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What’s Driving Gold?

What's Driving Gold?

 

Advisor Alert

Airlines Report on Q1 Earnings

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

A recent Deutsche Bank report projects a total airline industry first-quarter pretax profit of $3.5 billion, five times the $700 million pretax profit this time last year.

The bank estimates that nearly 110 percent of the earnings gain will derive from lower fuel prices. It states that “the industry over the past several years has demonstrated its ability to successfully offset most, if not all, of the rise in fuel expense via a combination of cost savings and various revenue initiatives.”

Airline Industry On Track for Significant Margin Improvement in 2015

Looking ahead to the end of the year, Deutsche Bank sees airlines generating $24.7 billion in operating income, or the money that remains after certain operating expenses are paid such as research and development, wages, maintenance and the like.

Airline Industry On Track for Significant Margin Improvement in 2015
click to enlarge

As we all know, oil has fallen nearly 50 percent since last summer, and jet fuel prices have followed closely at its heels, declining to multi-year lows. According to the International Air Transport Association (IATA,) airlines worldwide are expected to spend $71 billion on fuel in 2015, a savings of $84 billion compared to 2014.

Jet Fuel Monthly Price
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Efficiency Leading the Way

An important metric Deutsche Bank uses to illustrate that the industry is in expansion mode is operating margin, which measures a company’s efficiency in generating revenue. This figure tells you how much of each dollar earned the company keeps as profit after taxes. Generally speaking, the higher the number, the more efficiently the company is being run and the more capital it can use to pay down debt and return to investors in the form of stock buybacks and dividends.

Because of fuel cost savings, all 11 of the companies below are expected to increase margins by the end of 2015.

Airline Industry Operating Margins Expected to Rise in 2015
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The carrier expected to see the greatest increase is Las Vegas-based Allegiant Air, the ultra-low-cost regional carrier that focuses on underserved cities. The company provides a “complete travel experience” that allows customers to book hotel stays and car rentals on top of flights.

Claiming the highest margins last year was Spirit Airlines, the carrier known for its “Bare Fare” pricing structure. Even though it offers some of the lowest prices in the industry—they’re 40 percent lower than the competition on average—Spirit is able to maintain these margins because of its stripped-down, no-frills service and experience.

Airline Industry On Track for Significant Margin Improvement in 2015

Spirit certainly has grounds to justify this highly-frugal business model. In a June 2014 survey, close to 1,500 air travelers were asked what they considered first when looking to purchase an airline ticket. Fifty percent of respondents cited price as the most decisive factor, whereas only 3 percent said it was legroom.

Earnings Season

Most airlines that have reported for Q1 have beaten analysts expectations

A few airlines have already reported on first-quarter earnings, and so far most have beaten analysts’ expectations.

American Airlines, which was recently added to the S&P 500, reported a record net profit of $1.2 billion, or $1.73 per share. This is a tripling of the carrier’s net profits in the first quarter of last year.

American CEO Doug Parker is so bullish on his company that he has asked to be compensated solely in company stock going forward.

Delta, which we own in our Holmes Macro Trends Fund (MEGAX), reported higher-than-expected earnings—$0.45 per share—with an average beat of 5.11 percent over the last four quarters. This marks the company’s eighth consecutive quarter of record profits.

Alaska Air’s EPS came in at $1.12, with earnings up 75 percent on a year-over-year basis. The company reported record first-quarter net income of $149 million, a 67-percent increase from last year. During the quarter, the company also bought back $102 million worth of common stock and paid a $0.20 per-share dividend.

We own Alaska Air in MEGAX.

Southwest reported record profits of $453 million—or $0.66 per share, beating consensus by one penny—up from $152 million in the first quarter last year.

United Continental reported record first-quarter profits of $582 million, earning $1.52 per share, beating estimates of $1.44. The company paid back $200 million to shareholders in its proposed $1 billion share buyback program.

Finally, Allegiant also posted a record quarterly EPS of $3.74, up from $1.86 last year. This marks the ultra-low-cost carrier’s 49th consecutive profitable quarter.

