Gold, AI, and Geopolitics: Navigating a Turbulent Global Economy

Frank E. Holmes, CEO and Chief Investment Officer at U.S. Global Investors and Executive Chairman of Hive Blockchain Technologies, recently joined Mike Maharrey on the Money Metals podcast to discuss pressing economic trends, the Federal Reserve's actions, and how technology and geopolitics are reshaping the investment landscape.

(Interview Begins Around 3:30 Mark)

Fed Policy and Economic Dynamics

Holmes critiqued the Federal Reserve’s recent 25-basis-point rate cut, noting that while inflation remains stubborn, the Fed reduced the number of projected rate cuts for the coming year from four to two. He highlighted the dual challenges of managing debt costs and stimulating economic growth amid negative real interest rates, which he believes will favor gold. Holmes pointed to a growing reliance on Modern Monetary Theory (MMT) and predicted this trend will continue to drive up gold prices.

The Role of AI in Streamlining Regulations

Holmes emphasized the transformative potential of artificial intelligence (AI) in addressing regulatory inefficiencies. Drawing from his experience taking GoldSpot, an AI-driven gold mining exploration company, public, he noted how AI could reduce wasted expenditures in exploration and streamline redundant government regulations. Holmes sees AI as pivotal in tackling the inefficiencies that burden sectors like healthcare and energy.

Gold’s Stellar Performance

Holmes underscored gold’s impressive track record this century, noting that it has delivered positive returns 80% of the time and even outperformed the S&P 500. Despite this, he acknowledged that gold stocks have lagged bullion due to weaker free cash flow metrics. However, companies focusing on robust free cash flow are starting to attract attention from diversified investors and quantitative funds.

New ETF: U.S. Global Technology and Aerospace Defense

Holmes unveiled the upcoming launch of the U.S. Global Technology and Aerospace Defense ETF, with the ticker symbol “WAR.” The ETF focuses on companies at the forefront of AI, cybersecurity, and aerospace technologies, including Nvidia and Palantir. Holmes positioned this ETF as a hedge against crises and a reflection of the growing demand for cybersecurity and defense technologies in a volatile geopolitical climate.

Global Geopolitical Landscape

Holmes explored the geopolitical ramifications of open borders, regulatory shifts, and energy dependencies. He highlighted Europe’s struggles with socialist-driven regulatory burdens, noting that 88 major companies left the London Stock Exchange last year due to ESG and DEI-driven mandates. Holmes contrasted this with the U.S., where technology and deregulation efforts under the Trump administration are fostering a more business-friendly environment.

Holmes also pointed out significant geopolitical tensions, including the Russian invasion of Ukraine, Poland’s increased defense spending (nearing 5% of GDP), and the broader implications for NATO and global stability. He voiced cautious optimism that AI and deregulation could usher in greater efficiency and economic resilience, though he warned of lingering cultural and political divides in regions like Europe and the Middle East.

A Message of Hope

As the conversation wrapped up, Holmes expressed hope for greater technological and economic innovation to address global challenges. He encouraged listeners to explore his insights further via his "Frank Talk" blog and the Investor Alert newsletter, which reaches over 100,000 subscribers worldwide.

Key Takeaways for Investors

Holmes’ analysis provides a comprehensive roadmap for investors navigating today’s complex landscape:

• Gold as a Safe Haven: With negative real rates and persistent economic uncertainty, gold remains a vital asset.
• AI's Game-Changing Role: Innovations in AI are poised to revolutionize industries and government processes.
• Defense and Cybersecurity: Growing geopolitical risks are driving demand for technologies that bolster national security.
• Geopolitical Awareness: Investors must stay attuned to broader geopolitical developments that can influence markets.

As Holmes aptly summarized, “We don’t want war, but it’s important to protect ourselves from the realities of the world.” This balanced perspective encapsulates the dual need for optimism and caution in today’s investment climate.

Key Questions & Answers 

The following are the key questions and answers from the Money Metals podcast with host Mike Maharrey's interview with Frank Holmes, CEO and Chief Investment Officer at U.S. Global Investors and Executive Chairman of Hive Blockchain Technologies: 

What is Frank Holmes’ view on the Federal Reserve’s recent policy moves?

Frank Holmes described the Federal Reserve’s recent 25-basis-point rate cut as a response to the conundrum of managing high debt costs and the need for economic stimulation. He noted the reduction in projected rate cuts for the upcoming year from four to two as a sign of the Fed’s hawkish stance. Holmes emphasized that negative real interest rates, which occur when inflation outpaces nominal interest rates, are favorable for gold, predicting a continued rise in its value as the Fed struggles to control inflation while sustaining growth.

How does Holmes see AI impacting the economy and government regulation?

Holmes highlighted the transformative power of artificial intelligence (AI) in reducing inefficiencies across industries and government. He shared examples from his experience with GoldSpot, an AI-driven gold exploration company, which reduced exploration costs significantly. He believes AI can similarly streamline the U.S. regulatory framework by eliminating redundancies, enabling a more efficient economy. AI’s role in sectors like healthcare and energy is also set to expand, identifying issues with unprecedented accuracy and precision.

Why does Holmes believe gold remains a strong investment?

Gold has delivered positive returns 80% of the time this century and outperformed the S&P 500, according to Holmes. He attributes this to its dual role as a hedge against inflation and a store of value during times of economic uncertainty. While gold stocks have lagged bullion due to weaker cash flow metrics, companies focusing on free cash flow are becoming attractive to diversified investors. Holmes foresees continued demand for gold as Modern Monetary Theory and negative real rates persist.

What is the focus of the new U.S. Global Technology and Aerospace Defense ETF?

The new ETF, with the ticker “WAR,” focuses on companies involved in AI, cybersecurity, and defense technologies. Holmes explained that firms like Nvidia and Palantir are crucial in addressing modern challenges, including drone technology, satellite recognition, and cybersecurity threats. The ETF is designed as a hedge against crises, reflecting the rising demand for technologies that ensure national and digital security in an increasingly volatile world.

What are Holmes’ insights on global geopolitical dynamics?

Holmes provided a detailed analysis of global geopolitical tensions, including Russia’s invasion of Ukraine, NATO’s response, and Europe’s economic struggles. He highlighted Poland’s defense spending, which now exceeds 5% of GDP, and emphasized how countries are rethinking open border policies. Holmes criticized excessive regulations in Europe, which have driven major companies away from markets like the London Stock Exchange. In contrast, he sees the U.S. leveraging deregulation and technology to maintain its economic edge.

What optimism does Holmes see for the future?

Despite challenges, Holmes expressed cautious optimism about the potential of AI and deregulation to address inefficiencies and promote economic growth. He highlighted the U.S.’s technological advancements and productivity gains as critical advantages over Europe. Holmes also emphasized the importance of geopolitical stability, particularly in regions like Ukraine, and encouraged a focus on innovation and strategic defense to navigate future uncertainties effectively.

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