Frank E. Holmes: Why the Gold Bull Market Is Far From Over

Despite months of sideways trading, Frank E. Holmes maintains that the gold bull market remains intact. In a wide-ranging interview with Money Metals' Mike Maharrey, the executive chairman of HIVE Digital Technologies and CEO and Chief Investment Officer of U.S. Global Investors argued that powerful global trends continue to underpin higher gold prices.

Holmes pointed to a confluence of factors — from Asian consumer demand and central bank accumulation to Japan's shifting interest rate environment, artificial intelligence infrastructure investment, and rising government debt — as evidence that the current correction represents a buying opportunity rather than the end of the bull run. Gold set successive record highs earlier in the year before pulling back, and according to World Gold Council data, central banks have been net buyers of gold for over a decade, purchasing a record 1,082 tonnes in 2022 alone.

The "Love Trade" vs. the "Fear Trade"

Holmes described gold demand as being driven by two distinct forces: the "fear trade" and the "love trade." Western investors, he noted, typically focus on fear-driven purchases motivated by inflation, geopolitical conflicts, monetary expansion, and financial instability. However, he argued that the larger and more enduring driver is the love trade.

According to Holmes, approximately 60% of global gold demand stems from individuals purchasing the metal as portable family wealth, particularly across Asia and the Middle East. Over the past two decades, rising GDP per capita in countries such as China and India has dramatically expanded gold ownership. In many emerging economies, physical gold effectively serves as financial insurance in regions where conventional insurance markets remain underdeveloped.

These cultural dynamics mean that every significant gold correction tends to be met with robust physical buying from Asian consumers, establishing what Holmes views as a critical floor beneath the market.

China, BRICS, and the Dollar's Erosion

Holmes emphasized that global monetary shifts continue to favor precious metals. He cited more than $350 trillion in global debt alongside continued adherence to Modern Monetary Theory (MMT)-style fiscal policies — frameworks that prioritize government spending over deficit reduction — as long-term catalysts.

Simultaneously, he argued that China has been steadily eroding the U.S. dollar's international dominance through its Belt and Road Initiative and deepening influence among BRICS nations, a bloc that expanded in early 2024 to include Iran, the United Arab Emirates, Egypt, and Ethiopia. According to Holmes, approximately 75% of United Nations member states now have financial ties to China via Belt and Road lending. That expanding influence has encouraged more international trade to bypass the traditional dollar system, reducing long-term demand for U.S. dollars while increasing interest in alternative reserve assets such as gold.

Japan's Rate Shifts May Be Driving More Than Investors Realize

Among Holmes' key concerns is Japan's evolving interest rate landscape. For roughly three decades, Japan maintained near-zero borrowing costs, enabling hedge funds, institutions, pension funds, and insurers to borrow cheaply in yen before deploying capital into higher-yielding assets worldwide. This so-called "carry trade" became a significant source of global liquidity.

Now that Japan has begun raising rates following post-COVID inflation and supply chain disruptions, Holmes believes capital is flowing back into the country. As investors unwind leveraged positions, markets ranging from technology stocks to gold face selling pressure driven by margin calls rather than deteriorating fundamentals. The effects were visible in August 2024, when the Bank of Japan's rate hike contributed to a sharp global market selloff before stabilizing.

He noted that Japan holds one of the highest debt-to-GDP ratios among G7 nations, yet nearly half of that debt is owned domestically by the Bank of Japan. As Japanese capital returns home, Holmes expects the unwinding process to continue reverberating across global markets.

AI Spending Signals Economic Resilience

Despite volatility in technology stocks, Holmes contended that the artificial intelligence boom is far from over. He highlighted Meta's plans to construct a $14 billion AI data center in El Paso, Texas — a project requiring approximately 50,000 tons of copper. Strong copper prices, he argued, contradict the narrative that AI investment is collapsing.

Holmes also pointed to BlackRock's commitment to invest roughly $10 billion in AI infrastructure, with backing from sovereign wealth funds in Norway, Saudi Arabia, and the United Arab Emirates. These sizable capital commitments, he said, indicate that institutions continue to view AI as a long-term supercycle rather than a speculative bubble. To Holmes, copper's sustained strength reinforces that view, as rising industrial demand is inconsistent with fears of an imminent AI downturn.