JetBlue Airways is expected to report on April 28.

 

What's Gold's touchdown pass this week?

Index Summary

  • The major market indices finished higher this week.  The Dow Jones Industrial Average rose 1.42 percent. The S&P 500 Stock Index also rose 1.75 percent, while the Nasdaq Composite rose 3.25 percent. The Russell 2000 small capitalization index rose 1.25 percent this week.
  • The Hang Seng Composite gained 1.32 percent this week; while Taiwan rose 3.58 percent and the KOSPI jumped 0.76 percent.
  • The 10-year Treasury bond yield rose 4 basis points to 1.91 percent.

Domestic Equity Market

The S&P 500 ended higher for the week, rising 1.75 percent as markets have been responding positively to earnings that are coming out better than expected and to a lower profit shortfall than analysts forecasted.

S&P 500 Economic Sectors
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Strengths

  • Technology stocks led the way as investors cheered the quarterly results of Amazon, Microsoft and Google. A common theme was that the companies are growing sales outside of their bread-and-butter businesses.
  • The telecommunication services sector was the second best performer, led by AT&T which rose despite missing earnings and revenue estimates.
  • Amazon was the top performer in the S&P 500 this week, rising 18.52 percent on the back of a strong first-quarter earnings report.  The retail giant posted a first-quarter loss of 12 cents per share, beating Wall Street's expectations. Last year, the company lost 23 cents per share. As for the top line, revenue came in at $22.7 billion, slightly ahead of the $22.4 billion analysts had in mind. Sales jumped 15 percent year-over-year. The real bombshell in Amazon's earnings report was how its cloud business is doing, known as Amazon Web Services. This is the first time the company broke out figures for the cloud business. Net sales stood at almost $1.6 billion, up from about $1 billion during the first quarter of last year. As for guidance, Amazon expects revenues to rise between 7 and 18 percent year-over-year during the second quarter.

Weaknesses

  • The energy sector was up marginally, but lagged other sectors for the week as technology took the spotlight amid positive earnings releases.
  • S&P 500 companies' sales in the first quarter were hit even harder than expected by the U.S. dollar. Out of the 201 S&P 500 companies that reported first-quarter earnings as of Friday, 55 percent fell below analysts’ revenue forecasts. Typically, 39 percent of S&P 500 companies miss sales views.
  • PulteGroup was the worst performer in the S&P 500 this week, falling 9.3 percent. The company reported first-quarter results that missed views due to fewer closings in what the company’s CEO called "a sustained but slow recovery" in the housing market.

Opportunities

  • One upside to the recent disappointing data releases out of the U.S. is that it would allow the Federal Reserve to withhold from raising rates anytime soon, allowing equities to rally further.
  • German business confidence rose to a 10-month high in April, largely due to optimism over the European Central Bank’s (ECB’s) bond purchasing program.
  • The breakeven inflation rate on U.S. 5-year government bonds reached its highest point since September. The rebound in inflation expectations is certainly a positive sign for the U.S. and global recovery.

Threats

  • The U.S. Markit Manufacturing purchasing managers’ index (PMI) came in lower than expected this week. With U.S. economic data continuing to surprise to the downside, equities could be negatively impacted.
  • Retail stocks have failed to see any further momentum as oil prices appear to be recovering. If oil continues to rally, retailers may see further pullbacks due to reduced consumer disposable income.
  • The dollar remains at its extended level and continues to weigh on companies with a significant amount of foreign revenue exposure.

Why-Investing-in-Short-Term-Municipal-Bonds-Makes-Sense-Now - U.S. Global Investors

The Economy and Bond Market

For the week, global stocks were mixed. However, the Nasdaq Composite Index set an all-time high, surpassing the mark set in March 2000. The yield on the US 10-year Treasury note rose above 1.9 percent. Crude oil prices extended their substantial gains of recent weeks.

