Frank E. Holmes lives and breathes gold. Ask him a question about the precious metal and the veteran money manager will rattle off Toronto Stock Exchange gold index figures going back five decades. And with gold finally coming back from the dead amid concerns over war, terrorism, and ailing equities, Holmes is once more feeling his oats.
Chairman and CEO of San Antonio-based U.S. Global Investors Inc.–its ticker is GROW–Holmes is responsible for $1.2 billion in assets, about $150 million of that in gold. After a disastrous performance during the late 1990s, Holmes returned to the trading floor, instituted new procedures for U.S. Global and its in-house managers, and took personal control of the 28-year-old Gold Shares Fund (USERX) and slightly younger World Precious Minerals (UNWPX) fund.
“Gold is an emotional asset class,” Holmes concedes. But, he maintains, “when you put it in a portfolio, you enhance overall performance because of gold’s countercyclical nature.” This, more than an emotional attachment to gold, is Holmes’ prime argument for giving it a weighting of 5% to 12% in a diversified portfolio.
Holmes argues that over the past 50 years, shares of mining companies have tended to strengthen when the overall equity market is weakening, and vice-versa. This year, that argument has certainly held true: Although Gold Shares fund has seen losses in eight of the past 10 years, Morningstar Inc. estimates that through Nov. 15 it had gained 48%, against a 20% loss for the S&P 500. U.S. Global shares, meanwhile, are up 24%.
I spoke with Holmes in Dallas recently during a TD Waterhouse Institutional advisor conference. Here are some of his thoughts on investing in gold as well as on changes at U.S. Global:
Gold responds to geopolitical events. What’s driving it now? 9/11 changed everything. You also have deficit spending and a weaker dollar. Still, if there is no war [in Iraq], gold could come back to $300 [Gold closed at $320/ounce on Nov. 15].