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Diversification and Discipline Are Key to Investing in Gold
August 19, 2014

Like training for a marathon, investing in gold isn’t for the apathetic or indifferent. It requires strong-willed discipline.

Gold investors need discipline to keep up with the metal's variable stridesComing into 2014, gold was in a depressed state. The metal had lost over 28 percent the previous year, its greatest slide since 1980. Investors who dropped out of the race in January no doubt regretted the decision in March after watching the metal unexpectedly soar to above $1,300 an ounce.

And the news didn’t stop there. By midyear, gold was one of the top-performing commodities; last month, India, the world’s second-largest consumer of gold, increased its bullion imports by 65 percent; gold mining stocks are currently outpacing the commodity itself.

When prices plunge as dramatically as they did in 2013 and early 2014, it’s easy—instinctive, almost—for our so-called reptilian brains to hijack our better judgment. Our primordial fight-or-flight response kicks in, and too often we choose to fly, only to regret our decision later.

But we’re stronger than that. Jacqueline Gareau, the 1980 Boston Marathon winner, said of long-distance running: “The body does not want you to do this. As you run, it tells you to stop, but the mind must be strong. You always go too far for your body. You must handle the pain with strategy. It is not age. It is not diet. It is the will to succeed.”

Earlier in the year I spoke with Business Television’s Taylor Theon about this very idea that to invest in gold requires not only discipline but also diversification. As I’ve often stressed, we at U.S. Global Investors recommend that 10 percent of your portfolio should be allocated to gold—5 percent to bullion, 5 percent to mining stocks, and rebalance every year. This should always be the case, whether gold is soaring at a good clip or whether its wings appear to have been clipped.

As I advised Theon’s viewers:

Be diversified. Just appreciate the seasonality and volatility of all these different asset classes. The DNA of gold over any rolling 12 months is plus or minus 15 percent; gold stocks, plus or minus 35 percent. So any time gold stocks fall 35 percent, it’s become an opportunity to buy. When they fall 60 and 70 percent, it’s a screaming buy. And they will rally, and they will rise.

And rise they did, just as the theory of mean reversion predicted. Mean reversion, which I discuss at length in Part II of my three-part series on managing expectations, states that security prices will revert to their historic average eventually, whether we’re in a bull or bear market.

Below you can watch the entire interview, during which Theon and I also discuss India and the importance of the Purchasing Managers Index (PMI).

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

The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

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.

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Managing Expectations Part II
August 18, 2014

Part II of III: The Importance of Oscillators, Standard Deviation and Mean Reversion

In the first of this three-part series on managing expectations, I discussed the role cycles play in the investment management process. At U.S. Global Investors, we actively monitor both short- and long-term cycles, from the annual seasonality of gold to four-year presidential elections, in order to manage expectations based on historical patterns.

Oscillators help investors scrutinize the market, locate trends and seek opportunity.Among other important cycles and patterns that we use are oscillators, which are diagnostic tools that help us measure a security’s upward and downward price volatility. Think of an oscillator as a thermometer; with it, we can accurately take a security’s “temperature.” The knowledge extrapolated from this reading is materially useful in managing expectations, appreciating the dimensionality of a security’s short-term volatility and identifying when to accumulate or trade a stock.

To understand how oscillators work, though, you’ll first need to be familiar with standard deviation and mean reversion.

Standard Deviation

Standard deviation, also known by its Greek letter sigma, is a probability tool that gauges a security’s volatility. Specifically, it measures the typical fluctuation of a security around its mean or average return over a period of time ranging from one day to 12 months or more.

In the following bell-shaped curve, the center line represents a security’s average return over a given period of time—one day, 20 days, 60 days or 12 months. To the left and right of the line, the darkest blue sections indicate one standard deviation, or sigma, either above or below the mean; the next lightest, two sigma above or below; and so on.

Standard Deviation Sigma Measures Degree of Variance from Average
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No matter the security, returns can be expected to trade within one sigma of their mean 68 percent of the time. Ninety-five percent of the time they will fluctuate within two sigma, and nearly all of the time they will trade within three.