Strengths

  • Sales of previously owned homes rose to the highest level in 18 months this March, a sign that the housing market is gaining strength after a slow start to the year. Existing-home sales increased 6.1 percent from February to March, to a seasonally-adjusted annual rate of 5.19 million, according to the National Association of Realtors. That was the highest level since September 2013. Economists surveyed by The Wall Street Journal expected March sales would increase to a pace of 5.03 million.
  • With roughly one-third of S&P 500 companies reporting first-quarter earnings, 71 percent have exceeded lowered expectations so far.
  • Gains seen in the Nasdaq were led by blue chip names such as Microsoft which surged more than 10 percent. The company posted earnings and revenue that beat estimates after the close on Thursday, as the firm shook off the negative impact of the strong U.S. dollar with growth in hardware sales and commercial cloud computing.

Weaknesses

  • Sales of new U.S. homes plummeted in March, as the spring buying season opened with sharp declines in the Northeast and South. The Commerce Department reported new-home sales fell 11.4 percent last month to a seasonally-adjusted annual rate of 481,000. This marks a swift reversal from an annual sales pace of 543,000 in February, which had been the strongest performance in seven years.
  • The Chicago Fed National Activity Index moved down to -0.42 in March from February’s -0.18, signaling slower growth. Any reading below zero indicates growth below historic norms. Economists expected a reading of 0.10.
  • U.S factory activity is at its weakest reading since January, according to the Markit U.S. Manufacturing purchasing managers’ index (PMI) survey. The stronger U.S. dollar is hurting export demand from Europe. The U.S. flash PMI dropped to 54.2 in April from a final March reading of 55.7. A reading above the 50 mark indicates expansion. Economists surveyed by The Wall Street Journal expected the index to hold at 55.7.

Opportunities

  • Unlike most other sectors, financials had been banned from the share buyback frenzy due to regulatory constraints. However, as of late, banks have passed the latest stringent Federal Reserve balance sheet stress tests and legal bills appear to be through the worst. This opens the door for capital to be returned to shareholders. As seen in the charts below, financial sector buyback announcements have begun to accelerate and have reached their highest point since prior to the financial crisis. Further, the dividend payout ratio remains below the historical mean. All of this suggests that the sector is well positioned to return to investor favor, given that buybacks and dividends have been a major support to the bull market in recent years.

Opportunity Arises for U.S. Financials
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  • While the markets are waiting for further signals about the course of U.S. monetary policy (the next Federal Open Markets Committee meeting will take place on April 28-29), the recent data releases will make it difficult for the Fed to communicate clearly about the timing of the first rate hike. Even if the weakness in first-quarter GDP growth is classified as temporary, the Fed would need to see evidence of strengthening and sustainable economic momentum. Without an aggressive rebound this spring/summer, it is becoming less likely that growth and inflation gauges will support even a September rate hike. The Core PCE price index, the Fed's preferred measure of underlying inflation, will be released only after the policy meeting on Thursday.
  • The semi-annual Outlook Report from the Bank of Japan (BoJ) to be published next Thursday will be important to see whether the bank delays the expected date in which policymakers expect to reach the 2-percent inflation target.

Threats

  • It is clear that a global currency adjustment is redistributing growth worldwide, with U.S. exporters coming up short. A continuation in this macro theme would continue to pose headwinds for the U.S. exporting sector.
  • While the jobs market seems much stronger in the U.S. than in the euro area, the difference in headline unemployment rates does not tell the full story. Much of the difference in unemployment rates is due to opposite trends in labor market participation. Falling participation has helped the U.S. jobless rate while rising participation has dampened the euro-area jobless rate.
  • Deutsche Bank was fined a record $2.5 billion by U.S. and UK regulators, and its London subsidiary pleaded guilty to manipulating the London Interbank Offered Rate (LIBOR) and Euribor. Fines imposed on global banking giants in the seven-year investigation now total $8.5 billion. Any continuing litigation detracts investor appetite from banks.

600 Million Reasons to Keep our Eyes on India

Gold Market

For the week, spot gold closed at $1,179.44 down $24.83 per ounce, or 2.06 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 1.57 percent. The U.S. Trade-Weighted Dollar Index lost 0.64 percent for the week.

