No Country Has Ever Taxed Itself into Prosperity

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everything is up where is the value

Violent protests have erupted in the streets of Bogota, Cali and other cities in Colombia. The immediate cause? Proposed reforms to the South American country’s tax system, which would have lifted taxes on everything from salaries and dividends to fossil fuels, single-use plastic items and more.

According to reports, the protests have involved citizens of all walks of life, including truckers, taxi drivers and health care workers. Overworked doctors, nurses and paramedics have walked off the job to bring attention to salary delays.

In response to the unrest, Colombian President Ivan Marquez announced on Sunday that he was withdrawing the tax reform proposal. The country’s finance minister resigned the following day.

But the protests continue, just as they did in Hong Kong in 2019 and 2020 after a controversial extradition bill was canceled. At least 24 Colombians are believed to have lost their lives so far during clashes with police.

Money Flows Where It’s Respected Most

It’s against this incendiary backdrop that U.S. lawmakers are having their own tax reform debate.

President Joe Biden seeks to make a number of adjustments to the tax code, including raising the top income rate to 39.6%. The tax on capital gains, currently at 20%, would be doubled. And corporate taxes, which were lowered to 21% in the Tax Cuts and Jobs Act of 2017, would increase to between 25% and 28%.

home prices rose at fastest pace since 2006 in february

Before 2017, the top U.S. rate on corporate income was 35%, making it one of the highest rates in the world—higher, even, than Mexico, France and Brazil. I and most other executives celebrated the change because it made the U.S. far more competitive as a place to do business in. As I’ve said many times before, money flows where it’s respected most. Around the time of the tax bill’s signing, private business investment in the U.S. came rushing back, before stalling in late 2019 as the global economy slowed and articles of impeachment against President Donald Trump looked more and more likely.

Now, as domestic investment is finally starting to trickle back following the worst of the pandemic, the U.S. risks scaring money away again by raising corporate taxes.

Commodities highest jump since 2011

To make matters worse, Treasury Secretary Janet Yellen said this week that she and a number of other finance ministers are actively negotiating a global minimum tax on corporate income. If implemented, the decision would stand as yet another example of unelected bureaucrats imposing anti-capital, anti-competition policies on the rest of us. Obviously I don’t condone the violence we’re seeing in Colombia right now, but I view it as a cautionary tale of what could happen when people are faced with the real possibility of having even more of their hard-earned money withheld from them.

One of my all-time favorite quotes comes from Winston Churchill, who was just as witty as he was a great leader: “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

On the contrary, countries have found prosperity by eliminating taxes. Take China. In 1978, Deng Xiaoping created special economic zones (SEZs) along the coastline, including Shenzhen, which invited millions of dollars in foreign investment to pour in. It’s hard to imagine China becoming the second largest economy had this decision not been made.

Net Short Bets on the Dollar Increase. Time to Scoop Up Gold?

It may be no coincidence that the value of the U.S. dollar decreased more than a full percent this week against a basket of international currencies. This comes as hedge funds and other speculative investors have increased their net short positions against the greenback in recent weeks. What’s more, the International Monetary Fund (IMF) reported this week that the share of U.S. dollar reserves held by global central banks fell to 59% in the fourth quarter of 2020, a 25-year low that’s down from 71% since the euro made its debut in 1999.

What does this mean for assets that are priced in U.S. dollars such as gold? As you might have expected, the yellow metal jumped back above $1,800 an ounce for the first time since late February. Gold rose more than 4% for the week, beating its digital counterpart Bitcoin, which remained mostly flat.
The U.S. Dollar Index is currently at 90.2. I believe if it traded below 90, it could trigger some technical gold buying as inflation concerns mount.

That’s precisely the reason why legendary investor Sam Zell finds gold attractive right now. The Equity Group Investments founder told Bloomberg Television this week that he was seeing inflation “all over the place.”

“You read about lumber prices, but we’re seeing it in all of our businesses,” Zell said. “The obvious bottlenecks in the supply chain arena are pushing up prices. It’s very reminiscent of the ‘70s.”

Commodities at Six-Year High, Copper at All-Time High

Indeed, one of the most obvious signs of inflation is rapidly expanding commodity prices, which rose to their highest since 2011 this week. For the 12-month period, the Bloomberg Commodity Index has returned close to 70%, one of the best runs for raw materials in recent memory. Meanwhile, copper, a bellwether of economic growth, touched a new record high of over $10,400 a metric ton.

Commodities highest jump since 2011

I don’t see asset prices pulling back in the short term, given the ongoing risk of inflation and debasement of the U.S. dollar. Copper could very well be headed for $13,000 or more, so stay long.

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Gold Market

This week spot gold closed at $1,831.24, up $62.11 per ounce, or 3.51%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 8.73%. The S&P/TSX Venture Index came in flat at -0.03%. The U.S. Trade-Weighted Dollar fell 1.15%.

