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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

Central Banks Haven't Bought This Much Gold Since Nixon Closed the Gold Window
February 4, 2019

Central Banks Haven't Bought This Much Gold Since Nixon Was President

Something big is happening in the gold market right now, and nowhere is that more apparent than in central banks of emerging economies. Last year was a watershed in the size of official gold purchases, as banks added an incredible 651.5 tonnes (worth some $27.7 billion) to their holdings, according to the World Gold Council (WGC). Not only is this a remarkable 74 percent change from 2017, but it’s also the most on record going back to 1971, when President Richard Nixon brought a formal end to the gold standard. In the final quarter of 2018 alone, central banks purchased as much as 195 tonnes, the most for any quarter on record, according to leading precious metal research firm GFMS.

Net Central Bank Gold Purchases in Fourth Quarter 2018 Were Highest on Record
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As I’ve shared with you before, central banks have been net buyers of the yellow metal since 2010 in an effort to diversify their reserves away from the U.S. dollar. Last week, I had the opportunity to discuss the issue with SmallCapPower’s Vasudha Sharma. You can watch the conversation by clicking here.

Most Western nations already have a comfortable weighting in gold relative to their total reserves, so the demand is almost strictly from emerging markets. Among the biggest purchasers last year were Russia, Turkey and Kazakhstan, and we also saw China add to its holdings for the first time since 2016. Meanwhile, Hungary, Poland, India and a number of other countries took deliveries for the first time this century.

Central Banks Recognize Gold as an Effective Diversifier and Store of Value

With gold representing a whopping 74 percent of U.S. reserves, the Federal Reserve has historically had the largest position among global central banks. (Venezuela’s weighting, at 76 percent, has lately roared past the U.S., but that’s thanks solely to hyperinflation and its rapidly deteriorating economy. I’ll have more to say on Venezuela later.)

Other countries have a lot of catching up to do—i.e., gold buying—to get to the same level of diversification. Russia, for instance, has the fifth most gold in the world at 2,066.2 tonnes, but this amount represents only 17.6 percent of its total reserves. In sixth place is China, whose holdings (a reported 1,842.6 tonnes) represent a very small 2.3 percent of reserves.

Below you can see Russia’s ongoing strategy of “de-dollarization.” To date, the Eastern European country has liquidated nearly its entire position in U.S. Treasuries to fund its rotation into gold. According to the WGC, Russia bought 274.3 tonnes in 2018, its greatest amount on record, and the fourth consecutive year of purchases above 200 tonnes.

Russian Gold Reserves Have Grown as a Result of De-Dollarization of its Reserves
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Gold Is the Only Thing Left of Value in Venezuela

Gold made even more headlines last week as it relates to Venezuela. The beleaguered South American country, as you probably know, is in the midst of a potential transfer of power, from current president and dictator Nicolas Maduro to the more centrist Juan Guaido, whom the U.S., European Union and other world governments have recognized as the de facto head of state.

Since the U.S. and other countries have imposed heavy sanctions on Venezuela and its oil industry, the cash-strapped country has had to rely on its gold holdings to make international bond payments, mostly to Russia and China. But the days of Maduro’s plundering of Venezuela’s hard currency might be numbered, and not just because he could be removed from power soon.

Central Banks Haven't Bought This Much Gold Since Nixon Was President Venezuela's Nicolas Maduro (left) shakes hands with Russian president Vladimir Putin. Both strongmen's countries have a strong fondness and appetite for gold.
Photo: Kremlin | Creative Commons Attribution 4.0 International

Last week Guaido sent a letter to U.K. Prime Minister Theresa May and the Bank of England (BoE), urging them not to send $1.2 billion from any sale of Venezuela’s gold reserves—held in the BoE’s vaults—to Maduro’s “illegitimate and kleptocratic regime,” according to the Financial Times. “Maduro has stolen a huge quantity of state assets,” including Venezuelan gold, a part of the letter reads. “There is no doubt that he will, if allowed, also steal the assets held by the Bank of England, which rightly ought to be saved to support the recovery of Venezuela.” The bank has honored Guaido’s request and is blocking Maduro’s efforts to sell the metal.

Later in the week, a Russian Boeing 777 allegedly landed in the capital city of Caracas and was loaded up with as much as 20 tonnes of Venezuelan gold, according to Bloomberg. It was later reported that the jet, for reasons unknown, left Caracas without the gold payment. There were additional reports, however, also by Bloomberg, that another aircraft, this one from the United Arab Emirates (UAE), had landed in the country and was awaiting delivery of the gold instead.

