The risk of a recession which may strike as early as 2019 may be on the horizon and inflation is spiking higher than the US government's official rate, the chief executive and top investment officer of niche market advisers US Global Investors Inc (NASDAQ:GROW) warned on Friday.
"At this stage in the business cycle, investors should start considering the risk of inflation, which I believe is accelerating a lot faster than the Labor Department’s official annual rate,” Frank Holmes said in a statement after release of the company's fiscal 2018 results.
“Historically, gold has performed very well when consumer prices were rising faster than 3%. In many cases, we’re already seeing this rate or higher because of trade tariffs, wage inflation and higher fuel prices. What’s more, we’re seeing a slowdown in the Global Manufacturing Purchasing Manager’s Index (PMI), which could portend a global recession by as early as next year," Holmes added.
The PMI is a measure of industrial activity where a reading above 50 is an indication of expansion while a reading below 50 is a sign of economic contraction. Many market participants use the figure to gauge the health of economies like the US, Europe or China.
READ: Here's why US small-caps are flying high in the face of inflation and risk
Holmes pointed out that the price of industrial metal copper has tumbled nearly 5% in June as President Donald Trump imposed heavy tariffs on China, triggering retaliation from the world's second-largest economy. Since copper is a bellwether metal, it may be a sign that global economies are slowing down.
"Taking into account the trade war’s potential harm on the US and global economies, I believe the dollar could be near a peak, with the potential for even higher gold prices. The yellow metal was down two standard deviations over the past 60 trading days as of the end of the first half of 2018, so the math is in our favor for gold to revert to the mean," Holmes explained.
Turning to their results, US Global Investors reported on Friday that it has flipped its results in fiscal 2018 by posting gains in net income and earnings per share after running up losses in the previous fiscal year.
For the year ending on June 30, 2018, the company said it posted a net income of US$647,000 or US$0.04 per share, reversing a net loss in the previous fiscal year of US$513,000 or US$0.03 per share. No consensus data was available for its results.
The increase is primarily due to income from equity method investments of US$1.6mln. Assets under management (AUM) for fiscal year 2018 fell to US$729mln in comparison to US$843mln in 2017, which led to a decrease in operating revenue, the company said in a statement.
Shares of the company settled on Thursday down 1.85% at US$1.59.
US Global is an investment advisory company based in San Antonio, Texas.