Date Event Survey Actual Prior
May-3 ISM Manufacturing 65.0 60.7 64.7
May-4 Durable Goods Orders 0.5% 0.8% 0.5%
May-5 ADP Employment Change 850k 742k 565k
May-6 Initial Jobless Claims 538k 498k 590k
May-7 Change in Nonfarm Payrolls 1,000k 266k 770k
May-11 ZEW Survey Expectations 72.0 70.7
May-11 ZEW Survey Current Situation -41.6 -48.8
May-12 Germany CPI YoY 2.0% 2.0%
May-13 Initial Jobless Claims 500k 498k
May-13 PPI Final Demand YoY 5.8% 4.2%



  • The best performing precious metal for the week was silver, up 5.91%. Silver continues to do well due to the improving U.S. economy, which is strengthening the dollar. Reports showing a slowdown in manufacturing activity, along with disappointing jobs numbers, are also positive, as it implies that rates will remain low, which is good for silver. Palladium continues to do well and hit a 52-week high of $3,010.68 per troy ounce this week. Prices are up 23% year-to-date and are being driven by improved demand from catalytic converters. 
  • OceanaGold’s share price rose nearly 20% on the addition of Michael (Mick) McMullen and Paul Benson to the company’s Board of Directors. Both McMullen and Benson are highly respected in the mining industry and have relevant jurisdictional backgrounds that should help OceanaGold navigate its future.
  • Franco-Nevada reported earnings surprise this week, $0.84 versus the $0.80 consensus. Revenues were 67% higher than forecasts, which is due to strong results from the Canadian Hemlo mine. Revenues from the mine were $21 million, higher than the $8 million consensus.


  • The worst performing precious metal for the week was palladium, down 0.60% after hitting an all-time high last week. The U.S. Mint’s sales of American Eagle gold coins totaled 38,500 ounces in April, a 63% decline year-over-year. This drop may be an inflection point, as January to April year-to-date sales rose 39% to 450,500 ounces.
  • Centerra Gold share price traded down as much as 30% as the company updated the market on political developments in the Kyrgyz Republic, potentially impacting its ownership of the Kumtor mine. Political shocks like this are not uncommon regarding the ownership of Kumtor and can be painful short-term. The Kyrgyz government is the largest shareholder of Centerra, owning 26% of the company.  Historically, these challenges can often turn into buying opportunities, although nothing is guaranteed.
  • IAMGOLD, Argonaut Gold and Equinox all had earnings disappointments due to higher-than-expected costs along with a falling gold price during the quarter, which did not help. COVID-related issues have likely pushed operation efficiencies lower for many of the miners. Their operations are often in more remote regions of the world and it is known that vaccination rates are running much higher in developed regions.


  • Gold began to advance after last week’s decline as seen in the chart below. Treasury Secretary Janet Yellen said President Biden’s plan would not increase inflationary pressures because the boost to demand would be spread out over a decade. This would enable central banks to continue dovish monetary policies, which would allow gold to appreciate. Additionally, the recently announced disappointing jobs number may encourage the Fed to remain dovish. Billionaire investor Sam Zell is also now buying gold, despite decades of criticizing those who purchase it, reports ETF Trends. Zell says it is because these monetary policies may create inflation like the 1970s and gold could be a hedge.

Gold steadies as investors weigh debate around inflation risks

  • Gold Bull observed visible gold in drill chips from drill holes outside a known resource in Sandman, Nevada. Gold Bull’s core asset is the Sandman Project and assays from these drill holes are expected by mid-May.  CEO Cherie Leeden said it is rare to see visible gold in drill chips.
  • Roscan Gold announced high grade and consistent drill results for 42 additional holes at the Kabaya location. The increased depth and volume of these drill results indicates that there may be a significant increase in production. Estimates are that it may be up to 1.5 million ounces higher than before.


  • B2Gold reported a feasibility study with materially weaker economics for its Gramalote project. Reserve grades were lower than expected, which could bring production down from 417,000 ounces to 347,000 ounces. B2Gold may also do a revised feasibility study, which could delay the project up to one year. There are likely more accretive uses for B2Gold’s capital, which currently has better visibility toward meaningful growth.
  • Inflation is increasing mine costs. Higher construction material costs (steel, copper, and timber, for example) are being seen. A depreciating U.S. dollar is increasing Canadian dollar cost exposure as well, as the Canadian dollar appreciates.
  • Investment trends in the gold industry are making it more difficult for gold companies to grow. Shareholders are demanding a high percentage of earnings and divestment proceeds. Miners must navigate tricky jurisdictions and geologies as well as gain the trust of politicians and populations at a time of rising environmental standards. Host nations are also demanding a bigger slice of any mining windfalls. Those management teams that best understand how to obtain their social license will likely prosper more.