Venezuela's Oil Production Fell for a Third Straight Year in 2018
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These incidents are certainly dramatic, and I’m eager to see how they play out, but I think the key takeaway is that gold is an exceptional store of value. It’s the only asset of any value to which a socialist autocrat like Maduro still has access. The bolivar is worthless, and the country’s once powerful and influential oil industry is fading fast. Without gold, Maduro is powerless.

Four Straight Months of Gains. What’s Gold’s Next Move?

The gold rally that began late last year, when equities turned rocky, continued into the new year as the historic U.S. government shutdown gripped investors, and signs that Fed Chair Jerome Powell was set to pause monetary tightening intensified. For the fourth straight month in January, both the price of gold and gold mining stocks posted strong gains. Before then, the price of gold was down for six straight months, a losing streak we hadn’t seen in 40 years, when the yellow metal fell each month from December 1988 to May 1989.

Gold and Gold Producers Were Up For Fourth Straight Month In January
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The yellow metal ended last month at a nine-month high, and with the U.S. dollar expected to lose momentum on higher deficit spending, we could see prices surge to as high as $1,400 or even $1,500 an ounce this year.

I’m not alone in my bullishness. Billionaire Sam Zell, creator of the real estate investment trust (REIT), bought gold for the first time in his life, citing the fact that supply is shrinking.

And Mad Money’s Jim Cramer also came out strongly in favor of the yellow metal last week.

“We are big gold believers here,” Cramer commented. “Now gold is at $1,300, we think gold is going to $1,400, $1,500. We suggest that everybody have a little bit of gold in their portfolio.”

I second Cramer’s suggestion. My recommendation has always been a 10 percent weighting in gold, with 5 percent in bullion and jewelry, the other 5 percent in high-quality gold mining stocks and well managed gold mutual funds and ETFs.

Did you miss our updated Periodic Table of Emerging Markets? Read all about it by clicking here!

 

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.

Diversification does not protect an investor from market risks and does not assure a profit.

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 index benchmark value was 500.0 at the close of trading on December 20, 2002.

A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands.

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These Emerging Markets Could Soar If the Dollar Falls
January 30, 2019

These Emerging Markets Could Soar If the Dollar Falls

Our fully-interactive Periodic Table of Emerging Markets has been updated for 2018! Check it out by clicking here!

Last year was admittedly a tough one for emerging markets. A number of currencies were under considerable pressure, with some of them falling to record or near-record lows against the strong U.S. dollar. Global trade tensions, threats of sanctions, rising U.S. interest rates and higher oil prices—before they began to crater in October, that is—also contributed to the selloff. From its 52-week high set in January 2018, the MSCI Emerging Markets Index sunk into bear market territory by the end of October.

Emerging Markets and the U.S. Dollar Have Shared an Inverse Relationship
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But since then the investment case for emerging markets has vastly improved, and global investors are betting big that the U.S. dollar will ease on less aggressive monetary tightening. This would relieve some of the pressure on emerging economies that must pay higher prices on imports from the U.S. when the dollar is strong. As of January 24, emerging market equity funds have seen positive inflows of over $3 billion for a remarkable 15 consecutive weeks.

Mobius and Gundlach Bullish on Emerging Markets

Some big-name investors have lately recommended that now might be the time to consider emerging markets, among them Mark Mobius and DoubleLine Capital founder and gold advocate Jeffrey Gundlach.

Speaking with Bloomberg this month, Mobius said he favors India, Brazil and Turkey as they’ve had a “terrific recovery” since the currency meltdown last year. Within a portfolio’s emerging markets allocation, he recommends 30 percent in India; 30 percent in Latin America, including Brazil, Argentina, Chile and Mexico; 30 percent in Eastern Europe countries such as Poland, Turkey and Romania; and the rest in China and other parts of Asia.

Some of Mobius’ picks were among the most banged up in 2018, as you can see in our updated Periodic Table of Emerging Markets. Turkey’s Borsa Istanbul 100 Index (BIST 100) was down around 41 percent for the year, priced in U.S. dollars. Argentina’s MERVAL Index fared even worse, losing slightly more than half its value on out-of-control inflation and interest rates as high as 60 percent—the highest in the world.

