 million ounces by 2030.

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Demand isn’t abating, though. We’re seeing appetite grow for the precious metal, not just from investors but also central banks, which have been net buyers since 2010. According to CIBC, several central banks stepped back into the market last year, most notably the Reserve Bank of India (RBI), which until recently “has expressed negative sentiment around gold purchases.”

CIBC raised its gold price forecast this year to $1,350 an ounce, up from $1,300. The bank is also looking for $1,400 an ounce in 2020.

But These Gold Miners Could Be Even More Effective as a Store of Value

As attractive as I think gold bullion looks right now, there could be some incredible opportunities in gold equities, which are extremely discounted compared to the S&P 500 Index.

Among CIBC’s favorite gold equities are Agnico Eagle, Wheaton Precious Metals, B2Gold and SSR Mining—all of which we own in either our Gold and Precious Metals Fund (USERX) or World Precious Minerals Fund (UNWPX).

And in an article dated January 22, Bloomberg analysts David Stringer, Ranjeetha Pakiam and Danielle Bochove point out that a good place to look for gold equities could be mid-sized producers, which have outperformed both bullion and the entire global mining industry. For the 12-month period …read more

Here's Why the Price of Palladium Just Zoomed Past Gold

EPalladium Strengthens on increased demand from automobile manufactures

Palladium might not fill headlines the way gold does, but it’s been on fire lately. Not only has the precious metal been the best performing commodity for two years straight, but its price also just shot past gold for the first time since 2001. For the first time ever, it broke through $1,400 an ounce last week before pulling back somewhat. From its 52-week low set in August, palladium has climbed almost 70 percent. It’s added about 16 percent in the past 30 trading days alone.

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Supply is tight, but like many other things, we largely have government policy to thank for the palladium rally. In this case, I’m talking specifically about governments in Europe, which have recently strengthened their vehicle emission standards. The “Euro standard,” as it’s called, classifies vehicles on a scale from one to six, with one being the most polluting and six being the least polluting.

Some European cities have already banned the dirtiest “Euro 1” vehicles from their streets. Old diesel cars and trucks were outlawed in Brussels effective January 2018. In May 2018, Hamburg became the first German city to do the same.

Diesel Engines in the Crosshairs

But now that it’s a new year, some city governments are escalating the ban to include Euro 2 automobiles that run on diesel. Next month, Frankfurt—Germany’s financial hub—will go so far as to ban all Euro 4-and-worse diesel vehicles, and all Euro 1 and 2 gasoline-burning vehicles.

I believe this escalation was prompted in part by a comment made by Elzbieta Bienkowska, a European commissioner whose responsibilities include oversight of industry and entrepreneurship. Speaking to Bloomberg in May, she said that “diesel cars are finished.”

And then, as if to hasten Bienkowska’s prediction, a damning study on diesel engines was issued in June by the very same group that blew the whistle on Volkswagen’s emissions scandal back in 2015. According to the study, conducted by the International Council on Clean Transportation (ICCT), even the newest, cleanest diesel vehicles failed to meet Europe’s strict emission standards in “real world” driving conditions. Peter Mock, the ICCT’s managing director, defended the report, saying that “pretty much all Euro 6 diesels on the market are not clean.”

European sentiment of diesel was already in freefall, but momentum is increasing. In the first half of 2018, sales of diesel vehicles within the European Union (EU) and European Free Trade Association (EFTA) fell more than 16 percent compared to the same period in 2017. For all of 2018, British sales of diesels were down nearly 30 percent, according to the Society of Motor Manufacturers and Traders (SMMT). Between 2016 to 2018, diesel’s share of new vehicle sales in the EU plunged dramatically, from nearly half of all sales to just under a third.

Palladium Has Been the Beneficiary

So what does all of this have to do with palladium? The metal, as you probably know, is used …read more

The Newmont-Goldcorp Deal Is Positive News for Gold Mining

The Newmont Gold Corp deal will create the worlds largest gold producer
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I see this news as positive overall for the metals and mining industry, which has long signaled the need for consolidation. As I explained in a Frank Talk Live segment back in October, it’s when an industry has found a bottom that you

Consolidation season has finally arrived in the goldfields, just as many experts and analysts have been predicting for some time now. With exploration budgets having been slashed since their 2012 peak, and because there are today fewer and fewer ounces of gold available to be mined, one way forward for producers of all sizes will be to ramp up mergers and acquisitions (M&A) activity.

