Share this page with your friends:

Print
July 31, 2014
Gold Mining Stocks Are Beating Bullion: A Win-Win

by Frank Holmes

For the first time in at least a couple of years, gold mining stock returns are outpacing those of the yellow metal itself.

As you can see in the chart below, the NYSE Arca Gold BUGS Index has returned 22.31 percent year-to-date (YTD), whereas gold has delivered 7.74 percent.

Will the Sectors that Lagged in January Outperform the Rest of 2014?
click to enlarge

This is good news for both equities and bullion. When miners are doing well, gold tends to follow suit. Indeed, since the beginning of the year, spot gold has seen steady growth following a lackluster 2013. As I noted earlier in the month, it’s been one of the best-performing commodities of the year so far, a mere nugget’s throw behind nickel and palladium.

Miners restructuring their business strategy.When gold miners do well, gold tends to follow suit.

Gold mining, to be sure, is a tough gig. When gold prices are between $1,000 and $1,200 an ounce, miners barely break even in terms of cash flow.

Last year was particularly brutal. The metal plunged 28 percent—from $1,675 to about $1,200—which was the largest annual drop since 1981.

To reduce risk, many companies have cut costs in several ways. Some have decreased capital spending. Others have sold off assets. Others still have placed exploration on standby.

Case in point: Comstock Mining Inc., a young mining company which we own in our Gold and Precious Metals Fund (USERX), has managed to shrink operating expenses from $4.4 million this time last year to $3.8 million, mostly by lowering legal and advisory expenses. Other realized annual savings have come from administration and staff reductions.

In a recent interview with The Gold Report, U.S. Global Investors portfolio manager Ralph Aldis addressed the company’s rising success:

Comstock started production over a year ago at about 10,000 ounces a year. It doubled that and now it's targeting a 40,000-ounce run rate in H2/14… The company has permits to reach 4 million tons per year so Comstock should be a 100,000-ounce producer by 2016. It's a situation where people are creating value and [Chairman of the Board] John Winfield knows how to make money.

Time to wake up to gold-diggers.

An equity that has performed exceptionally well this year is Klondex Mines Ltd., headquartered in Nevada. Not only does it represent the largest position in both USERX and our World Precious Minerals Fund (UNWPX), but we also own it in our Global Resources Fund (PSPFX).

One of the main reasons we’re so fond of the stock is that in 2013, when the Market Vectors Junior Gold Miners Index was down 61 percent, Klondex was up 28 percent. It’s currently up 30 percent YTD and is targeting free cash flow (FCF) by the end of the year.

“This is a great story,” Ralph said in the same interview. “Most people haven’t woken up to it yet.”

Royalty companies are thriving as well.

Other players in the gold space that have flourished in this climate are royalty companies, which provide upfront capital to miners in exchange for a stake in future output. Since royalty companies avoid the costly rigmaroles gold miners must deal with on a regular basis—securing permits and building infrastructure, among others—they often receive a healthy return on their investments.

Two such companies are Franco-Nevada Corporation, based in Toronto, and Royal Gold, based in Denver. We own both in USERX, UNWPX and PSPFX, as well as our All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX). Whereas Franco-Nevada has risen 42 percent YTD, Royal Gold has leaped 70 percent.

Will the Sectors that Lagged in January Outperform the Rest of 2014?
click to enlarge

Looking ahead.

Gold might have taken a minor hit this week, but autumn is right around the corner, when the gold jewelry industry traditionally replenishes its stock. And with unrest in Ukraine and the Middle East continuing to drive the fear trade, as unfortunate as these events are, gold prices appear buoyant.

This bodes well not only for investors in bullion but also mining companies, which will likely proceed with cost-cutting initiatives to maintain or expand margins.

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.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk.

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% to 10% of your portfolio in these sectors.

Stock markets can be volatile and can fluctuate in response to sector-related or foreign-market developments. For details about these and other risks the Holmes Macro Trends Fund may face, please refer to the fund’s prospectus.

