Frank Holmes: Gold's "Perfect Scenario," Bitcoin Outlook After US$100,000 Milestone

I'm Charlotte McLeod with InvestingNews.com, and here today with me is Frank Holmes, CEO and CIO of U.S. Global Investors. Thank you so much for being here. Great to have you as always. Ho, ho, ho. It's great to be with you. Happy season. Yeah, so nice to be wrapping up the year with you. Yeah, maybe you have to change my hat. You know, it's Santa Claus time, and I'll put on, go gold. I love this. Always enjoy the hats, and this is the perfect way to begin the conversation. We're going to start with gold. If we look back to our last conversation all the way back in August, you were telling us that in the next 12 months, it would be pretty easy for gold to get to $3,000, and definitely the price action we've seen since then makes it look like that could happen. So I want to start by asking, heading into 2025, are there any adjustments you would make to your gold price expectations? No, not really. You know, it's amazing the U.S. dollar has put on such a big rally since the election of President Trump to come back in office. But gold has pretty well held itself, and that's pretty telling. Rates are going to fall. We're going to have basically negative real interest rates. The world is still, the G20 are using MMT, modern monetary theory, to try to stimulate and pump their economies. So that thesis is not going away. The BRICS battle against the U.S. dollar with China and Russia leading the charge, and the only way they can get any credibility is to be buying more gold. So I think the thesis of central banks. I see the thesis of rising GDP in India, the largest, most populated country in the world now, and the correlation with rising GDP per capita in India is highly correlated to gold demand for love, for jewelry, for wedding seasons. So I think it's a perfect scenario for the fear trade and the love trade. Gold trades to $3,000. OK, I think that's a good beginning for us and many different paths that we want to go down today. I think let's start by looking a little bit more closely at Trump and what his presidency could mean for gold, because I'm seeing a lot of different questions among investors there. So we have people thinking, OK, he's going to be good for the markets, the economy, and also concerns about his tariffs potentially being inflationary. So what are your further thoughts on how Trump in his second term could impact the gold price? I think it's really interesting how he swept through in most of the states and a lot of the thoughts he had. It's because he focused on the middle class and the working class versus the other, Biden and then Harris. They focus on the rich. We're going to take it away for the poor and redistribute wealth, et cetera. It was a complete different scenario. And the middle class and the working class are greatly concerned about inflation. They are greatly concerned about being marginalized by all the DEI to all these acronyms we have ESG. And so what you're seeing is not just in America. I was reading that the London Stock Exchange has lost 88 big mining companies being delisted from there. They don't want to be there because it's so problematic with all these regulations with ESG. And so I think that we're going to see a streamlining of regulations. I think that Trump was significant, was having the brainchild of his vice president, Vance. And I also think that was really critical was Elon Musk and how they're going to be to take 70,000 regulations and run them through AI and find out, is it really a law or regulation by Congress? If it's not, they're going to streamline all those rules and regulations. And that historically has unleashed entrepreneurialism, has unleashed free market and economic prosperity. So I think it's very positive for him. Is he going to print money? Absolutely. You've got to remember the budget in America, 60% is basically can't touch it. It's entitlements. It's Medicare, it's et cetera. It's not going away. So what are they going to focus on is the other 40%. So I think that the money printing is not going to go away, but I think it's going to get under control. And I think that you're going to see a streamlining of regulations will probably help within the inflation we're living with, because the more regulations is highly correlated to more inflation. Okay. It'll certainly be interesting to see how that plays out and talking about Trump's relationships. I also want to ask you, you started to talk about China at the beginning. How do you see Trump's relationship with China developing as he takes office? Because China is facing a lot of uncertainty internally and externally with Trump coming. So thoughts on that? You know, it's a very important question because China, under the leadership of Xi, has been basically nothing but a big military buildup. The economy has been imploding, the currency has been falling. The only credibility for his currency really is to be buying gold. And so when you see that, I think that someone like Trump will all of a sudden become a bit of a neutralizing factor on China and want to try to take over Taiwan. I think the jury's out. Remember, he's got two years. So President Trump, before you have the congressional elections, you're going to have two years