So why should investors care about this? Generally speaking, the higher the sigma, the higher a security’s volatility; the probability that it will fall back toward the mean also rises. A speculative tech stock, for example, has a greater tendency to have a higher sigma than a blue chip stock. This tells you the tech stock’s returns will fluctuate more widely, more erratically, than the blue chip stock’s.

But sigma is not as black and white as this comparison might suggest. Rather, it more closely resembles multiple shades of color that help investors manage their emotional reactions to the market’s swings and focus instead on the power of using statistics. It’s easy to get pulled into market fears or “irrational exuberance”—to use former Federal Reserve Chairman Alan Greenspan’s phrase—and this probability model helps us be more objective.    

To illustrate how these statistics operate in the real world, let’s look at the S&P 500 Index. Over the last ten years, it has had a rolling 12-month standard deviation of 17 percent. This means that if you were to chart its returns over the course of 12 months, you could expect them to stay within ±17 percent from the mean about 70 percent of the time. That’s one sigma. You could also reasonably expect returns to rise or fall within ±34 percent, or two sigma, 95 percent of the time.

Knowing this, it probably wouldn’t be a huge cause for celebration if the S&P 500 rose, say, 8 percent during a 12-month period, since this figure falls within the “normal” one-sigma range. Conversely, a loss of 8 percent wouldn’t be a total disaster. A one-sigma move is a non-event from a historical perspective.

To put this in perspective, the S&P 500 rose about 30 percent last year. This is close to a significant two-sigma move from its 12-month average. Incidentally, 2013 was the index’s best annual performance since 1997.

The most important thing to keep in mind is that, just as we all have different fingerprints, every commodity, every stock, every fund and every index has its own DNA of volatility. The S&P 500 might have a sigma of 17 percent, but over the same 12-month period, the MSCI Emerging Markets Index has a much more volatile 29 percent. Investors must strive to remain objective in the face of emotional factors that move markets and adjust their expectations of how these two indexes behave compared to one another.

Using Weather Statistics to Explain Standard Deviation

As an analogy, consider the extreme temperature fluctuations in Minneapolis-St. Paul, Minnesota. Minneapolis has an average annual temperature of 45 degrees, which sounds pleasant enough. You might think that in such a climate, all you need to get by is a warm jacket. But the picture changes dramatically when you learn that the Twin Cities’ 12-month standard deviation is ±22 degrees. Statistically, this means that for a little over two thirds of the year—68 percent of the time—you can expect the temperature to swing between 23 and 67 degrees. Suddenly that jacket is looking pretty risky. At two standard deviations, there’s a strong probability that the temperature will fall anywhere between a bone-chilling 1 degree—which might very well occur, since the average low in January is 2.8 degrees—and 89 degrees. That’s a huge, yawning gap that Minneapolitans must contend with throughout the year.

Compare this to San Antonio, Texas, home of U.S. Global Investors. Here the average temperature is a balmy 70 degrees, with a less-volatile standard deviation of 13 degrees. Even at two sigma—which, again, occurs 95 percent of the time—the temperature in the Alamo City statistically falls anywhere between 42 and 94 degrees, close to the average high in July.     

If we’re looking just at temperature fluctuations, Minneapolis resembles the Emerging Markets Index whereas San Antonio behaves more like the S&P 500. Your expectations of “normal,” therefore, will need to be different depending on which of these two cities you reside in or indexes you follow.

Knowing a security's standard deviation is as important as knowing a city's average temperature: both help you manage expectations

Mean Reversion

This leads us to mean reversion, which I discussed in full back in June. Mean reversion is the theory that, although prices might trend up for many years (as in a bull market), or fall for many years (as in a bear market), they tend to move back toward their historic averages eventually. Such elasticity is the basis for knowing when a security is under- or overvalued and when to buy low and sell high. We have just experienced a bull market with the S&P 500 and a bear market with gold stocks. Within these trends, though, are great internal volatility and oscillator tools that monitor these actions. Even in a bull or bear market, we can measure the 20- and 60-day volatility of any kind of security.

