Gold: Eternal, Lustrous, Precious
For centuries gold has been prized for its rarity and beauty. Even in the modern world economy, gold is seen as a source of financial stability and an internationally appreciated monetary asset. Many nations still use gold for official coinage. Industry uses gold for electronics and dentistry. Gold jewelry adorns us.
- Gold mining stocks are a way for investors to gain exposure to gold. When the economy is in an inflationary period or when financial markets perceive a threat of inflation, gold and gold stocks may gain in value. The price of gold is the critical driver for gold equities, and in rising scenarios, gold equities have the potential to outperform bullion.
- Although gold supply remains tight, demand is increasing due to rising wealth levels in China, India and other nations with a cultural affinity towards gold.
- Growth in gold price over time is affected by a holiday seasonal pattern. Many cultures use gold out of tradition, presenting the yellow metal as a gift in the form of jewelry, bars and coins.
We See Two Main Drivers of Gold Demand: The Fear Trade & The Love Trade
The fear trade is what you often hear about from the media and the gloom-and-doomers. The fear trade is driven by negative real interest rates—where inflation is greater than the nominal interest rate—and deficit spending. During times of uncertainty or crisis, people turn to gold, because it is seen as a source of financial stability.
The love trade is seen through the tradition of purchasing gold for loved ones, especially during important holidays and festivals throughout the year. Rising incomes along with a cultural affinity for the yellow metal are shown in the strength of the love trade.
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How Gold Fits Into Your Portfolio
Gold acts as a portfolio diversifier, often moving differently than other assets. Because of this, exposure to commodities such as gold may increase overall returns while lowering or maintaining volatility in a portfolio. We suggest that investors hold a 5 to 10 percent weighting in gold: 5 percent in gold equities and 5 percent in gold bullion, and rebalance each year. We find this weighting provides a hedge against inflation and a potential boost in overall portfolio returns.
What Is Our Investment Process?
At U.S. Global Investors, the portfolio managers for our two gold funds use the following growth metrics when picking stocks:
- Growth in the resource base of the company, in order to evaluate the robustness of a mine by way of size and grade. To generate profits, companies should grow their resource base in a valuable manner, which could include buying another asset.
- Growth in production of the company, in order to increase the rate of return on a mine. This is possible through the monetization of resources, and if a company issues shares to fund growth, the rate of production should grow faster than the increase in the shares outstanding.
- Growth in cash flow of the company, in order to determine whether that cash flow is free, i.e. available beyond what is required to sustain its operations. Stability is also important to investors who generally pay more for a company whose cash flow is predictable.
Relative value and momentum are two other metrics we take into consideration during stock selection, to evaluate how a company lines up with its peers, as well as to track price movements relative to news in the sector. Our portfolio management team includes experts in the fields of geology, mining finance and mineral resources. This expertise, along with the in-depth analysis mentioned above, enables our team to seek the best returns for our shareholders.
Why Invest in U.S. Global Investors Gold Funds?
U.S. Global Investors gold and precious minerals funds allow you to own a portfolio of mining companies across the world. Our portfolio managers actively manage the funds to seek profitability of companies with growth on a per share basis and that offer potential capital appreciation. These primarily include gold mining stocks, as well as other precious metals and minerals such as silver, platinum, palladium and diamonds.
Our Gold Funds:
The Gold and Precious Metals Fund (USERX) focuses on companies currently pulling gold or precious minerals from the ground. These “seniors” generally have the largest market caps in the mining sector.
The World Precious Minerals Fund (UNWPX) gives investors increased exposure to “junior” and “intermediate” mining companies that explore new mine deposits around the world for added growth potential.
Did You Know?
- Gold mining companies with growing reserves, production and cash flow offer capital appreciation potential.
- Gold is a portfolio diversifier. Since it typically is not highly correlated with other financial assets, its inclusion in a diversified portfolio can increase the portfolio’s return without materially increasing the portfolio’s risk.
- Egyptian hieroglyphics depicting gold date back to 2600 B.C. and Egyptians became the first gold miners.
- Gold is considered a store of value for many because it can act as a hedge against inflation and economic instability over the long term.
- Gold has an intrinsic value that paper money does not. Because of its value, foreign nations are using gold as a method to invest their nations’ growing reserves.
- According to Warren Buffett, and agreed upon by Thomson Reuters in an annual survey, the world’s entire gold stock would fit comfortably within a baseball infield if it was melded together to form a cube; that’s 377 million pounds of gold above ground!
U.S. Global’s Experience
We established the first no-load precious metals fund in America and have managed mutual funds since 1968. Our portfolio management team includes investment professionals with experience in geology, mineral resources and mining finance. They are pioneers in this specialized sector and they travel the world in search of companies that can demonstrate consistent growth and performance for our funds and ultimately our investors.