of controlling the Senate and Congress and the administration. And a lot has to happen in those two years. So I remain bullish. I think it's very different than previously. Here he was in France, and then he's all of a sudden in South Texas watching rockets take off with Elon Musk. Then he's at the Army football game. You don't go into a being shown there with Vance and Elon Musk on the TV screen for Americans. It's like hockey is in Canada, football, American football is so big here. And there is the leadership watching a football game. So I think that all those signs, it was military football game, college military. I think all those things are important signs of China slowing down on their military attack. We have to be really careful of is what China's been doing in Africa and what they've been doing in South America and Latin America, how they've influenced from Venezuela now into Colombia, the big new port they have in Peru, the biggest gamblers at the casino they tell me in Lima are Chinese, the big time gamblers, which I get a chuckle out of. But I think their influence throughout Latin America, that's something to watch. And for gold bugs, that's something to watch. And what is America going to do regarding South America, which is so close to our doorstep and what's going to happen in Africa? Because China is trying to lock up not just gold, but other strategic minerals. So I think that this will probably see supply restrictions and that will mean price rising. You're so correct there in terms of China and the influence on metals mining, not just in China, but all around the world that we're seeing, of course, the processing side as well. Just a small follow up question there. And do you think that Trump will have any luck in bringing those industries back into the US? Well, I think there's no doubt a big push for that. The CHIP Act has developed and some bringing chips back into America and Samsung is here. And but it really never took off the way they expected because so much was consumed with EPA, ESG and DEI and all these other acronyms rather than manufactured high quality chips. I think under the stewardship of Trump and Elon Musk, you're going to see a big push in this direction. And I think that that's pretty positive. I think assets in America that are in minerals are going to become more valuable because of just the rule of law. But also what happens if frictions continue with China and what they're doing in supporting Russia in fighting Ukraine? Talking to a three star general today, I was commenting on North Korea is soldiers are not doing well. They have they're not as educated. They're not as military savvy. So the Americans are able to see that now North Korea is losing face with their soldiers. So you don't realize that these are important dynamics that are taking place on the world scene and the geopolitics of Putin. They're not they're not going away. So I think that military spending will pick up in Europe. You'll see the countries like Germany, they're all ushering in more conservative governments. There's a backlash against the green socialist movement because all it's done is harmed innovation. It's harmed productivity. This carbon tax has gone against farming, like kill a million cows to stop them from from flagellating. And, you know, it's just like silly policies that have been taking place. There's a swing back to that sort of conservative. That means more military spending and that impacts the fear trade. That impacts gold because when governments have to go and spend more money like this, it means they have to continue spending money on military support. And I don't see that going away with NATO. I think that Trump will put pressure on Europe to continue to actually spend what they're supposed to be spending. The best ally is Poland. The rest of the country is still way behind, but they're going to have to print money to ignite their economies. And all these parts are really key for the element of gold. Yes. And you've told us many times about the fear trade, which we tend to see in the West versus the love trade for gold, which we tend to see in the East. And I want to go back to what's going on in China because we know that that's such an important buyer of gold, especially in the first part of twenty twenty four. We saw people at the retail level coming in and buying in China and elsewhere in Asia for gold. So with the economic issues that China is facing, is that love trade over there going to suffer in twenty twenty five? What are what are your thoughts? I don't think so much in China, but it's really important to watch what is the GDP per capita growth in India? What is the GDP capital growth in Indonesia, in Thailand, Vietnam, the Middle East? There is this high correlation to the love trade of rising GDP per capita for about 60 percent of the world's population. OK, I think that helps us remember that this is truly global. But just to go back to the US for a little bit. So we are always closely watching the Fed when it comes to gold. And we've got one more Fed meeting in twenty twenty four that's coming later this week. We'll get the results there. And I think very widely expected that we'll get another twenty five basis point cut. So if we look beyond this meeting that is this week