You might have heard that Newmont Mining will be buying Goldcorp in a massive $10 billion deal. The resultant company, to be headquartered in Denver, will be the world’s largest gold producer by number of ounces mined—larger even than what’s being called “New Barrick,” after the $6.5 billion merger of industry giants Barrick Gold and Randgold Resources, announced back in September. Whereas Barrick-Randgold produced a combined 6.6 million ounces of gold in 2017, Newmont-Goldcorp was responsible for as much as nearly 8 million ounces.

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I see this news as positive overall for the metals and mining industry, which has long signaled the need for consolidation. As I explained in a Frank Talk Live segment back in October, it’s when an industry has found a bottom that you start to see big M&A deals. A couple of years ago, the very talented people at Visual Capitalist showed in an infographic that mining M&As peaked in the aftermath of the financial crisis.

A Positive Case Study in M&As: Domestic Airlines

This tacit rule applies not just to metals and mining but also to most other industries. Look at domestic airlines. It’s easy to forget now that between 2005 and 2008, more than two-thirds of U.S. airlines were operating under Chapter 11 bankruptcy protection. A huge wave of consolidation followed, giving us the “big four” carriers—Delta, American, United and Southwest. Profits surged to new highs. This year, according to the International Air Transport Association (IATA), global airlines should see their 10th straight year of profitability, and fifth straight year where “airlines deliver a return on capital that exceeds the industry’s cost of capital, creating value for its investors.”

Consolidation Could Speed Up the Closer We Get to “Peak Gold”

So will gold miners follow suit and consolidate (more so than they already are)? And will this lead to a similarly sustained period of outstanding profitability?

No one can say for sure, of course, but my guess is that we’ll continue to see more and more deals the closer we get to the idea of “peak gold.” As I’ve shared with you before, the yellow metal is getting exponentially more difficult and costly to mine. The “low-hanging fruit” has likely already been plucked, so to speak. Exploration budgets have been slashed, and the days of 20- and 30-million-ounce gold deposits could be behind us, to say nothing of 50-million-ounce discoveries.

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To replenish their own reserves, big-name miners such as New Barrick and Newmont might decide to …read more

Gold and Commodities Set to Soar in 2019

Explore the new periodic table of commodity returns 2018

Summary:

An update to the Periodic Table of Commodity Returns.
Goldman Sachs issues an overweight recommendation for gold and commodities.
Paradigm Capital says royalty companies are the “best bet” in metals and mining.

Our ever-popular Periodic Table of Commodity Returns has been updated for 2018 and is now available on the U.S. Global Investors website! I invite you to get lost using the interactive feature, which easily allows you to highlight a certain commodity, the top performer, the most volatile and more.

Palladium was the best performing commodity for the second year in a row, returning 18.59 percent in 2018 after ending the previous year up a phenomenal 56.25 percent. As we’ve noted before in the Investor Alert and elsewhere, palladium and gold prices are now near parity, with a razor-thin spread of only around $2 separating the two at the moment. Late last year, the white metal actually overtook the yellow metal for the first time since 2001 on increased demand from automobile manufacturers. More than 80 percent of world supply is used in the production of catalytic converters.

Not to be outdone, gold ended 2018 on a high note, beating global equities and commodities for the fourth quarter. And as I mentioned before, it was the sixth most liquid asset class, with daily trading volumes nearly identical to that of S&P 500 companies.

Goldman Bullish on Gold, Forecasts $1,425

With a majority of investors now betting that the current rate hike cycle has peaked, the U.S. dollar looks to be in retreat, having lost about 1.7 percent over the past month. Mike McGlone, commodity strategist at Bloomberg Intelligence, writes that he believes the “2019 dollar downtrend has legs.” This is constructive for metals and commodities in general, gold specifically. On Friday, in fact, the yellow metal achieved a “golden cross,” whereby the 50-day moving average crosses above the 200-day moving average—a very bullish sign.

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Among those that are most bullish on the precious metal is Goldman Sachs. In a report last week, the investment bank maintained its overweight recommendation and raised its 12-month price forecast up from $1,350 an ounce to $1,425, a level last seen in August 2013. Goldman analysts contend that the gold price “will be supported primarily by growing demand for defensive assets, with a slower pace of Fed rate hikes in 2019 boosting demand only marginally.”

The World Gold Council (WGC) made a similar case in its 2019 outlook last week, predicting that global investors will “continue to favor gold as an effective diversifier and hedge against systemic risk.” The rise in protectionist policies around the world is chief among the risks since they tend to lead to higher inflation and slower economic growth over the long term, according to the WGC.

I believe the current government shutdown, over funding for a wall along the southern border, is evidence of the risks protectionist policies pose. Now the longest in U.S. history, and with no end in sight, the shutdown could …read more