Again let’s use Minneapolis as an illustration. We’ve already established its wide-ranging temperature fluctuations throughout the year, from highs reaching the 80s to lows flirting with zero. This being so, it would be unreasonable to expect the weather to remain freezing indefinitely, as is the case in Game of Throne’s aptly-named Land of Always Winter. Eventually it reverts back to its 12-month mean of 45 degrees.

The same goes in the world of investing. Mean reversion applies to everything, in both a micro and macro setting. In an April 2012 Frank Talk, I showed that entire countries have their own means, which they eventually revert back to. After charting Chinese stock performance over a 10-year timespan, a pattern emerged:

Chinese stocks landed in the top half [of emerging markets] four out of 10 years—2002, 2003, 2006 and 2007. In 2003, China climbed an astounding 163 percent; in 2007, it was the top emerging market again, returning nearly 60 percent. Since then, the country has fallen to the bottom half… If you apply the principle of mean reversion, history appears to favor China landing in the top half during this Year of the Dragon.

Indeed, by the end of 2012, Chinese stocks jumped nearly 40 percent from the previous year, placing the country in the top half of emerging markets—just as predicted using the theory of mean reversion.

Look at the two oscillator charts below. They show the up-and-down movements in the price of gold stocks (top chart) and bullion (bottom chart) over the past ten years. One row above or below the mean, indicated by the black horizontal line, equates to one sigma; two rows above or below equates to two sigma; and so on. As you can see, mining stocks have recently reverted to their mean for the first time in about three years, while spot gold is gradually working its way back.

Year over Year Percentage Change Oscillator: NYSE Arca Gold BUGS Index
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Year over Year Percentage Change Oscillator: Gold Bullion
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Again, every security has a different sigma for a specific period of time, and as such your expectations should reflect these differences. Gold bullion currently has a one-day standard deviation of ±1 percent and a 12-month standard deviation of ±18.8 percent. (The one-day will always be lower than the 12-month.) So if gold’s return falls within a range of ±1 on any given day or ±18.8 percent for a 12-month period, it’s behaving normally, as this is only one sigma. Anything over 18.8 percent for a 12-month period would be heading toward two sigma, which is when a buy or sell action is advised.

Seasonal Cycle
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Now compare spot gold to the NYSE Arca Gold BUGS Index, which has a 12-month standard deviation of 35.5 percent—nearly double that of bullion. Plus or minus 35.5 percent might sound incredibly scary and volatile, but for gold stocks, a fluctuation of this sort is “normal,” occurring 68 percent of the time.

It’s all about managing your expectations and emotions.

Look at the following oscillator that charts the S&P 500 and gold bullion’s 60-day percent change over the past five years. Like the EKG tracings of a healthy patient, the lines bottom and peak, bottom and peak—but revert back to their mean with regular frequency.

Healthy Heartbeats. Gold Bullion vs. S&P 500 Index 60 Day Percent Change Oscillator Daily, 5 Years through August 15, 2014 in Standard Deviation Terms
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Oscillators are vital to identifying the optimal time to buy or sell. When prices exceed two sigma above the mean, it might be a good time to sell because the statistical data suggest the commodity is overvalued and, therefore, prices are due to drop toward their mean. When prices exceed two sigma below the mean, it indicates the commodity is undervalued. Buying the laggards at this time could enable you to participate in a potential rally.

No statistical tools are accurate 100 percent of the time, but investors can take ownership in how they use probability tools such as oscillators to manage the emotions of the market. It’s when an asset moves more than one sigma that the power of mean reversion raises your chances to capture opportunity. This is part of what makes investing so exciting.

Strap yourself in and enjoy the ride.