into twenty twenty five, I think you said at the beginning of this conversation, we'll have rates coming down. What are you seeing from the Fed? Well, I think they're really in a tough place where they are. And but they realize that credit card debt is at all time high. Real estate is the biggest multiplier effect for job creation. People don't realize that one dollar going into housing construction and then the sale of that house equals about twelve dollars. That's all that dollar turns over and over. Government construction, building a building is four dollars. So you're going to have a bigger magnitude. And those interest rates are really a key factor for housing to get that going again. And they get people to feel better about the credit card. But you know, what really shocks me, Charlotte, is is the airline industry, all this negative news towards them. But United Airlines is up one hundred and thirty percent this year. Who would ever think that? Yeah, one hundred and thirty percent. And who would ever think that all the planes are packed? They're sold out. And if you look at flights for next year, there's no discounts. Like it used to be a book nine months out to plan my holiday. There's no discounts. And if you don't book now, by the time you get close to that time, it may go up. We used to have pre-COVID two and a half million people flying. Now it's three million a day coming in through the US. So we have it interesting that if you have all this credit card debt and there's all this negative news on the on the on the global economy, how come the planes are all packed? How come more people are flying? Something else is happening. And it's to recognize that economy is is sort of resilient. And I think there's tremendous hope. There's tremendous hope. And everyone in the world is watching Trump differently than they did when he was first elected. And what we'll be able to do with all these policies, such as I mentioned earlier, a lot of the regulatory burdensome and open borders, all that stuff is going to end. And I think that people are saying, good, we're going to have a stronger economy. Rates are going to come down. And I think in six months we'll get a better flavor. But that doesn't take away anything for the demand for gold. Costco has continued to sell gold. Walmart's into selling gold. And what's really interesting to me is the demographic research that came out from Costco is that it's a lot of professional Asian and Indian women that are the buyers of the gold at Costco. They are in Silicon Valley. They are in telecommunications. They're in all these medical business, et cetera. And they just buy gold. It's just part of a cultural affinity. So I think that we're in a wonderful bull market for gold. OK, OK. Very interesting. And I think you're right. We're definitely in what feels like a wait and see period for the next month, a couple of months or so as we wait for Trump to come in. So just just one more final point on the US. You mentioned this economic outlook. What do you see coming? Are we going to get that soft landing that the Fed has been trying so hard to engineer? Yeah, I think there'll be a I think there'll be a soft landing. And and I think that I'm really hopeful that the A.I. and all the hundred thousand H100 chips that Elon Musk has just plugged in for those listeners. A.I. is called large language models, and that means it can take millions and millions of regulations and rules, et cetera. And all of a sudden, look where there are duplications and triplications and eliminate them by coming back with a new strategy. You can never do that with human beings. There's not enough people to turn around to to look and cross analyze. But now with these Nvidia chips, they'll be able to do that. So they'll be able to streamline to make the government more effective and efficient. So I think that that's really positive for the stock market. What we've witnessed is a big backlog of IPOs taking public. Many mergers and acquisitions were stopped. JetBlue has stopped from buying Spirit, and then Spirit all of a sudden gets into financial problems. It's going to change. These dynamics are going to change or can do will do business. OK, so that's what's going on with the stock market there. What about gold stocks? We have to take a look at gold stocks. So gold has been on the move for sure in twenty twenty four. You see a good picture coming for gold in twenty twenty five. Gold stocks are moving, maybe not as much as people might like. What do you think? Are we going to have more of an outperformance from then in twenty twenty five? And of course, we can take the time to talk about the GOAU ETF and how that fits in here. I think there's some really interesting dynamics took place with this Bitcoin ETF and how they competed with everyone and how fast they grew. There was data points shared with me last week that one point eight billion dollars left the GDX last year. So that was selling of gold stocks. The only gold stocks really to get the big bid were the most liquid names that hedge funds would come into. Agnico, Eco, Barrick and Newmont. Those three garnered a disproportionate number of fund flows. The other ones that had good fund flows, if you look at what they call unbalanced volume, were those that had