Eastern Europe Trading at Attractive Valuations

The best performing emerging economy in 2018 was Russia, which slipped only 1.5 percent. The country not only proved to be the most resilient to higher U.S. rates and trade war fears, but it also has both attractive dividend rates and strong valuation support. As you can see below, Russian stocks were trading at a very low 5.8 times earnings, a discount of nearly 50 percent against MSCI’s index of 24 emerging economies. Fellow Eastern European countries Turkey and Lithuania also had very attractive valuations, trading at 6.5 times earnings and 7.4 times earnings.

Eastern European Countries the Most Discounted Among Emerging Markets
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On an annualized basis, Russia has been a good bet for the 10-year period as well, delivering 9.21 percent on average through December 31, 2018.

What’s more, Central and Eastern European (CEE) economies are projected to grow 3.4 percent this year. That’s slower than in 2018, but stronger than Western Europe and the U.S.

Besides a weaker U.S. dollar, CEE countries should benefit this year from more favorable monetary policy. A number of central banks are expected to cut rates in 2019, including Turkey’s, which could lower them from 24 percent to 18 percent, according to Credit Suisse. Russia is also expected to ease, though likely by only 50 basis points.

Sberbank: “Outstanding Profitability” and an Attractive Dividend Yield

In a note this week, equity research firm BCS Global Markets forecasts that Russia’s RTS Index of 50 stocks will end 2019 at 1,450. Today the index is trading around 1,196, meaning there could be a more than 20 percent upside. Slava Smolyaninov, BCS’s deputy head of equity research, writes that the first half of the year looks promising on “attractive dividends, multi-year low valuations, lifting of sanctions on Rusal, a pause in global tightening and potential trade conflict resolution.”

The firm’s favorite picks include banks, especially Sberbank, which “ranks first as the most undervalued name with outstanding profitability… and one of the highest dividend yields in the sector”—an estimated yield of 8.9 percent for the 12-month period.

Curious to learn more? Check out 10 years of annual emerging market returns by clicking here!

 

The U.S. Dollar Index is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners. The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries. With 1,125 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The Borsa Istanbul 100 Index is a capitalization-weighted index composed of National Market companies except investment trusts. The MERVAL Index (MERcado de VALores, literally Stock Market) is the most important index of the Buenos Aires Stock Exchange. It is a price-weighted index, calculated as the market value of a portfolio of stocks selected based on their market share, number of transactions and quotation price. The RTS Index is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange, calculated in the US dollars.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

A basis point is one hundredth of one percent, used chiefly in expressing differences of interest rates.

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 accounts managed by U.S. Global Investors as of 12/31/2018: Sberbank of Russia PJSC.

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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What Headwinds? Airlines to Book Their 10th Straight Year of Profitability
January 28, 2019

Summary:

  • Despite the government shutdown, airlines beat on earnings and offer exciting guidance for 2019.
  • Global airlines are expected to log their 10th straight year of profitability—an industry first.
  • With incomes expanding worldwide, air travel demand is projected to outpace economic growth for the next couple of decades.

What Headwinds? Airlines to Book Their 10th Straight Year of Profitability

Domestic airlines weren’t exempt from the rout that hit stocks in December, the market’s worst month since the Great Recession. Shares of all four major U.S. carriers—American, Delta, United Continental and Southwest—saw double-digit losses. Delta ended December down 17.8 percent, its worst month since October 2009, when it gave back 20.3 percent.

The losses appeared to extend into the new year. On January 3, Delta forecast slightly slower revenue growth on concerns of a global economic slowdown, not to mention the partial U.S. government shutdown. In its first month, the shutdown—which ended Friday as President Donald Trump signed a bill to extend spending for three weeks—cost the U.S. aviation industry about $105 million, according to consulting firm ICF. Delta’s stock lost almost 9 percent for the January 3 trading day. Shares of the other three major airlines fell as well, though not by as much.

I believe the selloff was overdone, and the market seems to have agreed. Investors who bought the dip were rewarded. From January 3 to January 25, Delta shares recouped about 4.5 percent. Over the same period, the NYSE Arca Airline Index soared about 14.7 percent.

Ancillary Revenues Helped Offset Higher Fuel Costs in 2018

Much of this enthusiasm was driven by better-than-expected full-year and fourth-quarter earnings reports from a number of domestic carriers.

For 2018, United reported an impressive earnings per share (EPS) of $7.70, up 9 percent from 2017. This came even while total fuel costs were 34 percent higher. The carrier is now projecting an EPS of between $10 and $12 this year, based not just on increased demand but also growing ancillary revenue.