Date Event Survey Actual Prior
April-21 German ZEW Survey Current Situation 56.5 70.2 55.1
April-21 German ZEW Survey Expectations 55.3 53.3 54.8
April-22

HSBC China Manufacturing PMI

49.6 49.2 49.6
April-23 U.S. Initial Jobless Claims 287K 295K 294K
April-23 U.S. New Home Sales 515K 481K 539K
April-24 U.S. Durable Goods Orders 0.60% 4.00% -1.40%
April-28 China Exports YoY 2.10% -- 7.20%
April-28 U.S. Consumer Confidence Index 102.5 -- 101.3
April-29 German CPI YoY 0.40% -- 0.30%
April-29 U.S. GDP Annualized QoQ 1.00% -- 2.20%
April-29 U.S. FOMC Rate Decision (Upper Bound) 0.25% -- 0.25%
April-30 Europe CPI Core YoY 0.60% -- 0.60%
April-30 U.S. Initial Jobless Claims 290K -- 295K
May-01 U.S. ISM Manufacturing 52 -- 51.5

 

Strengths

  • Gold jewelers are betting the Indian Akshaya Tritiya festival will buoy demand for the bullion. Jewelers expect the festival could drive up sales by as much as 30 percent over last year’s level. Already, gold imports are estimated to have hit 125 tons in March, compared with just 55 tons in February and twice the amount imported a year earlier, suggesting jewelers have stocked up well. The holy day of Akshaya Tritiya, which fell on April 21, is considered by Hindus as an auspicious day to purchase gold. It is the nation’s second biggest bullion-buying festival.
  • After a two-month hiatus, Russia’s appetite for buying gold is back. The nation increased foreign reserves of bullion to 39.8 million ounces as of April 1, compared with 38.8 million ounces a month earlier. The 30 ton purchase was the most since September. Russia is the fifth-biggest holder of gold and thus the move sends a bullish signal to the market.
  • Comstock Mining announced that for the first quarter of 2015 its weighted average gold grades improved by 63 percent from a year earlier while silver grades improved by 113 percent. The strip ratio improved to 1:1 from 4.8:1 the previous year. Lastly, the company expanded its existing heap leach pad in a consistent move with its recently expanded water control permit. In other news, Balmoral Resources confirmed it intercepted 19.55 gram per tonne gold over 44.45 meters at its Martiniere property in Quebec.

Weaknesses

  • Gold traders are bearish on expectations that improving U.S. economic data will back the case for higher interest rates.
  • It has been almost two weeks since gold prices sustained a move in either direction for more than a day, the longest period since September. This paralysis has been a consequence over the lack of consensus about the timing of a Fed rate hike. The Federal Reserve begins its next two-day policy meeting on April 28.
  • While PIMCO has come out declaring that the commodities correction is over, the firm also said it does not expect a sharp recovery.

Opportunities

  • UBS believes it is seeing increasing signs of deteriorating cash flows, deteriorating appetite for low quality credit and deteriorating credit conditions in the U.S. Recent data from the National Association of Credit Management hinted at a significant reduction in credit extended in March and a sharp rise in credit applications rejected. Corporate receivables are also on the rise. All of these data points are classic late cycle signals.

Are U.S. Credit COnditions Deteriorating?
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  • RBC Capital Markets forecast appetite for gold by central banks will hit 275 tons this year. That level would equate to the second-largest increase in 50 years. Overall, central banks have been net buyers of gold for 14 straight quarters to present and the RBC analysts said the demand helped mitigate bullion’s losses in 2014.

Possible Positive Correlation Between Gold PRice and Central Bank Gold Reserves
click to enlarge

  • According to BCA, China is aiming to make the RMB a fully convertible currency by the end of 2015. Consequently, capital account reform will accelerate markedly in the coming months. Another consideration in this regard is the twice-a-decade review of the IMF on Special Drawing Rights (SDR) scheduled later this year. The Chinese government has been pushing to include the RMB in the SDR basket, but failed in its 2010 attempt as the RMB was not regarded as “freely useable.” Achieving full convertibility under capital account transactions is regarded as a critical prerequisite. Purchasing gold to back the RMB is one of the strategies China is employing to make its money a reserve currency for international trade.