free cash flow yields. So those 40 percent of the 90 some odd gold producers I follow around the world, 60 percent of them have free cash flow yields. If we go back 10 years ago, it might have been 20 percent. So it's a much stronger industry. The quant world will go to where there's a free cash flow yield and a growth dimension to it. So I think that gold stocks are deeply undervalued. And I think they'll get that reset button as gold trades higher. We will get that three for one sort of return. Gold goes up one percent. Gold stocks that have free cash flow yield or growth dynamic. They're going to go up three percent. Now, if you own a gold stock that's lagging, that has big reserves, it's probably going to get taken out because that's the fastest and easiest way for a major to be able to get more reserves. So the money will be made on knowing who has the most reserves per share. And that's the same thing. We've done this research and all the explorers and those stocks that seem to get the biggest bump and rise is when you look at each each quarter, how many shares are standing and how many reserves, even if they're probable reserves, not proven probable. Those stocks actually perform better. And I think the cheapest gold assets in the right now are actually on the stock market in exploration and developing companies listed in Canada. It's much cheaper to go pick those off than to go and do grassroots exploration in Latin America. Yeah, I think that that makes a lot of sense. So that tells us where the gold stocks might be going next year and which ones we should be focusing on. So one more topic before we move on from precious metals, I have to make sure to ask you your thoughts on silver. So silver, we know lags behind gold historically, and then it outperforms. What are your thoughts on silver heading into 2025? Of course, it's got its precious side, but it's also got its industrial side, which I think people worry might might weigh on it a little bit. I think the premium of physical silver is still much higher than what the spot price reflects. If we look at the spot silver and you try to go buy silver at Kitco, it's much higher. That premium has not gone away. And that is a reflection that the retail world continues to buy coins. And I don't and I think that's very positive for silver as a investment. I think the industrial use for silver will only stay strong. Leaders like Elon Musk are very big into solar and solar needs silver. And I think it all begs extremely well for the silver. And I think the leverage for silver, like I said earlier, gold goes up 1 percent, gold stocks go up 3 percent, gold goes up 1 percent, silver goes up 3 percent, silver stocks go up 6 percent. So you will deal with silver stocks the way you have to deal with crypto mining stocks. They just have that much bigger DNA of volatility because there's two demand components to it. There's a much stronger industrial demand for silver, especially in the green economy, renewable economy. I don't think that's going to go away. I think that it's just going to be more thoughtful of how money is being spent in that direction. OK, and one small follow up there on silver. When you look at the silver stocks, which, of course, are going to outperform even more than the gold stocks. Are you looking for the same types of companies as you are in gold, the companies with the free cash flow yield and the large reserves? I think that the big reserves is really important that they'll get bought by other silver producers. It's different dynamics for the silver companies, but the higher that they have a free cash flow yield, the stronger the bid comes into those stocks. And what's interesting is most of them are coming out of Latin America where the currencies are weak relative to the U.S. dollar. So I think that's a really important embedded hedge that countries in Latin America will continue to see their currencies remain weak against the U.S. dollar. What people don't realize, Charlotte, is in 2002, Argentina basically oppressed all people that had U.S. dollar bank accounts. They gave you $3,000 with the pesos for your 10,000 U.S. dollars. And those $3,000 of the pesos today are worth $30. They have decimated your money. So even to this day, you can't have U.S. dollar bank accounts in many countries and people are freaking afraid. What keeps Argentina going? Their city, Buenos Aires, is so beautiful. U.S. dollars. There's $25 billion in mattresses and pillows. And and what you what you learn is that this this stable coin called Tether, which is $145 billion. They have 300 million wallets or investors in that U.S. dollar and they don't earn interest on it. There's no interest. They just want to have U.S. dollars. So when we leave North America, we don't realize how difficult it is in Africa, in South America, having a bank account, having U.S. dollars. So I think that dimension is really important to appreciate in all those countries. Yeah, I think that's something that people might not necessarily know. It's so different from how it is here in North America. So really good to go into that. And now I think we've covered gold and silver pretty well. Let's take a look at Bitcoin. So you've been talking to us about Bitcoin for years at this point. I've changed my hat