As a reminder, “ancillary revenue” includes all non-ticket items such as baggage fees, assigned seating, credit cards, loyalty programs and more. According to consultancy firm IdeaWorks, such fees on a global scale stood at a mind-boggling $92.9 billion in 2018, an increase of 312 percent since 2010. Of that amount, the “big four” U.S. airlines netted close to $27 billion. Taken together, these additional revenues have helped airlines offset rising fuel and labor costs.

global airline ancillary revenue represented an even larger share of total revenue in 2018
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Delta said as much in its own earnings report. For 2018, operating revenue was up 8 percent year-over-year to $44 billion “on an increasingly diverse revenue base, with 52 percent of revenues from premium products and non-ticket sources” (emphasis mine). The Atlanta-based carrier reported $1 billion in profits in the fourth quarter, an unbelievable increase of 240 percent from the same three months in 2017. That amounted to an EPS of $1.49, compared to $0.42 the previous year.

American also reported stellar earnings, and CEO Doug Parker tantalized the market with exciting guidance for this year. “At the midpoint of our guidance, 2019 diluted earnings per share, excluding special items, would increase approximately 40 percent versus 2018,” Parker said. Shares of American popped as much as 6.4 percent on the news.

10th Straight Year of Profitability?

Despite the recent spike in market volatility, I believe the investment case for global airlines looks favorable going forward. I’m not alone. In a press release dated January 23, Moody’s Investors Service stressed that although economic growth could be slowing worldwide, airlines are well-equipped financially for the next 12 to 18 months. The ratings agency writes that “the global passenger airlines industry is stable on steady operating margins, supported by higher passenger volumes, mixed growth in pricing and modestly lower fuel costs.”

If all goes according to plan in 2019, the global airline industry will have achieved something it’s never managed to do—that is, log 10 consecutive years of profitability. In its 2019 outlook, the International Air Transport Association (IATA) believes this will be the case, with net profits estimated at $35.5 billion, slightly ahead of 2018’s $32.3 billion. “An industry first,” the Geneva-based trade group tweeted on December 27. “2019 forecast to be 10th consecutive year of profitability for the global airline industry.”

Long-Term Outlook: Air Travel Demand Could Outpace Economic Growth

Looking ahead even further, 10 to 20 years, I think that airlines could be a profitable way to participate in the expansion of incomes around the world. In about a decade, an estimated 200 million people—many of them concentrated in developing countries such as China and India—are expected to join the middle class and, for the first time, be able to afford the cost of airfare, according to a new report by consulting firm Oliver Wyman.

Air travel has historically been tied to change in a country’s or region’s gross domestic product (GDP), but there’s reason to believe that demand will actually outpace economic growth. For the past decade, air passenger traffic growth—as measured in revenue passenger kilometers (RPFs)—has already been faster than GDP growth on an annual basis. Analysts at Boeing now believe this trend will continue for the next 18 years. With a 6 percent compound annual growth rate (CAGR), African countries are projected to undergo the greatest expansion of any other region, followed by Latin America and Asia. Highly developed regions such as Europe and North America will likely see the weakest change year-to-year, but even then, air travel demand growth is expected to be faster than economic growth.

air passenger demand projected to outpace economic growth in every region
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More Than a Billion Indian Passengers by 2040?

For a moment let’s look just at India, currently the second most populous country on earth. One of the world’s fastest growing regions, it’s expected to replace the U.K. this year as the fifth largest economy. According to the Federation of Indian Chambers of Commerce and Industry (FICCI), which hosted the Global Aviation Summit this month in Mumbai, India today has the world’s seventh largest aviation market with 187 million passengers. By 2022, it could be the third largest.

And if the trend continues, India could very well be the largest aviation market in the world with around 1.12 billion passengers flying to, from and within the South Asian country. That’s an incredible sixfold jump from 2018.

projection of total passengers to
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To accommodate so many passengers, the fleet size of scheduled airlines would need to expand dramatically. The FICCI believes the number of aircraft in India could swell from 622 in 2018 to as many as 2,360 by 2040.

This, of course, would benefit manufacturers such as Boeing, which FORTUNE just named as the most admired aerospace company in its annual list of the “World’s Most Admired Companies.”