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

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

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. The Market Vectors Junior Gold Miners Index is a market-capitalization-weighted index. It covers the largest and most liquid companies that derive at least 50 percent from gold or silver mining or have properties to do so.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 06/30/2014: Klondex Mines Ltd. (1.34% in Global Resources Fund, 6.58% in Gold and Precious Metals Fund, 6.60% in World Precious Minerals Fund); Comstock Mining Inc. (3.57% in Gold and Precious Metals Fund, 2.12% in World Precious Minerals Fund); Franco-Nevada Corp. (0.53% in All American Equity Fund, 2.21% in Global Resources Fund, 2.45% in Gold and Precious Metals Fund, 0.55% in Holmes Macro Trends Fund, 1.16% in World Precious Minerals Fund); Royal Gold Inc. (0.58% in All American Equity Fund, 2.18% in Global Resources Fund, 3.14% in Gold and Precious Metals Fund, 0.59% in Holmes Macro Trends Fund, 0.91% in World Precious Minerals Fund).

 

Share “Gold Mining Stocks Are Beating Bullion: A Win-Win”

July 28, 2014
Second Quarter Earnings: Marching Toward a Strong Recovery

It’s earnings season once again, and though only a quarter of the Russell 1000 has reported so far, the news is just north of positive. All signs indicate that the market has dusted itself off and is back to its cheerful self after a ho-hum first quarter, which was negatively affected by harsh winter weather.

In the chart below, you can see that 73 percent of the companies that have reported as of this writing exceed their earnings per share (EPS) beat rate. The beat rate, as you might know, is the rate at which companies surpass market analysts’ published estimates. The revenue beat rate, meanwhile, sits at 67 percent, a positive surprise above the long-term median of 63 percent.

Russell-1000-Earnings-Per-Share-and-Revenue-Beat-Rates
click to enlarge

Included in these figures are a few of the top-performing companies that we own in our All American Equity (GBTFX) and Holmes Macro Trends Funds (MEGAX), such as Facebook, Apple and Biogen Idec. We’ll discuss these companies later.

So to what do we attribute these welcome tidings?   

Two notable indicators are the significant drop in initial unemployment claims and the jump in U.S. and global consumer confidence.

Americans are heading back to work.
According to last week’s data reports, initial unemployment claims fell to their lowest level since 2006, before the Great Recession brought the country to its knees.

US-Initial-Unemployment-Claims-at-Lowest-Level-Since-2006
click to enlarge

Couple this news with the constructive U.S. jobs report, and we’re looking at a return to pre-recession labor-market strength. The U.S. Bureau of Labor Statistics reported that 288,000 nonfarm payroll positions were added in June alone, bringing the country’s unemployment rate to a five-year low of 6.1 percent. Data for July is expected next Friday.

Feeling good about letting go of their dough.
Another sign that the economy promises a strong continued recovery is the modest boost in domestic and global consumer confidence levels.

Information and insights company Nielsen announced that its global confidence index has inched up an overall 1 point to close at 97, the highest it’s been since 2007. A 100 mark indicates exceptionally strong consumer optimism.

According to Nielsen, the U.S jumped 4 points from the previous year to close at 104 points, making it come in at 8th place worldwide. India leads all other nations at 128 points, possibly attributable to the recent election of its new prime minister Narendra Modi. At 48 points, Portugal trails the pack.

As you can see in the chart below, there’s a 17 percent increase from the same time a year ago in American respondents who feel that now is a good time to spend their money on necessary and discretionary goods and services.

Percent-of-Americans-Who-Say-That-Now-Is-a-Good-Time-to-Buy-the-Things-Wanted-and-Needed
click to enlarge

The results of the Michigan Consumer Sentiment Index echoes the buoyancy of the domestic economy. At 81.3, the index is finally stabilizing at pre-recession levels.

Consumer-Confidence-is-Rising-to-Pre-Recession-Levels
click to enlarge

Following are some of the top-performing holdings in our funds.

Facebook
FacebookFacebook continues to defy investors’ expectations. The social media titan enjoyed a robust second quarter, reporting revenue of $2.91 billion, an increase of 61 percent from the same time last year. More than $2.6 billion was derived from advertising alone. Mobile ads specifically represented about 62 percent of advertising revenue, indicating that an increasingly greater number of users are moving away from traditional portals such as desktops and laptops.

The second quarter, in fact, has seen a 7.3 percent increase from the first quarter of mobile daily Facebook users, from 609 million to 654 million.

“We had a good second quarter,” founder and CEO Mark Zuckerberg said. “Our community has continued to grow, and we see a lot of opportunity ahead as we connect the rest of the world.”

Apple
The tech giant reported that its quarterly profits rose 12 percent to $7.75 billion, bolstered by its iPhone and Mac sales. Anticipation of a next-generation iPhone, expected to arrive in late September, as well as the tentatively-named iTime smart watch, have also excited consumers both domestically and internationally.