Part III (Coming Soon)

In the third and final part of this series on managing expectations, I’ll discuss the anatomy of a bear market such as what gold mining stocks have experienced for three years. I’ll also discuss how we use relative fundamental stock evaluations, growth at a reasonable price (GARP) to pick stocks and some of the statistical tools we use to trade around core positions.

The job of active managers and the need to trade around core holdings is extremely important, especially when the daily, monthly and annual volatility is so excitable.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will 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.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.

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Big Dam Resources
August 12, 2014

Shareholder Report China's Resource Renaissance U.S. Global InvestorsChina’s 22,000-megawatt Three Gorges Dam, pictured on the cover of our latest Shareholder Report, is an undertaking that must be described in superlatives. Not only is it the world’s largest hydroelectric plant in terms of generating capacity, but it’s also one of history’s most expensive engineering feats, costing upwards of $25 billion.

Many believe that the dam rivals the Great Wall of China in terms of ingenuity, scale and cultural significance. And like the Great Wall, Three Gorges Dam is not without its detractors, who point out some of the project’s unfortunate consequences, such as the displacement of an estimated 1.5 million Chinese citizens.  

Consequences aside, China’s venture into hydro power, relatively inexpensive compared to other sources, has contributed to the nation’s reputation for having reasonably low energy prices.

Furthermore, building a power plant of such gargantuan size calls for massive amounts of resources. Construction of Three Gorges Dam required 21 million cubic yards of concrete (a world record) and 463,000 tonnes of rolled steel (enough to make 63 Eiffel Towers). These projects have been welcomed by international manufacturers, exporters and investors alike.

As you can see in the graphic below, China has more of the world’s largest hydroelectric plants than any other nation. That’s a lot of Eiffel Towers.


click to enlarge

Many readers might guess that the lone U.S. hydroelectric plant to make the list is Hoover Dam, but in fact it’s Washington State’s Grand Coulee Dam, which I discussed last month. Believe it or not, Hoover Dam no longer even makes it into the top 50 largest hydro plants in the world.

Not only does China lead the rest of us in sheer hydro megawattage, but it also trumps the competition when it comes to new capacity additions. Of the 19 hydroelectric power stations currently under construction around the globe, eight are Chinese.

Other countries that made significant additions to their hydropower market last year include Turkey, Brazil, Vietnam and Russia.


click to enlarge

For more on China’s resource Renaissance and commitment to renewable energy, check out our latest Shareholder Report. Remember also to subscribe to our award-winning Investor Alert and my personal blog, Frank Talk.

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

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Managing Expectations Part I
August 11, 2014

Part I of III: The Importance of Cycles in the Investment Management Process

Elon Musk, CEO of Tesla Motors, told the Guardian last year: “The lessons of history would suggest that civilizations move in cycles. You can track that back quite far—the Babylonians, the Sumerians, followed by the Egyptians, the Romans, China. We're obviously in a very upward cycle right now and hopefully that remains the case.”

Like the phases of the moon, all cycles contain their own unique rhythms.Similarly, financial markets are influenced by relatively predictable cycles, a lesson we at U.S. Global Investors rely on to help us manage expectations and be effective stewards of your money. This is a theme I’ve frequently written about and discussed in investor presentations, one of which, “Anticipate Before You Participate,” is a classic that I often use to remind investors of these timeless principles.

Precedent plays a big role in our decision-making process just as it does in our day-to-day lives. I don’t know about you, but I know not to wait until the rains have flooded the streets ankle-deep before I buy an umbrella.

A keen awareness of the ebbs and flows of historical and socioeconomic conditions, on both the macro and micro scales, allows our investment management strategy to be more proactive than reactive. Although reacting to sudden and unexpected developments is often necessary—Russia is a good example—our team tries to mitigate their impact on our funds by leveraging our knowledge of the complex interplay and overlap of important cycles, from the short-term to very long-term.

Weather - A Cycle in One Season

Just as the moon’s gravitational pull changes the ocean tides, so too does the weather, both good and bad, influence the behavior of the market.