Quantitative Models Signal a Favorable Gold Setup

Rather than relying solely on macroeconomic forecasts, Holmes employs quantitative models to assess market conditions. He explained that both gold and silver reached historically overbought levels earlier in the year, with silver climbing approximately six standard deviations above its longer-term trend before futures exchanges raised margin requirements. Gold also underwent a notable correction as rising interest rates pressured prices.

After retreating from roughly three standard deviations above trend to approximately 1.6 standard deviations below, Holmes said his models now indicate an approximately 85% probability that gold prices will be higher over the next 60 trading days. He stressed that this outlook derives from statistical market behavior rather than geopolitical predictions, noting that markets naturally oscillate between periods of excessive optimism and excessive pessimism.

Why Elevated Interest Rates Don't Necessarily Hurt Gold

Maharrey pressed Holmes on a commonly held assumption: if interest rates remain elevated and bonds stay in a long-term bear market, shouldn't that be bearish for gold?

Holmes disagreed. He argued that central bank gold buying — particularly among nations seeking to diversify away from the U.S. dollar — continues to provide substantial support. Simultaneously, governments grappling with mounting fiscal challenges repeatedly resort to monetary expansion.

Holmes maintained that investors should allocate at least 10% of their portfolios to gold and silver as financial insurance. While acknowledging that some vocal gold advocates hold little or no physical metal themselves, he believes the underlying supply-and-demand fundamentals remain overwhelmingly favorable.

Will Central Banks Ever Stop Expanding the Money Supply?

The conversation turned to speculation surrounding Kevin Warsh and whether future Federal Reserve leadership might adopt a more stringent stance on inflation. Holmes acknowledged that Warsh projects a more disciplined, fact-based communication style than previous Fed officials. However, he ultimately believes that any major recession or financial crisis would push policymakers back toward monetary stimulus.

He argued that the institutional culture within central banking overwhelmingly favors supporting economic growth through additional liquidity, making continued money creation more likely than prolonged monetary restraint. That expectation, in his view, reinforces a long-term bullish outlook for gold — especially as governments continue expanding deficits.

Could Gold Eventually Reach $40,000?

Holmes' most striking projection involved the theoretical valuation of U.S. gold reserves. Using a mark-to-market approach that compares America's official gold holdings — approximately 8,133 tonnes, the world's largest sovereign reserve — with total federal debt, he suggested that gold could approach $40,000 per ounce if policymakers sought to substantially improve the nation's debt-to-gold ratio. This is a mathematical exercise rather than a price forecast, analogous to calculations used during the 1980s when gold's implied value relative to the money supply was similarly debated.

He also noted that China has increasingly emphasized physical gold ownership while reducing reliance on paper gold products. Holmes believes these policies strengthen demand for physical bullion while granting the Chinese government greater oversight of domestic wealth.

Smart Beta Investing and Reading the Global Economy

Holmes discussed his Smart Beta 2.0 investment process, which prioritizes revenue growth, cash flow momentum, and portfolio construction over simple stock selection. For gold mining investments, he favors royalty companies and evaluates quarterly production and revenue growth relative to gold price movements.

Beyond precious metals, Holmes monitors cargo shipping volumes and airline traffic as real-time indicators of global economic activity. He noted that approximately 80% of commodities are transported by cargo ship, while daily airline screenings have surged from roughly 85,000 during 2020 to approximately 3 million travelers per day. Despite negative headlines, Holmes believes these indicators demonstrate that the global economy remains resilient.

Military Spending, AI, and Staying Ahead of Monetary Expansion

Holmes concluded by arguing that government expenditure is increasingly shifting toward defense technology, cybersecurity, and artificial intelligence rather than traditional social programs. He estimated that approximately $2.5 trillion could flow into military modernization and AI-related investments over time. Combined with continued monetary expansion, he believes these trends will persist in creating opportunities across sectors tied to technology, commodities, and precious metals.

Rather than lamenting money printing, Holmes encouraged investors to position their portfolios ahead of it. In his view, owning assets that benefit from inflationary policies — including physical gold — remains the most practical long-term strategy.