In China, the world’s largest mobile market, Apple products unexpectedly outperformed Samsung Electronics, the popular South Korean smartphone maker.

“China, honestly, was surprising to us,” Apple CEO Tim Cook said. “We thought it would be strong, but it went well past what we thought. The unit growth was really off the charts across the board.”

Apple’s exceptional performance contrasts dramatically with Amazon.com’s report that it lost $126 million in the second quarter. The retail leader has sunk a staggering pile of cash into developing its Fire Phone, made available for purchase last Friday, which has so far received mixed reviews from tech experts, analysts and bloggers.

Phone-Wars-Apple-Tim-Cook-Amazon-Jeff-Bezos-jockey-consumers-pockebooks

Partially as a result of the Fire Phone’s dubious receipt, Amazon has posted its most disappointing quarterly loss since 2012. The company, in fact, forecast that its operating losses this quarter will fall within the $410 to $810 million range.

Biogen
The Cambridge, Massachusetts-based biotechnology company Biogen, a leader in developing treatments for neurological and autoimmune disorders such as multiple sclerosis (MS), reported revenue of $2.4 billion, a 40 percent increase from this time a year ago.

Biogens-2014-Q2-Sales-Jumped-40-percent-Year-Over-Year
click to enlarge

Its blockbuster medication Tecifidera, used to defend against relapsing MS, has generated a jaw-dropping $700 million in 2014 alone—$585 million domestically, $115 overseas.

Other runaway Biogen products include Avonex and Tysabri.

Looking forward to a stronger third quarter.
Good news such as this has been a long time coming.

Although many economic experts and pundits hesitate to admit that the U.S. economy has recovered to pre-recession levels, the second quarter has presented the most convincing signals thus far that we’re closer than ever. A greater number of Americans are finding quality employment. Initial unemployment claims are tapering off. Consumer confidence is growing year after year. And with powerful American companies such as Facebook, Apple and Biogen leading the charge, the U.S. has a bright future in store.

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.

Stock markets can be volatile and can fluctuate in response to sector-related or foreign-market developments. For details about these and other risks the Holmes Macro Trends Fund may face, please refer to the fund’s prospectus.

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.

This news release may include certain “forward-looking statements” including statements relating to revenues, expenses, and expectations regarding market conditions. These statements involve certain risks and uncertainties. There can be no assurance that such statements will prove accurate and actual results and future events could differ materially from those anticipated in such statements.

The Russell 1000 Index is a U.S. equity index measuring the performance of the 1,000 largest companies in the Russell 3000 Index.  The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization. The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan.  The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.

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 6/30/2014: Facebook Inc. (2.27% in All American Equity Fund, 2.59% in Holmes Macro Trends Fund); Apple Inc. (2.75& in All American Equity Fund, 2.68% in Holmes Macro Trends Fund); Amazon.com (0.00%); Biogen Idec Inc. (3.33% in All American Equity Fund, 3.34% in Holmes Macro Trends Fund); Samsung Electronics Co Ltd. (0.00%); China Mobile Ltd. (0.00%); China Unicom (0.00%); China Telecom (0.00%).

Share “Second Quarter Earnings: Marching Toward a Strong Recovery”

July 24, 2014
Desperately Seeking a Cheaper Kilowatt Hour

Let’s imagine that an aluminum manufacturer is eyeing two locations to build a new factory. In location A, an industrial kilowatt hour (kWh) is priced at 4.21 cents, whereas in location B, it goes for 12.67 cents.

The difference is upwards of 200 percent.

It’s fair to assume then that, all other considerations being equal—reasonable taxes, a skilled workforce, modern infrastructure—location A will win out. 

So how can electric companies lower their prices to attract businesses and industries? Countless factors make an impact. Research and development. Construction costs. Permits. Securing land. Mining, drilling and refining. Operating and maintenance costs. Taxes and fees. Power lines. The risk of changing laws and regulations.

But let’s keep things simple. Generating electricity is a lot like investing: to get the most efficacious results, diversification is key. That means a combination of energy sources, from natural gas to nuclear to renewables.

A tale of two states.
In the examples given above, location A is actually Washington State, which offers the lowest price per industrial kWh in the continental U.S. Location B is Connecticut, the most expensive.