now. Yes, it's time for a new hat through your connection with Hive. And of course, you've been a proponent of Bitcoin. And now we see Bitcoin really, really on the move. Of course, gold has moved this year, but Bitcoin is taking off. So I have to ask you, what are the main drivers there? Is this all to do with Trump optimism? What else is driving Bitcoin right now? Well, government policies are always a precursor to change. Like we talked about, interest rates falling. There is monetary and fiscal policies. Government policies are A or B. Monetary and fiscal. Monetary are interest rates and money supply. Fiscal is tax and spending regulations. Basically, the tax and regulations go together. And so you can see where the directions are. Well, President Trump has said that he is pro Bitcoin as a reserve asset. And that is a game changer. Now we have some people saying we should sell the gold and only own Bitcoin. And I don't think that that's going to happen. But I do think that more central banks around the world are going to start to look at Bitcoin as a reserve. And if 2% BlackRock says they own Bitcoin should be 2% of your portfolio, like I've always advocated, 10% in gold. It means that there's pent up buying. If we go back in history, I remember that the regulatory rule is always anti our gold funds, anti gold stocks are all bad until the GLD came out in 2003, 2004, that time period. And all of a sudden, the regulatory world changed towards gold because now there is a gold ETF. I think with the Bitcoin ETF, that's going to happen again. I think that sort of that change is going to take place. What Bitcoin has is so competitive regarding gold is that it's much easier to open an account to get Bitcoin than it is to actually buy physical gold. Under President Obama, there was Choke Point 1.0 and they went after all the coin dealers to take away their bank accounts. Then they called Choke Point 2.0 and they went after anyone in crypto. And Congress gets upset with that because they never wrote a law to do that. It's just the White House feels that they have the right to go and set new rules and regulations. Well, when we look at Bitcoin, it has 20,000 validators, nodes all over the world working 24-7. You don't have 20,000 gold analysts. You don't have 20,000 gold exchanges. You don't have that magnitude. And so it makes it pretty competitive if Bitcoin continues to grow as a store of value like gold is and it's easier to move around the world. And it's all about private property rights. So coming back to Argentina, they took away your private property rights. They confiscated your US dollars. So people want to be able to say these are mine. Socialists do not want and communists are anti any private property rights. Free markets are all about private property rights. Human rights are connected to private property rights. So Bitcoin and all the Bitcoin ecosystem have done a wonderful job explaining that all over the world. And these conferences are packed with it. You can see the bloggers. And what's interesting to me is that there's more memes. You can turn around and see more conversation. I was on talking to a group of CEOs and they don't have a Instagram account for the corporation. They don't have for themselves. They don't have Twitter. They have someone else doing it for them. They're oblivious. Oblivious. When you turn around and take a look at every crypto mining company or anyone that's in that ecosystem is fully aware of Reddit and how the story is used and told. They are fully cognizant of TikTok, Instagram and Twitter now X. And so I think that it's sort of left a lot of these gold world has to get caught up to what the social media and sites like yourself and the education you're providing is so powerful because they're not going to get it on CNBC. They are not going to get this on Bloomberg TV or BNN in Canada. They're going to get it from following you, Charlotte. And it becomes so the Bitcoin world has gone to these other platforms to seek out information to get insight. And they're both very similar. Gold is decentralized. Bitcoin is decentralized. Both are both portable property rights. And the difference is you can wear your gold and it looks beautiful. You can't really wear your Bitcoin unless it is gold. And you but it's easier to move Bitcoin to turn around the Senate anywhere in the world and it will become portable wealth. It's not so much money. It's like something to call it digital money really is digital gold. It's portable wealth. And we're seeing as more people are acknowledging governments are not turning away from MMT. They're going to continue to put the money. Bitcoin is all of a sudden becoming every day talking with BlackRock, talking about it and educating people. And now they say 2% for asset allocators. That means it's only going to grow. And as remember, it's capped at 21 million coins. There's still over 100 million ounces of gold produced every year. So that supply is still coming out. If it's not recycled, it's from mines and operating. If you if I would love to see more of the gold mining executives start, if they have free cash flow to hold their gold, don't sell it because it's too cheap. They should take a lesson from what Hive does. Hive hodls as Bitcoin. Our Bitcoin is up. Our