Boeing Just Unveiled Its Self-Driving Air Taxi

The jet maker recently showed off the progress of its planned self-driving air taxi, which it is building in cooperation with ride-hailing company Uber. “Uber Air,” as it’s called, is a battery-operated, autonomously flying vehicle, with a range of about 50 miles. Morgan Stanley Research estimates that the market for “autonomous urban aircraft” could be as large as $1.5 trillion by 2040. Boeing, which is projected to have a 40 percent market share of all aircraft by 2025, is well-positioned to take the lead in this exciting new technology.

Finally, please take a moment to subscribe to the U.S. Global YouTube page, where we regularly share the latest episodes of Frank Talk Live and Gold Game Film, as well as trading tips and much more. Happy investing!

The S&P 500 Index (Standard & Poor's 500 Index) is a market-capitalization-weighted. index of the 500 largest U.S. publicly traded companies by market value, The index is widely regarded as the best single gauge of large-cap U.S. equities. The NYSE Arca Airline Index is a rules-based index designed to measure the performance of highly capitalized companies in the airline industry.

Ancillary fees/revenue, in the airline industry, is revenue from non-ticket sources, such a baggage fees and on-board food and services, and has become an important financial component for low-cost carriers. Diluted earnings per share (EPS) is a calculation used to gauge the quality of a company's EPS if all convertible securities were exercised. Operating margin measures how much profit a company makes on a dollar of sales, after paying for variable costs of production such as wages and raw materials, but before paying interest or tax. It is calculated by dividing a company's operating profit by its net sales. The compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance assuming the profits were reinvested at the end of each year of the investment's lifespan. Revenue passenger miles (RPMs) and revenue passenger kilometers (RPKs) are measures of traffic for an airline flight, bus, or train calculated by multiplying the number of revenue-paying passengers aboard the vehicle by the distance traveled. The FORTUNE World’s Most Admired Companies study surveys top executives and directors from eligible companies, along with financial analysts, to identify the companies that enjoy the strongest reputations within their industries and across industries.

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 accounts managed by U.S. Global Investors as of12/31/2018: American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc., Southwest Airlines Co., The Boeing Co.

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.

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Why This Billionaire Just Bought Gold for the First Time in His Life
January 23, 2019

Sam Zell buys gold for the first time in his life

Billionaire Sam Zell just announced that he bought gold for the very first time in his life because, as he puts it, “it is a good hedge.” In a recent Bloomberg interview, the Equity International founder and creator of the real estate investment trust (REIT) admitted to seeing an opportunity in gold’s increasing supply shortage.

“For the first time in my life, I bought gold because it is a good hedge,” Zell, 77, told Bloomberg. “Supply is shrinking, and that is going to have a positive impact on the price.”

He added:

“The amount of capital being put into gold mines is at most nonexistent. All of the money is being used to buy up rivals.”

I believe Zell’s reasons for investing in gold are sound, and I’ve discussed them in detail a number of times before. Supply is indeed shrinking. The “low-hanging fruit” has likely already been mined, and it’s become prohibitively expensive for many companies to look for large-scale deposits, to say nothing of developing them. As you can see below, the number of ounces in major discoveries has been falling for years, and exploration budgets are still far below the 2012 peak.

The amount of gold in major discoveries has been trending down for years
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We Believe Supply-Demand Fundamentals Look Constructive

As if to confirm Zell’s reasoning, the Canadian Imperial Bank of Commerce (CIBC) forecast in a report this week that a gold deficit will emerge in 2019 “on the back of stronger demand over the next two years, primarily  from bar hoarding, net central bank buying and exchange-traded products (ETFs).” Peak production, according to the bank, will occur in 2021 at close to 34 million ounces, but then decline to under 16 million ounces by 2030.

World gold supply is expected to peak in 2021
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Demand isn’t abating, though. We’re seeing appetite grow for the precious metal, not just from investors but also central banks, which have been net buyers since 2010. According to CIBC, several central banks stepped back into the market last year, most notably the Reserve Bank of India (RBI), which until recently “has expressed negative sentiment around gold purchases.”

CIBC raised its gold price forecast this year to $1,350 an ounce, up from $1,300. The bank is also looking for $1,400 an ounce in 2020.

But These Gold Miners Could Be Even More Effective as a Store of Value

As attractive as I think gold bullion looks right now, there could be some incredible opportunities in gold equities, which are extremely discounted compared to the S&P 500 Index.