Case in point: a strong link exists between El Niño, the weather pattern, and global asset prices. Steady rains are good for Brazilian coffee output, for example, but bad for the Chilean metals industry. The reason for this is, when the rain is heaviest, access to mountainous mining regions is blocked.

Here in the U.S., an unusually brutal winter at the beginning of this year put a damper on consumer spending. Sales were pummeled, as many consumers, especially in the Northeast, were disinclined to shop after spending their days shoveling bucketsful of snow off their front lawns. The ISM Manufacturing Index in January closed at a weak 51.3, below economists’ expectations of 56.0. Car sales were way down.

On the bright side, stock trading tends to be more spirited on sunny days than cloudy days. In a thought-provoking paper titled “Reassessment of the Weather Effect: Stock Prices and Wall Street Weather,” University of California-Berkeley student Mitra Akhatari finds a significant correlation between sunshine in New York City and a bump in stock prices.

If it is the case that people tend to evaluate future prospects more optimistically when they are in a good mood than when they are in a bad mood… then sunnier days are associated with investors being more willing to take on risky investments.

The reverse also seems to be the case, according to Akhatari. On overcast days, investors’ less-than-peachy mood invariably leads to uninspired trading.

Or even calamity, as was the rare case on the morning of October 29, 1929, Black Tuesday, when autumn clouds blotted out the sun’s warmth and light.

This doesn’t mean that every time the sky turns gray, the market suffers. Some people are better than others at separating their emotions from their investment decisions.

In any case, let’s all take a moment to appreciate the fact that the U.S.’s main stock exchange is not located in Seattle.

Gold Seasonal Trends - One Year Cycle

Gold is a classic example of a commodity that rotates through seasonal cycles year after year. I’ve written at length on the ways in which gold behaves in response to international festivals and holidays such as the Chinese New Year and Ramadan. You can look back five, 15 and 30 years to spot the patterns the precious metal dependably follows, reaching annual highs late in the year during Diwali and Christmas when gold jewelry demand spikes.

Seasonal Cycle
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Another cyclical indicator—or theory, I should say—we use to track the performance of gold is mean reversion. Mean reversion is the idea that, eventually, a commodity will revert back to its historic value, whether it’s currently sailing in the stratosphere or crawling through the weeds.

What goes up must come down, as they say, and we saw this play out last year when gold plunged 28 percent after an exhilarating years-long bull run. Although many traders let go of their bullion and gold stocks, we suspected,based on historical data, that the metal would soon rebound, which it did.

Presidential Election Cycles - Four to Eight Years

At U.S. Global we like to say that government policy is a precursor to change, and no person in the nation has more control over policy than the president. The decisions he makes and actions he takes have far-reaching consequences in markets both domestic and international, more so than perhaps even he can anticipate.

The current occupant of the White House, Barack Obama, began his presidency by injecting $700 billion into the economy, a move whose success experts are still debating. We’ve also seen several rounds of quantitative easing (QE) to loosen money and facilitate loan-taking.

Largely as a result of these policies, the S&P 500 Index during both of Obama’s terms has performed above the average four-year presidential cycle. Early last month, furthermore, the Dow Jones Industrial Average hit a record high of 17,000.


click to enlarge

Just over the horizon are midterm elections, a time when the market historically becomes bullish. According to the most recent Stock Trader’s Almanac:

An impressive 2.7% has been the average gain during the eight trading days surrounding midterm election days since 1934. This is equivalent to roughly 52 Dow points per day at present levels. There was only one losing period in 1994 when the Republicans took control of both the House and the Senate for the first time in 40 years.

Lifecycle of a Mine - Multiple Years

Not only is it important for us to understand the seasonality of the commodity itself, it’s equally important to be aware of the stages a mine must proceed through before it becomes operational. As I write in The Goldwatcher: Demystifying Gold Investing:

We strongly believe in using cycles to better manage risks and expectations, and we see this as a way for others to manage their emotions when it comes to investing. Knowing where a company is on the mine lifecycle can be a tremendous asset to an investor in gold equities who seeks to minimize risk and optimize performance. It’s one more tool the investor can use to try to manage volatility and his own market expectations.