Threats

  • Barrick Gold is facing an investor revolt ahead of its annual meeting for the second time in three years, as two of Canada’s largest pension funds said they will not support the board of directors. The funds cite low confidence in the ability of the directors to effectively exercise their duties to shareholders’ level of satisfaction. The main sticking point is the outsized executive compensation.
  • Laurence Fink, chairman of BlackRock, has said gold’s traditional role as a store of wealth has been usurped by contemporary art and apartments in cities such as New York and London. He said gold has lost its luster given there are other mechanisms in which you can store wealth that are inflation-adjusted.
  • Venezuela’s central bank signed a $1 billion gold swap with Citibank. Although details are unknown, experts calculate that the bank will charge an interest rate of between 6 and 7 percent.  It’s obvious Venezuela needs dollars, but it’s another story regarding what Citibank has planned for the gold.
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A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

Energy and Natural Resources Market

 

Historical Downturns of WTI Crude Oil
click to enlarge

Strengths

  • Base metals stocks outperformed this week as investors remain bullish due to expectations of further easing from the Chinese government. The S&P/TSX Capped Diversified Metals and Mining Index rose 6.32 percent this week.
  • Iron and steel stocks rebounded this week as iron ore prices finally had a constructive move to the upside after being extremely oversold. The Bloomberg World Iron/Steel Index rose 5.81 percent this week.
  • Oil and gas refiners outperformed this week as crude prices continue to be constructive for margins. The S&P Supercomposite Oil & Gas Refining & Marketing Index rose 4.59 percent this week.

Weaknesses

  • Offshore drillers underperformed after the group was downgraded this week. The S&P Supercomposite Oil & Gas Drilling Index fell 3.22 percent this week.
  • Oil and gas producers had a pullback in their recent rally this week as the group appeared be overbought by investors. The S&P Supercomposite Oil & Gas Exploration & Production Index fell 1.7 percent this week.
  • Dry ships retreated this week as there continues to be an oversupply of ships in the industry. The Bloomberg Dry Ships Index fell 3.37 percent this week.

Opportunities

  • The April results of a primary copper and steel survey have finally revealed a sequential improvement in market conditions for the two commodities. Infrastructure orders are playing a meaningful part in the uptick. Construction orders for steel are also returning – to the benefit of the smaller mills. Restocking demand at the copper fabricators and further stock draw-downs at steel traders point to a supportive environment for prices into the second quarter.
  • Industrial metals should continue to gain further tailwinds from bets that the Chinese government will continue to stimulate the struggling economy.
  • Oil continues to find support in the current environment as supply/demand dynamics continue to balance. A further sustained rise in oil prices should be very beneficial to oil producers.

Threats

  • Currently, the oil market remains oversupplied, yet macro waves of liquidity are buoying prices, as can be seen in the record managed money net length in Brent. The risk to the market now is that the rally has come too soon for supply to get meaningfully curtailed, raising the prospect of another price slump in the second quarter.
  • The Republic of the Congo plans to increase mine royalties and its stake in future projects to increase the country’s share of revenue from the mining sector. The proposed code raises the tax rate from 30 percent to 35 percent and introduces a new 50-percent windfall tax. Congo may face the same situation as Zambia, where increases in royalties forced companies to close their operations, prompting Zambia to amend the revisions. Freeport-McMoRan and Glencore have large copper investments in Congo.
  • The industrial metals sector posted a return of -1.85 percent as China real activity indices showed very weak industrial activity, in our opinion. The current contango structure in copper futures—the first time since July 2014—is possibly a reflection of faltering demand in China and high inventory levels.

Uncover the Patterns in Commodity Returns

Emerging Markets

 

Strengths

  • Hungarian equities jumped after the central bank lowered the base rate to a record low this week. The Budapest Stock Exchange Index rose 5.13 percent this week.
  • Turkish equities rallied this week as the central bank left all three key rates unchanged, providing further support to the notion that any form of monetary tightening will not occur in the near future. The Borsa Istanbul 100 Index rose 3.8 percent this week.
  • Chinese stocks continue to rally on speculation over further government stimulus. The Shanghai Stock Exchange Composite Index rose 2.48 percent this week.