To keep prices competitive, Washington diversifies its energy portfolio. The greatest contributor is hydroelectric power, which generates close to 7,700 gigawatts per hour (GWh) annually. Other significant sources of electricity are nuclear (812 GWh), natural gas (290 GWh) and coal (192 GWh). Renewables, which account for 912 GWh, include wind, solar and geothermal. As a result, the state offers electricity at a 35 percent discount from the national average.

The simple largest electric power producer in the U.S., Washington State's Grand Coulee Dam has a total generating capacity of 6,809 mega

Aided by the fact that the Evergreen State doesn’t collect a corporate income tax, cheap power has attracted industries that tend to consume biblical amounts of electricity, from aircraft production to software development to aluminum refining. Major companies in these spaces that are either headquartered or maintain a significant presence in the state include Microsoft, Amazon.com, Expedia.com and Boeing.

Connecticut, on the other hand, is not nearly as diversified as its West Coast peer. About half of its net electricity production last year came from the 2,103-megawatt Millstone Nuclear Power Station (48 percent), the other half from natural gas (44 percent). A negligible amount was derived from coal and renewables.

Net Electricity Generation Comparison Between Washington and Conneticu (April 2014)
click to enlarge

Any industrial company considering Connecticut as its home base of operations must factor in the hefty electric bill, which is nearly 90 percent higher than the national average. Against all odds, the state has managed to hang on to old stalwarts in the manufacturing and technology sectors such as General Electric and United Technologies.

In the hypothetical scenario above, I used an aluminum manufacturer because aluminum requires a notoriously huge amount of energy to produce. The electricity needed to manufacture just one tonne of the stuff eats up over a third of your entire production costs. Fifteen kWh makes only a kilo, or 2.2 pounds, of product.

Meaning: the hypothetical aluminum maker headquartered in Washington will spend about 63 cents per kilo, whereas the one in Connecticut will spend close to 2 bucks to manufacture the same amount.

Granted, at only 5,006 square miles, Connecticut lacks the scale and plentiful natural resources found in states as large and spacious as Washington. The same problem can be found in other small, densely-populated states and territories such as Massachusetts, Rhode Island, New Jersey, New Hampshire and the U.S. Virgin Islands.

The Virgin Islands, in fact, has some of the world’s most expensive electricity precisely because it doesn’t have the means to diversify its energy portfolio. The territory depends entirely on imported crude oil to run its petroleum power plants, and as a result, its energy goes for between 50.8 and 54.8 cents per kWh as of last year. This business-repelling price far exceeds that of countries whose energy is considered steep compared to the U.S. average, namely, Denmark (41 cents per kWh), Germany (35), Spain (30), Australia (29) and Italy (28). This year the Virgin Islands has tried to reel in businesses with substantial tax breaks, but the savings might not be enough to offset the eye-popping electric bill.

It’s pronounced “nuclear.”
Although people have increasingly distanced themselves from nuclear energy because of catastrophic environmental disasters over the years, there’s still a place for it in a country’s energy portfolio. Nuclear power plants might be expensive to build, but they’re cheap to run.

The question is whether nuclear power helps drive electricity prices down. For some answers, take a look at the following chart.

Top 10 Nuclear Generating Countries
click to enlarge

As the leading producer of nuclear energy, the U.S. has some of the world’s cheapest electricity—which for the industrial sector averages between 6.75 cents and 9.33 cents per kWh. These prices are either trumped or competitive with other nuclear power-producing countries such as Russia (11 cents per kWh), Canada (10) and China (8). India, which doesn’t quite make it into the top 10, generates 30 billion kWh annually at an average of 8 cents per kWh.

However, a few of the countries on the chart have pricy electricity. Nuclear power accounts for close to three-quarters of France’s energy, and yet its electricity is on average 7 cents per kWh more expensive than the U.S. Again, diversification is key. Germany, which already has costly electricity, will soon see its prices soar even higher once it decommissions its nine currently operating nuclear plants, a gargantuan, politically motivated project that’s scheduled to be completed by 2022.

Does Iceland have the answers?
Many people are aware that Iceland has the cleanest energy in the world by far. The island-nation generates 100 percent of its electricity from renewables such as hydroelectric and geothermal sources, and it’s also flirting with wind power. What those same people might not realize, however, is that this results in some of the cheapest electricity in the world.