Take a look at the graphic below. Years can and do divide the time when a mine is discovered and when production begins. It’s imperative to know which stage of its lifecycle it’s in to make a better-informed decision on whether to invest, withdraw or wait.

The Lifecycle of a Mine
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When a mine is first discovered, excitement raises the price of the stock. This is when investment is most speculative since only one in 2,000 companies finds at least a 1 million-ounce deposit. Once reality sets in and miners are faced with the notion that the metal or mineral—assuming there is any—probably won’t be exhumed for some time, prices tumble. Years later, after production finally begins, stocks see another uptick. This is when the equity is at its lowest risk factor.

To manage risk and expectations, it’s critical for us to know where we are in the cycle of the mine. We prefer to confirm this in person, and so we often visit projects in locations such as Colombia, Panama, West Africa and others. Most recently, I had the pleasure of dropping by Gold Mountain Mining Corp.’s Elk Project in British Columbia, which I wrote about last week.

Part II (Coming Soon)

In the second part of this series on managing expectations, I’ll discuss other tools and theories our investment team uses on a daily basis such as oscillators and sigma moves. Our models include fundamental value drivers and proprietary statistical algorithms to manage short-term volatility for one day to 60 trading days.

Look for it later this week!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will 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.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 6/30/2014: Tesla Motors, Inc.

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5 Takeaways from the Vancouver Natural Resources Conference
August 4, 2014

I was happy to speak recently at the Vancouver Natural Resources Conference in beautiful British Columbia. I also had the pleasure of listening to a variety of presentations by some of the most influential names in the investment world, and met a few new faces along the way.

Here is what I took away from this year’s visit to Vancouver:

Air Pollution is now worse in Paris and London than it is in Beijing1) London’s dirty little secret. My good friend Robert Friedland, executive chairman and founder of Ivanhoe Mines, painted a startling picture of an increasingly polluted London, England, during his speech. Did you know the city’s air pollution is now worse than Beijing’s? Not only that, Paris hit life-threatening pollution levels this year and the World Health Organization even stated that pollution is the world’s single-biggest environmental health risk. Hard to believe, isn’t it?

Friedland says the answer to healthier air is the “new gold,” or platinum group metals (PGMs).
By using PGMs in catalytic convertors, harmful diesel emissions can be better controlled and less carbon monoxide is produced. As urbanization continues, investors should remain aware of inevitable pollution in larger cities, and in turn, that the use of PGMs will help minimize these effects. Demand should rise as supply lowers, pushing the metals’ prices higher.

Earlier this year I wrote that platinum and palladium looked very compelling, and the metals continue to be relevant in both the auto industry and medical industry. 

2) Russia is America’s biggest problem, according to Marin Katusa of Casey Research. Not only does Russia produce more oil and natural gas than any other country, it’s also exerting control over the uranium sector. America has long been the number one consumer of uranium, and at one time was the largest producer, but that’s all changing. The American uranium stockpile has been reduced to an amount that will last roughly three more years.

The U.S. Department of Energy (DOE) used to release a certain amount of uranium into the market each year, but in 2013 the DOE began dumping what little uranium the U.S. does have and selling it to the spot market at a lower cost. President Barack Obama did this in order to raise enough money to pay for previous cleanups.

There isn’t enough uranium left to fulfill our needs if you compare the amount the U.S. produces with the amount the U.S. requires. It’s not only America. Much of the world is looking for sources of uranium to meet demand factors. The World Nuclear Organization shows in the chart below that one reason for the shortfall in uranium supply from mines is that early production went straight into military inventories and civil stockpiles.

World Uranium Demand Outpacing Mine Supply
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We need Russia, whether we like it or not. When it comes to commodities such as uranium, it’s important to be aware of how performance rotates each year, giving you a leg up on finding commodities with upside potential. Looking into 2015, Marin says uranium could make big moves.