Weaknesses

  • Indian equities retreated this week as exports slumped in the month of March and company earnings releases were disappointing. The S&P BSE SENSEX Index fell 3.53 percent this week.
  • Despite domestic markets rallying after the central bank left rates unchanged, the Turkish lira continued its decline as a result of the news. The lira fell 1.14 percent this week.
  • Despite the recent rally in many emerging markets and their currencies, the dollar remains extended at current levels.

Opportunities

  • The Chinese ruling party’s mouthpiece, People’s Daily, stated this week that the bull market in Chinese A shares is in “early stage.”  Indeed, from a full cycle perspective, it is difficult to argue that the ongoing tremendous China A share rally has entered a full-blown euphoria, with a fair multiple of 15.6 times earnings, a market cap-to-GDP ratio less than half of the 2007 peak, and significant room for monetary and fiscal policy easing.  Last weekend’s 1-percentage-point cut in the bank reserve ratio was the latest proof that authorities have become more aggressive in loosening policy.

China A-Shares Far From Bubble Territory
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  • Hungary has been drastically cutting its key rate in order to combat deflationary pressures. If there is no significant improvement in inflation in the coming months, further rate cuts can be expected.

Hungary Lowers Rates to Spur Inflation
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  • Concern over the Brazilian oil producer Petrobras seems to be dying down as the company finally released its long-awaited financial report.

Threats

  • The Chinese securities regulator plans to double the pace of initial public offerings in the domestic A share market.  Although it is consistent with Chinese policymakers’ goal of engineering a slow and steady bull market by introducing policy measures when markets are short-term overbought, a near-term correction in Chinese stocks is a high probability event.
  • Russia’s central bank is actively trying to stem the ruble’s decline by raising costs on foreign currency transactions. These actions should cause a pullback in the ruble’s appreciation.
  • Despite all the positive signs underlying the A share market in China, there remains the risk that the rally is overextended and is due for a pullback.

Priming the Pump for Growth in Emerging Markets Now. Watch the Webcast on Demand

Leaders and Laggards

 

Weekly Performance
Index Close Weekly
Change($)
Weekly
Change(%)
Hang Seng Composite Index 3,952.12 +51.41 +1.32%
Oil Futures 57.27 +1.53 +2.74%
S&P Energy 597.98 +0.17 +0.03%
Korean KOSPI Index 2,159.80 +16.30 +0.76%
S&P/TSX Canadian Gold Index 161.77 -3.13 -1.90%
Nasdaq 5,092.09 +160.27 +3.25%
10-Yr Treasury Bond 1.91 +0.04 +2.30%
XAU 69.95 -1.00 -1.41%
S&P 500 2,117.69 +36.51 +1.75%
DJIA 18,080.14 +253.84 +1.42%
S&P Basic Materials 315.30 +3.82 +1.23%
Russell 2000 1,267.54 +15.68 +1.25%
Gold Futures 1,178.30 -24.80 -2.06%
Natural Gas Futures 2.53 -0.10 -3.83%
 
Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
Oil Futures 57.27 +8.06 +16.38%
S&P Energy 597.98 +33.43 +5.92%
Korean KOSPI Index 2,159.80 +116.99 +5.73%
XAU 69.95 +0.46 +0.66%
Gold Futures 1,178.30 -19.70 -1.64%
S&P/TSX Canadian Gold Index 161.77 -1.69 -1.03%
Russell 2000 1,267.54 +33.68 +2.73%
S&P 500 2,117.69 +56.64 +2.75%
Nasdaq 5,092.09 +215.57 +4.42%
DJIA 18,080.14 +361.60 +2.04%
S&P Basic Materials 315.30 +10.31 +3.38%
10-Yr Treasury Bond 1.91 -0.02 -0.88%
Natural Gas Futures 2.53 -0.19 -6.98%
Hang Seng Composite Index 3,952.12 -332.01 -14.83%
 
Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
Hang Seng Composite Index 3,952.12 +560.40 +16.52%
Korean KOSPI Index 2,159.80 +223.71 +11.55%
Oil Futures 57.27 +11.68 +25.62%
Russell 2000 1,267.54 +78.61 +6.61%
Nasdaq 5,092.09 +334.21 +7.02%
S&P Energy 597.98 +29.70 +5.23%
S&P 500 2,117.69 +65.87 +3.21%
S&P Basic Materials 315.30 +12.43 +4.10%
DJIA 18,080.14 +407.54 +2.31%
10-Yr Treasury Bond 1.91 +0.11 +6.17%
S&P/TSX Canadian Gold Index 161.77 -23.16 -12.52%
Gold Futures 1,178.30 -116.00 -8.96%
XAU 69.95 -8.38 -10.70%
Natural Gas Futures 2.53 -0.45 -15.17%

Please consider carefully a fund’s investment objectives, risks, charges and expenses.   For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637).   Read it carefully before investing.  Distributed by U.S. Global Brokerage, Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Emerging Europe Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors.

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. The Near-Term Tax Free Fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. The Near-Term Tax Free Fund may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Past performance does not guarantee future results.

Some link(s) above may be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

These market comments were compiled using Bloomberg and Reuters financial news.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings as a percentage of net assets as of 3/31/14:
Allegiant Travel Co.: 0.0%
Spirit Airlines: 0.0%
American Airlines Group, Inc.: 0.0%
Delta Air Lines, Inc.: Holmes Macro Trends Fund, 1.93%
Alaska Air Group: Global Resources Fund, 0.21%; Holmes Macro Trends Fund, 1.29%
Southwest Airlines Co.: 0.0%
United Continental Holdings, Inc.: 0.0%
JetBlue Airways Corp.: Global Resources Fund, 0.22%;
Amazon.com: 0.0%
Microsoft Corp.: All American Equity Fund, 0.90%
Google: 0.0%
AT&T, Inc.: All American Equity Fund, 1.09%
PulteGroup: 0.0%
Comstock Mining, Inc.: Gold and Precious Metals Fund, 2.08%; World Precious Minerals Fund, 1.37%
Balmoral Resources Ltd: World Precious Minerals Fund, 1.35%
Barrick Gold Corp.: Gold and Precious Metals Fund, 0.06%; World Precious Minerals Fund, 0.06%
Freeport-McMoRan: 0.0%
Glencore PLC: Global Resources Fund, 2.96%
Petrobras: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The Chicago Fed National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.
The Core PCE (or personal consumption expenditure) price index tracks overall price changes for goods and services purchased by consumers.
The S&P/TSX Capped Diversified Metals and Mining Index is an index of companies engaged in diversified production or extraction of metals and minerals.
The Bloomberg World Iron/Steel Index is a capitalization-weighted index of the leading iron/steel stocks in the world.
The S&P Oil & Gas Refining and Marketing Index tracks the market performance of downstream oil and gas companies.
The S&P 500 Oil & Gas Drilling Index is a capitalization-weighted index. The index is comprised of four stocks whose primary activity is drilling for oil on land or at sea.
The S&P 500 Oil & Gas Exploration & Production Index is a capitalization-weighted Index. The index is comprised of six stocks whose primary function is exploring for natural gas and oil resources on land or at sea.
The Bloomberg Dry Ships Index is a capitalization weighted index. The index was developed with a base value of 100 as of December 31, 1998.
The Budapest Stock Exchange Index is a capitalization-weighted index adjusted for free float. The index tracks the daily price-only performance of large, actively traded shares on the Budapest Stock Exchange.
The Borsa Istanbul Banks Index (XBANK) is a capitalization-weighted free float adjusted Industry Group Index composed of National Market listed companies in the banking industry. All members of the index are also constituents of the XUMAL Sector Index.
The Shanghai Stock Exchange Composite Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.
The Bombay Stock Exchange Sensitive Index (Sensex) is a cap-weighted index. The selection of the index members has been made on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation. Sensex has a base date and value of 100 on 1978-1979. The index uses free float.

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