Among CIBC’s favorite gold equities are Agnico Eagle, Wheaton Precious Metals, B2Gold and SSR Mining—all of which we own in either our Gold and Precious Metals Fund (USERX) or World Precious Minerals Fund (UNWPX).

And in an article dated January 22, Bloomberg analysts David Stringer, Ranjeetha Pakiam and Danielle Bochove point out that a good place to look for gold equities could be mid-sized producers, which have outperformed both bullion and the entire global mining industry. For the 12-month period as of January 18, four miners in particular—Kirkland Lake Gold, Northern Star, Evolution and OceanaGold—all posted double-digit performance. By contrast, the Bloomberg World Mining Index was down more than 20 percent.

Gold producers the top performers in the Bloomberg mining index
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Northern Star, one of the top holdings in USERX as of December 31, was up 54 percent for the 12-month period. The Australian producer had a phenomenal fiscal year 2018, with net profit up a respectable 3 percent even as the price of gold was in decline. Dividend payouts were raised 6 percent. And the company continues to carry no debt.

Consolidation in the Goldfields

Sam Zell’s other point—about miners allocating their capital not to projects right now but to acquisitions—is also well-made. Indeed, industry consolidation is beginning to happen, which could possibly signal that the industry has found a bottom. Back in September, mining giants Barrick Gold and Randgold Resources announced a deal worth $6.5 billion, making the world’s largest gold producer by annual output. That record will stand for only four months, as Newmont Mining just made public its own plan to buy rival Goldcorp for $10 billion.

The next deal to surface could be nearly as large. It’s now rumored that South African producers Gold Fields and AngloGold Ashanti are interested in merging. Although the rumor has not yet been confirmed, Gold Fields CEO Nick Holland said in an interview this month that “if you are going to survive in the long term, you are going to have to look at consolidation.”

With combined output of 6 million ounces in 2017, a Gold Fields-AngloGold merger would create the world’s third largest producer after Newmont-Goldcorp (7.9 million ounces) and New Barrick (6.6 million ounces).

Gold Fields, which we own in the Gold and Precious Metals Fund (USERX), was up as much as 4.19 percent in New York trading on Tuesday on the news. From its 52-week low in September, the South African company has now risen a remarkable 78 percent.

Curious to see what other companies round out the Gold and Precious Metals Fund and World Precious Minerals Fund’s top 10 holdings? Learn more by clicking here!

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. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

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.

A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands.

The S&P 500 Index (Standard & Poor's 500 Index) is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies by market value, The index is widely regarded as the best single gauge of large-cap U.S. equities.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund and World Precious Minerals Fund as a percentage of net assets as of 12/31/2018: Agnico Eagle Mines Ltd. 1.65% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund; Wheaton Precious Metals Corp. 2.50% in Gold and Precious Metals Fund, 0.20% in World Precious Minerals Fund; B2Gold Corp. 0.51% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund; SSR Mining Inc. 2.82% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund; Kirkland Lake Gold Ltd. 0.00% in Gold and Precious Metals Fund and World Precious Minerals Fund; Northern Star Resources Ltd. 4.56% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund; Evolution Mining Ltd. 0.00% in Gold and Precious Metals Fund and World Precious Minerals Fund; OceanaGold Corp. 0.00% in Gold and Precious Metals Fund, 0.03% in World Precious Minerals Fund; Gold Fields Ltd. 1.03% in Gold and Precious Metals, 0.00% in World Precious Minerals Fund; AngloGold Ashanti Ltd. 0.00% in Gold and Precious Metals Fund and World Precious Minerals Fund. Barrick Gold Corp. 0.00% in Gold and Precious Metals Fund and World Precious Minerals Fund; Newmont Mining Corp. 1.01% in Gold and Precious Metals Fund and World Precious Minerals Fund.

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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Here's Why the Price of Palladium Just Zoomed Past Gold
January 22, 2019

EPalladium Strengthens on increased demand from automobile manufactures

Palladium might not fill headlines the way gold does, but it’s been on fire lately. Not only has the precious metal been the best performing commodity for two years straight, but its price also just shot past gold for the first time since 2001. For the first time ever, it broke through $1,400 an ounce last week before pulling back somewhat. From its 52-week low set in August, palladium has climbed almost 70 percent. It’s added about 16 percent in the past 30 trading days alone.

Shares of North American Palladium have surged on greater demand
click to enlarge

Supply is tight, but like many other things, we largely have government policy to thank for the palladium rally. In this case, I’m talking specifically about governments in Europe, which have recently strengthened their vehicle emission standards. The “Euro standard,” as it’s called, classifies vehicles on a scale from one to six, with one being the most polluting and six being the least polluting.