Landsvirkun, Iceland’s national power company, offers electricity to buyers for as low as 4.3 cents per kWh, which is nearly on par with what can be found in Washington State. Coupled with 20 percent corporate tax rates, the nation’s low energy prices have attracted not just data centers, methanol producers, silicon metal producers but also aluminum companies—which, again, consume massive amounts of electricity.

Aluminum production, in fact, has in the last few years outpaced fisheries as Iceland’s leading industry.

Iceland's competitive electricity prices have attracted some of the world's top aluminum manufacturers

Alcoa, the third-largest aluminum producer in the world, which we own in our Global Resources Fund (PSPFX), has maintained an aluminum smelter at Reydarfjordur in Eastern Iceland since 2007. Other world-class aluminum producers operating in Iceland include Rio Tinto Alcan and Century.

Diversification in your investment and energy portfolio.
The takeaway here is simple. As is the case in Washington and Iceland, if a state or country has an abundance and availability of natural resources, it should take advantage of them to drive down the price of a kWh to attract businesses. Diversification is especially essential where possible. Without businesses and industries paying to draw power from the electrical grid, the local economy stagnates.

Savvy investors know the importance of diversifying their portfolios. Electric companies need to learn to do the same.

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.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of June 30, 2014: Microsoft (0.00%), Amazon.com (0.00%), Expedia.com (0.00%), Boeing (0.00%), General Electric Co. (0.00%), United Technologies (0.00%), Landsvirkun (0.00%), Alcoa Inc. (2.42%), Rio Tinto Alcan (0.00%), Century (0.00%).      

Share “Desperately Seeking a Cheaper Kilowatt Hour”

July 21, 2014
The Municipal Bond World, According to John Derrick

As we move into the second half of 2014, the Federal Reserve has continued to reduce its stimulus measures intended to boost the U.S. economy. Just last week we heard rumors from Fed officials that if the job market improves faster than expected, key interest rates may be increased sooner than expected.

The Municipal Bond World, according to John Derrick

While the Fed is gradually reducing stimulus measures in the U.S., other areas of the world are embarking on new monetary stimulus measures. More than ever before, we are feeling the impact of the global economy, with monetary stimulus programs in Europe and Japan taking pressure off of the Fed, and ultimately contributing to the bond market rally we have seen so far this year. The European Central Bank (ECB) recently cut its rates to negative on worries of deflation and on the possibility of slower or no growth in the eurozone.

I sat down with Director of Research John Derrick, who also manages our Near-Term Tax Free Fund (NEARX), to get his thoughts on interest rates, the bond market and what investors should pay attention to as we move into the second quarter of 2014.

After hearing what the Fed officials said on interest rates last week, what is your outlook?
There are a lot of Fed officials with their own opinions, but I think it’s important to focus on what the Fed Chairman is saying. Janet Yellen said that rates are not going up, and although we’ve seen steady labor market improvements, it hasn’t been anything dramatic. For these reasons, I think an interest rate increase is still at least a year away.

How will this affect the municipal bond market?
Each time the Fed has announced tapering measures, investors have been fearful. If you look back at each of these instances, though, whenever the Fed took stimulus away, the market rallied due to fear of economic slowing. We did see a solid rally in the bond market during the first half of this year. I think interest rate increases are far enough away to still have a constructive position within the bond market, so to me the outlook is positive moving towards 2015.

How can investors take advantage of municipal-bond benefits?
On a tax-adjusted basis, municipal bonds have a very compelling risk-reward profile, which means the risk-adjusted returns are high. To take advantage of this, I would encourage investors to add exposure to their portfolio by investing in a product that holds high-quality, traditional municipal bonds. These are the type of bonds we look for and hold within the Near-Term Tax Free Fund. Our fund is in the “sweet spot” you could say; not too long, not too short, with some interest rate risk, but manageable for most investors. NEARX has generated consistent, positive annual returns and has been run by the same portfolio manager for 15 years.

Near-Term-Tax-Free-Fund-Annual-Total-Return
click to enlarge

For investors that like to sleep well at night, I think the fund is an attractive way to gain exposure to muni bonds. This is not the type of fund where you are going to be surprised with an unusual credit event that causes a significant impact. When choosing investments for the fund, I have a buy and hold mentality, letting the investments benefit the fund over time. The turnover of NEARX is very low and it has performed very well against its peers; take a look at the recent performance. Additionally, the fund seeks preservation of capital, and has a floating $2 NAV that has demonstrated minimal fluctuation in its share price.