An American Energy Renaissance - Special Energy Report U.S. Global Investors3) Energy is the most consistent story of our lifetime. Karim Rahemtulla, Chief Resource Analyst at Wall Street Daily, used this statement to emphasize the ongoing strength we are seeing in the energy sector. He says better technology is leading to new finds from Brazil all the way to the Mediterranean, and even with controversial techniques like fracking, it’s easy to see just how much oil and gas have been recovered across various shale plays in the last few years. The production numbers are unbelievable.

U.S. Global Investors released a Special Energy Report detailing the American energy renaissance we are currently living through, along with ways to benefit from this tremendous growth. Karim says the growth will continue: industrial demand for natural gas is set to increase by 20 percent in the next five years, and consumer demand is increasing annually at a faster pace than oil. The trends we are seeing in this space should continue for another 15 to 20 years, including increased use, new sources of supply, emerging growth and political benefits.

Located in Souther British Columbia is Gold Mountain Mining's Elk Project, an open pit gold mine4) One in every 3,000 projects actually becomes a working mine – I visited two of these. The Saturday following the conference I joined other CEOs, hedge fund managers, newsletter writers and curious investors on a special trip to see two open pit mines in Southern British Columbia. What an experience it was. Marin Katusa of Casey Research organized this trip that took our group of around 50 to see gold and copper mines. Elk Project of Gold Mountain Mining Corp. was our first stop.

This type of “boots on the ground” experience helps form the tacit knowledge investors and fund managers need to stay curious about the sectors and companies they invest in. I believe implicit knowledge – sticking simply to data and numbers – can only get you so far. Being able to see the Elk Project up close was remarkable – this company is organized and entrepreneurial, and has reported good potential for open pit mining operations such as this one. The Elk Project plans to expand its existing resources using an aggressive drill program.

5) Innovation and technology at Copper Mountain Mining. The second stop on our trip was the open pits at Copper Mountain Mining’s operations. Copper Mountain processes around 35,000 tonnes a day, requiring the company to use bigger, more innovative and more efficient equipment. During our tour we saw one of the pits, which was 200 meters deep. But what I found most impressive was the infrastructure and equipment the company uses.

The Haul trucks at Copper Mountain use tires costing $40,000 apiece. Copper Mountain CEO, Jim O'Rourke

Copper Mountain has haul trucks with high-efficiency diesel engines and hydraulic front-loading shovels with 42-cubic-meter buckets. The tires alone have a price tag of $40,000, and are equipped with microchips to measure temperature and pressure data remotely.

The property is also run by a computerized control system, which tracks everything from the crusher to the water system and even the truck traffic on site. 

Companies like Copper Mountain are moving fast, making things happen and using new technology to regenerate life into one of the oldest mines in BC. Investors should pay attention to companies such as this, which are making enormous strides and adding credibility to their names.

These trends all have important implications on where to find investment opportunities. Sometimes you have to dig a little deeper and put yourself in the middle of the action, and other times it’s simply about staying curious to learn about what is going on right in front of you. I encourage my readers and shareholders to stay curious to learn, because with curiosity comes improvement and opportunity.

If you were unable to attend the conference, I invite you to download my presentation, From Asia with Love – The Ups & Downs in the World of Resources.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Fund portfolios are actively managed, and holdings may change daily. Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 06/30/2014:  Ivanhoe Mines Ltd.

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Net Asset Value
as of 08/20/2014

Global Resources Fund PSPFX $9.90 No Change Gold and Precious Metals Fund USERX $7.52 No Change World Precious Minerals Fund UNWPX $7.02 -0.02 China Region Fund USCOX $8.49 No Change Emerging Europe Fund EUROX $7.92 -0.06 All American Equity Fund GBTFX $33.79 0.05 Holmes Macro Trends Fund MEGAX $24.37 -0.03 Near-Term Tax Free Fund NEARX $2.26 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 -0.01