Some European cities have already banned the dirtiest “Euro 1” vehicles from their streets. Old diesel cars and trucks were outlawed in Brussels effective January 2018. In May 2018, Hamburg became the first German city to do the same.

Diesel Engines in the Crosshairs

But now that it’s a new year, some city governments are escalating the ban to include Euro 2 automobiles that run on diesel. Next month, Frankfurt—Germany’s financial hub—will go so far as to ban all Euro 4-and-worse diesel vehicles, and all Euro 1 and 2 gasoline-burning vehicles.

I believe this escalation was prompted in part by a comment made by Elzbieta Bienkowska, a European commissioner whose responsibilities include oversight of industry and entrepreneurship. Speaking to Bloomberg in May, she said that “diesel cars are finished.”

Diesel vehicle sales continue to plunge in Europe

And then, as if to hasten Bienkowska’s prediction, a damning study on diesel engines was issued in June by the very same group that blew the whistle on Volkswagen’s emissions scandal back in 2015. According to the study, conducted by the International Council on Clean Transportation (ICCT), even the newest, cleanest diesel vehicles failed to meet Europe’s strict emission standards in “real world” driving conditions. Peter Mock, the ICCT’s managing director, defended the report, saying that “pretty much all Euro 6 diesels on the market are not clean.”

European sentiment of diesel was already in freefall, but momentum is increasing. In the first half of 2018, sales of diesel vehicles within the European Union (EU) and European Free Trade Association (EFTA) fell more than 16 percent compared to the same period in 2017. For all of 2018, British sales of diesels were down nearly 30 percent, according to the Society of Motor Manufacturers and Traders (SMMT). Between 2016 to 2018, diesel’s share of new vehicle sales in the EU plunged dramatically, from nearly half of all sales to just under a third.

Palladium Has Been the Beneficiary

So what does all of this have to do with palladium? The metal, as you probably know, is used in the production of catalytic converters, which “scrub” pollutants from the exhaust of internal combustion engines. And because of Europe’s enforcement of strict new standards, demand for these devices is surging, along with palladium itself.

Demand is so high, in fact, that there are now reports, in the U.K. and U.S., of thieves stealing catalytic converters, sometimes in broad daylight, to extract the precious metal. On Thursday, it traded as high as $1,434.50, according to CNBC.

Supply Worries Have Remained High

There’s more to the story of palladium’s bull run. For the past several years, supply has been in deficit. That’s mostly because around 80 percent of all palladium (and platinum) production is concentrated in two countries—South Africa and Russia. The geopolitical risks are high. When South African laborers went on strike in 2014, all production of the platinum metals, including palladium, grinded to a halt. 

Where is palladium mined
click to enlarge

Besides supply issues, the biggest risk facing palladium right now is substitution risk. With palladium trading above $1,400 an ounce, how long will it be before auto manufacturers switch to its sister metal, platinum, which is currently trading at around $800 an ounce?

In the meantime, there could be money to be made.

A Palladium Miner With Incredible 87 Percent Income Growth

One of our favorite ways to play the rally is North American Palladium. The company, headquartered in Toronto, mines both palladium and gold (and other metals as a byproduct), and has seen quite a rally itself on higher metal prices. For the 24-month period, its shares are up a remarkable 120 percent.

Trading places palladium overtook gold again
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North American Palladium had a phenomenal third quarter in 2018. According to results, income after taxes and expenses was $22.9 million, up a whopping 87.7 percent from $12.2 million during the same period the previous year. That translated to earnings per share (EPS) of $0.39, up from $0.21 in 2017. I’m eagerly awaiting the company’s results for the fourth quarter!

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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 accounts managed by U.S. Global Investors as of 12/31/2018: North American Palladium Ltd.

Share “Here's Why the Price of Palladium Just Zoomed Past Gold”

Net Asset Value
as of 06/14/2019

Global Resources Fund PSPFX $4.43 No Change Gold and Precious Metals Fund USERX $7.21 -0.01 World Precious Minerals Fund UNWPX $2.66 0.02 China Region Fund USCOX $8.38 -0.06 Emerging Europe Fund EUROX $6.90 -0.02 All American Equity Fund GBTFX $24.23 -0.09 Holmes Macro Trends Fund MEGAX $16.59 -0.09 Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change