How has the situation in Puerto Rico spooked the bond market?
Puerto Rican municipals are an area of the market that nobody really thought could declare bankruptcy, so what happened there didn’t help investors’ views of the muni market. We still have a small exposure to Puerto Rico within our fund. Our Puerto Rican positions are insured, however, which is important to help mitigate the risk aspect in this type of investing.

Our Near-Term Tax Free Fund has an overall Morningstar rating of 4 stars.* The fund is diversified and invests in municipal bonds with relatively short maturities, seeking to provide tax-free monthly income. If you’re looking to add tax-free bonds to your portfolio, with the option of modest allocation to this area of the market, I encourage you to request an information packet and take a closer look.

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.

*Morningstar Overall Rating™ among 163 Municipal National Short funds as of 06/30/2014 based on risk-adjusted return.

Morningstar Ratings are based on risk-adjusted return. The Overall Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)

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

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.

Share “The Municipal Bond World, According to John Derrick”

July 17, 2014
Domestic and Indian Gold Rally Points to a Strong Second Half

Earlier this week we reported that gold, defying expectations, is one of the best-performing commodities of the year so far.

And now we’ve learned that gold bullion imports by India climbed a stunning 65 percent last month after the country’s central bank allowed more investors to buy foreign bullion. Imports rose to $3.12 billion in June from $1.89 billion this time last year.

India is the world’s second-largest consumer of gold after China, accounting for approximately 25 percent of all gold consumption. Gold is the country’s second-largest import item after oil.
The Indian wedding season has historically been a major driver of gold consumptionThis news comes closely on the heels of the recent election of Prime Minister Narendra Modi, whose Bharatiya Janata Party (BJP) seeks to loosen import restrictions and other government regulations that tend to stifle economic growth. The rally also coincides with the Indian wedding season, which typically ends on July 7 and 8.

More importantly, what this news could portend is a stronger-than-normal second half of the year for the gold market. Data points going back 35 years confirm the probability of gold gaining strength in the second half, thanks largely to international celebrations such as Diwali, Ramadan and Christmas. This year in particular looks very promising indeed.

Keep your eyes on real interest rates.
Recently I chatted with Daniela Cambone during my weekly Gold Game Film program on Kitco. I pointed out that, with the end of the Indian wedding season, we’re historically due for a slight correction in the gold market. But whereas last year saw a huge contraction and liquidation of gold around this time, the gold bullion exchange-traded funds (ETFs) around the world this year actually expanded.

Daniela and I also looked ahead at the gold market in the coming months. One of the points I shared dealt with the strong correlation between gold performance and real interest rates, which you arrive at after subtracting inflation from the nominal interest rate.

If we go back to when gold was at $1,900 [in August 2011], the negative real interest rates were 200 basis points. Then by December of last year, it went to plus 50 basis points. Now it’s gone negative again, and gold is rallying. And I think that that’s a key factor when we look forward, and I think we’re going to continue to have negative real interest rates. So when inflation starts to rise like it did in the ‘70s, [the Federal Reserve isn’t] going to be able to lift rates as fast as the inflationary rate because it will stifle the economy dramatically.

Gold Rebound Linked to Fall in Interest Rates
click to enlarge

One last point I want to emphasize is our perennial suggestion to investors: 5 percent exposure to gold bullion, 5 to gold stocks, and rebalance each year for an overall 10 percent weighting in your portfolio.

Last year the stock market boomed, whereas bullion disappointed and gold stocks dramatically underperformed. Had investors taken their profits in the stock market and rolled it into gold, they would have done exceptionally well this year.

That continues to be our discipline here at U.S. Global Investors, and the recent gold rally, domestically and in India, substantiates this position.

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.

Past performance does not guarantee future results.

Share “Domestic and Indian Gold Rally Points to a Strong Second Half”

Net Asset Value
as of 07/31/2014

Global Resources Fund PSPFX $9.92 -0.19 Gold and Precious Metals Fund USERX $7.44 -0.21 World Precious Minerals Fund UNWPX $7.07 -0.16 China Region Fund USCOX $8.29 -0.06 Emerging Europe Fund EUROX $8.04 -0.18 All American Equity Fund GBTFX $32.55 -0.63 Holmes Macro Trends Fund MEGAX $23.47 -0.51 Near-Term Tax Free Fund NEARX $2.25 -0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change