holdings are up 67% year over year, and it's now worth 300 million dollars. I mean, it's amazing to see. Well, I believe Bitcoin is cheap and inexpensive relative. So I also believe in gold. Both are alternative asset classes. Both are decentralized and both are preservation of wealth against money printing and should own both. So many really good points there. Thank you so much for going into that. And just a little bit more on Bitcoin. You mentioned Bitcoin is cheap right now. We should have both of them. But Bitcoin is looking cheap right now. I have to ask you, you know, the price potential here. We've seen such a run in 2024. What are you looking at? Do we need to see a pullback before we go higher? What do you think? It's there's a law. There's a mathematical law based on exponential math called Metcalfe's law. And it talks about the adoption. And as as the numbers adopt linearly and the price supply is the supply is limited, then prices grow exponentially. And that's what's really important to recognize. The same thing with gold discovery. If you have a company with 10 million shares outstanding and has a 10 million ounce discovery, that stock goes up exponentially. It doesn't go up linearly. It's an exponential move. So it's really important to recognize that. That's that's really. So when you say to yourself, OK, there's 8 billion people, the money supply is going to continue to grow. What will be the different types of asset classes? More and more people are concerned about their preservation of wealth and they want it to be portable. I think the Bitcoin can go to a million dollars. I really do. And I think that makes gold worth ten thousand dollars. But the the adoption process, because it's cut to 21 million, is important. Now, if you go go to buy today a thousand dollars of Bitcoin with PayPal or you go to do it at Robin Hood in the U.S., well, they're going to sell you what's called a Satoshi. And every Bitcoin is worth a hundred million Satoshis. And one Satoshi is worth point zero zero zero seven cents. Well, at one penny, that means Bitcoin's worth a million. A hundred million pennies is a million dollars for Bitcoin. Wow. Can that happen? Absolutely. Because some of these Satoshis have unique numbers and we at Hive have been offered ten dollars for them. So we had a basket. We were offered a quarter million dollars just because of the special numbers that there's only that number, 64. And that was on the date of something important happened. So if you can find the date of the of the election, well, someone will say that Bitcoin on the election of Trump was more valuable. That's all I have to say. And it's like an Andy Warhol piece of art. And now I can attach a photo of President Trump on that Satoshi and that Satoshi, which is worth point zero zero zero seven cents, is all of a sudden worth ten dollars. That's that's the magnitude where things can grow exponentially with the adoption. OK, that is a nuance that I had absolutely no idea about. So very interesting to look at that as we are getting toward the end of the conversation here. I want to finish with a question that I'm asking to most people, and I think it's fun. So if we look ahead to twenty twenty five, what do you think the best performing asset will be? And I think this is an especially good one to ask to you, because most of the people that I speak to are focused on the metal sector. But you have a little bit of a broader take. I think data centers. I think that the best some of the best performing Bitcoin miners, it's only because they have electricity and and people in need with Nvidia chips can't find the electricity. So they come in and core scientific a year ago is 50 cents and it goes to fifteen dollars because of electricity. And they can fast track the building up those data centers for the AI boom. So the AI boom, if you miss Nvidia being early, then the real stable part are going to be data centers. And we hear some some promoters talking about making the biggest data center in Alberta. The federal government, Canada is talking about it, et cetera. Just those companies that have access to electricity, that stable are going to become the best performers, which I think. OK, that's that's definitely an interesting one as well. Thank you for that. And before I let you go, any final thoughts you would leave investors with? We've had definitely an interesting twenty twenty four and twenty twenty five looks like it's going to be quite something. Yes. And just be optimistic is so important because if you're so pessimistic, then you will miss the next great move, the great opportunity that's taking place in front of us because there's too busy looking for the glass being half empty. Look for being half full. Don't be naive, but stay optimistic. You'll stay healthier and wealthier. OK, what a great point to wrap that up on. Thank you so much for going over what happened this past year, what we're looking forward in twenty twenty five. And of course, hope to have you on again next year to discuss some of these themes again. And then the happy holidays. Of course, happy holidays. And once again, I'm Charlotte McLeod with investing news dot com. And this is Frank Holmes. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts. So leave us a comment below.