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Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average gained 2.67%. The S&P 500 Stock Index rose 1.23%, while the Nasdaq Composite fell 1.51%. The Russell 2000 small capitalization index rose 0.23% this week.
  • The Hang Seng Composite lost 1.11% this week; while Taiwan was down 1.60% and the KOSPI rose 1.57%.
  • The 10-year Treasury bond yield fell 5 basis points to 1.573%.

Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Telcoin, rising 347.46%.
  • Ether, the native token on the Ethereum blockchain, rallied to an all-time high of $3,607.74, gaining more than 370% since the beginning of the year. This week’s rally in altcoins (cryptocurrencies other than Bitcoin) saw an increase of around 10% in total market capitalization of cryptocurrencies. Dogecoin, the widely loved memecoin, also set a record high of $0.6953 per token, and is up approximately 12,700% year-to-date.

number 2 token ethereum has recovered faster than bitcoin from april swoon

  • Nokia announced the launch of its blockchain-based marketplace, named the Nokia Data Marketplace. According to the company’s press release, the goal of this service is to provide enterprises and communication service providers (CSPs) with the ability to access trusted datasets and improve business decision making. The service also allows enterprises and CSPs to become data marketplace providers through monetization of data swaps between customers or business participants. Additionally, Nokia is planning on deploying another platform geared toward advancing artificial intelligence and machine learning via blockchain-based federated learning protocols.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was PancakeSwap, down 10.61%.
  • Coinbase Global Inc.’s shares dropped to fresh lows this week, shedding more than 50% of the $100 billion valuation it reached when it started trading on April 14. Analysts at FBB Capital Partners believe that the selloff experienced by Coinbase was largely due to the formation of a frothy marketplace, which has seen SPACs, cryptocurrencies, clean-tech, and hyper-growth stocks rally, that is now in the process of bursting.
  • New York’s Attorney General (NYAG) has filed a court motion to shut down automated crypto trading app Coinseed, alleging continued fraud. In February, NYAG accused the app of defrauding its users out of $1 million through hidden fees, false claims, and a flopped token. Additionally, the U.S. Securities and Exchange Commission (SEC) filed a parallel lawsuit against Coinseed alleging token registration violations. Users of the app reported that their crypto balances were converted into Dogecoin without their consent, with one user claiming that his $48,000 position was reduced to $31,000 due to Dogecoin’s excessive volatility.


  • Visa announced that it is partnering with California-based fintech startup, Tala, to drive cryptocurrency adoption for underbanked customers in emerging markets. According to the press release, the companies will collaborate with USD coin (USDC) operator Circle and the Stellar Development Foundation, and Tala will provide access to the U.S. dollar-backed stablecoin to its customers via its digital wallet. Tala, founded in 2011, has provided over $2 billion in credit to over 6 million customers in countries like India, Kenya, the Philippines, and Mexico in the form of micro-loans.
  • VanEck, the New York-based investment manager, announced the launch of its thematic ETF in Europe that provides investors exposure to companies in cryptocurrency and the blockchain ecosystem. Trading under the ticker “DAPP”, the VanEck Vectors Digital Assets Equity UCITS ETF is listed on the London Stock Exchange and the Deutsche Boerse and has a total expense ratio of 0.65%.
  • Goldman Sachs announced that it is offering investors access to Bitcoin-tied non-deliverable forwards (NDFs), which counterparties settle by exchanging the difference between the negotiated NDF rate and the spot rate of Bitcoin on a notional agreed sum. Goldman Sachs will hedge the risk of price volatility by trading Bitcoin futures in blocks through the CME Group.


  • South Korea’s financial regulators have requested the nation’s banks to provide information on their dealings with cryptocurrency exchanges. The Financial Services Commission (FSC) announced during the last week of April that a revision in South Korea’s Act on Reporting and Using Specified Financial Transaction Information requires cryptocurrency exchanges to implement real-name accounts for their customers or risk facing up to five years in prison. So far, only four of the nation’s largest exchanges have set up real-name accounts, and estimates suggest that there are around 100-200 cryptocurrency exchanges operating outside the purview of the government.
  • New York legislatures will debate a new bill that seeks to place a three-year moratorium on crypto mining operations pending an environmental review by the state. If the bill is passed, it will allow state inspectors to assess the impact of mining facilities on water and air quality, carbon emissions and wildlife, and would lift the moratorium only for mining facilities that will not adversely affect New York’s goal to slash its greenhouse gas emissions 70% by 2030.   
  • The Central Bank of Iran (CBI) has reportedly banned trading of cryptocurrencies mined outside the country. The ban, according to people familiar with the matter, is an attempt to thwart capital outflows from the country which could be attributed to its depreciating national currency, the rial. Iran had already banned cryptocurrency payments, while the nation’s financial institutions can only use cryptocurrencies which are derived from sanctioned miners.

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May 7, 2021

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors