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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.

What You Need to Know About Indonesia Ahead of Next Week's Election
April 9, 2019

On Wednesday of next week, the world’s largest presidential election will be held. Voters in Indonesia will go to the polls to decide whether to give incumbent president Joko Widodo another five years, or elect former general Prabowo Subianto.

I think of Indonesia’s presidential election as the “world’s largest” for a couple of different reasons. One, voters are given the day off, which encourages higher turnout. In 2016, some 138 million Americans voted in the general election, compared to 193 million Indonesians who are expected to vote next week. That’s despite the Southeast Asian country having a smaller overall population than the U.S.

And two, Indonesians get a direct vote. Whereas the U.S. elects its presidents indirectly through the Electoral College, voters in Indonesia get to choose their presidents directly—one voter, one vote.

This effectively makes Indonesia one of the largest democratic countries in the world.

In the meantime, the Indonesian market has been in a holding pattern so far this year as investors await the election outcome.

Indonesian markets stuck in a holding pattern awaiting April 17 election
click to enlarge

I’ll share something else investors will really want to know about Indonesia—but first, a brief American history lesson. Don’t worry, it will all make sense.

The Economic Windfall of the U.S. Homestead Act

The Homestead Act is one of the most consequential pieces of legislation in U.S. history. Passed in 1862, the statute gave scores of families the once-in-a-lifetime opportunity to become proud owners of as many as 160 acres of federal land in Western territories.

Certain conditions had to be met first to receive a land title, but the beauty of the statute is that nearly anyone was eligible so long as they were willing to put in the work. U.S. citizens, immigrants and freed slaves all stood to benefit. Families who before had little or no assets suddenly found themselves with the financial independence so many had never known. For the first time, homesteaders gained access to banking and loans, as they could now put up their land as collateral.

Not only did the Homestead Act hasten the development of the American West, but it also ushered in the most productive agricultural economy the world had ever seen. The U.S. became a more attractive place for investors.

Today, an estimated 93 million Americans can trace their ancestries back to those original homesteaders.

So why am I telling you this?

Can Lightning Strike Twice in Indonesia?

I’m sharing this with you to draw a direct link to what’s currently happening in Indonesia. Under the leadership of President Widodo, the Southeast Asian country’s government is similarly in the process of distributing wealth to its people by certifying as many as 9 million hectares (ha) of public land. Indonesia is the fifth largest country by area in Asia, with massive natural resources—it has the world’s largest known gold reserve—but land ownership per capita has historically been very low.

Elected in 2014, President Widodo, popularly known as “Jokowi,” has pledged to change that with land reform. As of November, the government has certified 3.86 million ha, or 43 percent of target, according to CLSA. The full 9 million ha is scheduled to be issued by 2025.

Central Banks Haven't Bought This Much Gold Since Nixon Was President Indonesian president Joko Widodo (left) enjoys personally handing out land certificates to the people.
Photo by: State Dept./Erik A. Kurniawan, U.S. Embassy, Jakarta | Attribution-NoDerivs 2.0 Generic (CC BY-ND 2.0)

Although there’s no guarantee that Jokowi’s policy will lead to the explosive economic growth seen here in the U.S., it’s almost certain to raise incomes, improve prosperity and help turn Indonesia into a more attractive place for foreign investors.

Like the original American homesteaders, Indonesian land certificate recipients can now enter the official economy, with newfound access to borrowing. As you can see below, banking penetration in Indonesia has been low relative to other Asian countries, so I see this as having a huge multiplier effect on the local economy.

Indonesias land reform program should help expand banking penetration
click to enlarge

Indonesia Projected to Become the World’s Fourth Largest Economy

The Indonesian economy is already expected to expand dramatically over the next 10 years and more, thanks in large part to its young, vibrant population. More than half of its roughly 270 million citizens are under the age of 40, while the 0-to-14 age group accounts for around a quarter of the population, according to World Population Review.

Indonesians aged 40 and below account for more than half the voters
click to enlarge

Not only is Indonesia the fourth largest country by population, following China, India and the U.S., but its economy is on track to become the world’s fourth largest using purchasing power parity (PPP) in as few as 11 years. Between 2017 and 2030, the economy is projected to grow an incredible 216 percent, from $3.2 trillion to $10.1 trillion.

Top 10 countries by nominal GDP using PPP exchange rates by the year 2030
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I’m eager to see the results of next week’s election. However it unfolds, I hope that the land certifications proceed as planned, as I see it opening up huge investment opportunities.

Curious to learn more about Indonesia? View this slideshow on the country’s important palm oil industry by clicking here!

 

The Shanghai Composite Index is a market composite made up of all the A-shares and B-shares that trade on the Shanghai Stock Exchange. The MSCI Emerging Markets Asia Index captures large and mid-cap representation across nine emerging markets countries. With 883 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The IDX Composite is an index of all stocks listed on the Indonesia Stock Exchange.

Purchasing power parity (PPP) is an economic theory that compares different countries' currencies through a "basket of goods" approach. According to this concept, two currencies are in equilibrium or at par when a basket of goods (taking into account the exchange rate) is priced the same in both countries.

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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Will 2019 Be the Year of King Copper?
February 19, 2019

Summary

  • Corporate purchasing of copper-gobbling renewable energy more than doubled from 2017 to 2018.
  • Sales of electric vehicles, which use three to four times the amount of copper as traditional vehicles, are booming in China.
  • Copper miners get upgraded by the big banks.

Goldspot

Because of its wide availability and exceptional conductivity, copper is found in everything from consumer products to automobiles to semiconductors. Last year global demand for the red metal stood at 23.6 million tons, and by 2027, it’s projected to reach just under 30 million tons, representing an average annual growth rate of about 2.6 percent.

This phenomenal growth is attributable not just to the rise of middle class consumers. It’s also thanks to our steady rotation into clean, renewable energy such as wind and solar—which is good news for copper demand going forward.

As I’ve shared with you before, renewables require many more times the amount of copper as traditional energy sources. A typical wind farm—those that blanket whole areas of West Texas, California and some other states—can contain as much as 15 million tons of the metal.

2018 Was a Record-Breaking Year for Renewables

Whether you’re a believer in renewable energy or not, the tipping point may have already occurred. Among the fastest growing jobs in the U.S. right now are wind turbine service technician and solar panel installer, for whatever that’s worth. And according to a report by Bloomberg New Energy Finance (BNEF), corporate purchasing of renewable energy more than doubled from 2017 to 2018. Globally, companies bought 13.4 gigawatts (GW) last year, compared to the previous record of 6.1 gigawatts in 2017. Over 63 percent of the purchasing activity occurred right here in the U.S. Facebook alone was responsible for consuming 2.6 GW of renewables, three times as much as the next biggest corporate energy buyer, AT&T.

Global Corporate Clean Energy Buying Hit a New Record in 2018
click to enlarge

The trend toward renewables is expected to accelerate at a white-knuckle pace for years to come. Take a look at the chart below, courtesy of McKinsey’s “Global Energy Perspective 2019.” Analysts believe that, by 2035, renewable energy will account for more than half of all power generation as its price falls below that of coal and gas-generated energy. Fifteen years after that, nearly three quarters of total energy consumed around the world will be derived from renewable means, chiefly wind and solar.

Renewable Energy Projected to Account for Three Quarters of Global Power Generation
click to enlarge

If this is compelling at all to you, now might be an excellent time to start participating. One of the best ways, I believe, is with exposure to high-quality, well-managed copper miners as well as funds that have a large position in copper mining.

China Will Lead the Transition from Internal Combustion Engines to Electric Cars

And we haven’t even mentioned electric vehicles (EVs), which are notorious copper gobblers. As I’ve shared with you before, EVs consume between three and four times the amount of copper as traditional internal combustion engines.

China is leading the world in EV adoption and will likely continue to do so for some time. In the fourth quarter of last year, China was responsible for 60 percent of global EV sales, according to Bloomberg, which adds that the country holds half of all vehicle-charging infrastructure. By the end of last year, electric cars made up about 7 percent of total new vehicle sales in China, with a compound growth rate of 118 percent since 2011. In about a decade, the Asian country will account for nearly 40 percent of the global EV market, followed by Europe (26 percent) and the U.S. (20 percent), according to BNEF.

China leads the world in electric vehicle adoption
click to enlarge

Not only does China have national subsidies in place, but its carmakers are also incentivized to manufacture EVs thanks to the country’s “New Energy Vehicle” credit system. The system acts as an EV quota, requiring carmakers to generate credits through the sale of electric cars. According to BNEF, this is the “single most important piece of EV policy globally and is shaping automakers’ electrification plans.”

Adding to this acceleration is the fact that China has elevated the adoption of new “Phase 6” emissions standards under its anti-pollution “Blue Sky Defense” action plan. Just as we’re seeing in parts of Europe right now, China will soon begin banning the production of the most polluting diesel engines.

Many cities in China see the writing on the wall and have already enacted restrictions on gasoline-powered vehicle sales. In 2018, Shenzhen and Shanghai collectively led the world with more than 165,000 EV sales. That’s more than Norway and Germany combined.

With demand for EVs so high, it’s little wonder that China’s copper imports climbed to 479,000 tonnes in January, the second-highest on record.

Morgan Stanley Bullish on Copper, Upgrades Freeport-McMoRan

All of this leads me to believe that 2019 could be not only copper’s year but also copper miners’ year. The price of the red metal is up about 6 percent so far in 2019, trading at close to $2.80 a pound. That’s about 67 percent short of the metal’s all-time high of $4.62, set in February 2011.

Last week Morgan Stanley joined Citi and Goldman Sachs in making a bullish call on the metal. The investment bank projected a 14 percent upside for copper in 2019, based on a widening supply deficit and the likelihood of a resolution to the U.S.-China trade spat.

As for copper miners, Morgan Stanley upgraded Freeport-McMoRan, while Goldman Sachs recently upgraded Rio Tinto. Piyush Sood, lead analyst at Morgan Stanley, said in a note that Freeport’s “earnings sensitivity to copper is still the highest among its peers, and combined with its high trading liquidity, we believe it will emerge as the go-to large-cap stock for exposure to a copper price rally.” Shares of the Phoenix-based company’s stock jumped nearly 7 percent on the news last Wednesday.

Singapore-based DBS Bank also sees a copper shortage over the mid-term. Analysts expect supply to be in a deficit each year between now and at least 2022, when it could be at its widest since 2004.

Copper Price Projected to Rise on Widening Supply Deficit
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“Copper is king for this electrification trend taking over the global economy,” Matt Gilli, CEO of Nevada Copper, told Reuters. “We see demand increasing steadily in the years ahead and, so far, supply is not keeping up.”

To meet surging demand, four U.S. copper projects are set to open by next year, the first to do so in decades, according to Reuters. And Ivanhoe Mines, founded by my friend Robert Friedland, is in the process of developing the Kamoa-Kakula copper deposit in the Democratic Republic of Congo, which Robert describes as the second-largest copper mine in the world.

“You’re going to need a telescope to see copper prices in 2021,” Robert told us when he visited our office last year.

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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.

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): Freeport-McMoRan Inc., Ivanhoe Mines Ltd., Citigroup Inc.

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Will the China Bulls Turn Out for the Year of the Pig?
February 5, 2019

Happy Chinese New Year 2019 the year of the pig

Happy Year of the Pig! This week marks the start of China’s Spring Festival, during which an estimated 3 billion trips will be made using the country’s massive transportation network of roads and rail. That figure is a slight rise from the same period last year, despite slowing economic growth prompted by trade tensions with the U.S. and a strengthening dollar.

Ctrip, China’s largest online travel agency, forecasts that more than 400 million people will travel across the country for family reunions, while some 7 million will go abroad.

To prepare for the additional travel demand, China built as many as 10 new railways at the end of last year and expanded the length of its high-speed rail system to 29,000 kilometers, or around 18,000 miles. Meanwhile, the Civil Aviation Administration of China (CAAC) expects more than 532,000 flights to be scheduled during the week-long travel rush, a 12 percent increase from last year, according to China Daily.

China has nearly 220 billion dollars in new infrastructure projects since the start of 2018

Since the start of 2018, the National Development and Reform Commission (NDRC), China’s top economic planner, has approved 27 large-scale infrastructure projects, totaling nearly $220 billion. Among the largest is the expansion of the Shanghai Metro, already the world’s largest transit system by route length. The $44 billion project, to be completed by 2023, will add six new subway lines and three intercity railways. 

Looking for a Resolution to the Trade Dispute

If you’ve been paying attention, you might have noticed that much of the news involving China right now is negative. Its manufacturing sector is slowing, and economic growth in 2018 was at a nearly-30-year low.

I believe this is only a temporary lull as we await a resolution to the U.S.-China trade war and a fall in the U.S. dollar, which has made American goods more expensive to its trade partners. So I remain bullish on China and the surrounding region, and I believe now might be an advantageous time to gain exposure.

The U.S. and China reportedly made “tremendous progress” during last week’s high-stakes talks between President Donald Trump and China’s Vice Premier Liu He. Although technology and intellectual property rights remain sticking points, China is slated to “substantially” increase its purchases of U.S. crops, energy and services.

Case in point: Just two days after the January 31 talks, Chinese state-run agricultural conglomerate COFCO Group and Sinograin reported purchasing at least 1 million tons each of American soybeans. This marked the Asian country’s first order of soybeans from the U.S. since summer of last year, when purchases were halted as a result of escalating trade tariffs.

Official White House photo

The good news here is that the U.S. and China appear to be working toward a resolution. Official Chinese outlets called the talks candid, specific and fruitful. President Trump affirmed that, although “much work remains to be done,” progress is being made.

Looking ahead, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer will meet at least once with Chinese President Xi Jinping sometime later this month. And Trump is reportedly considering planning a meeting with Chinese President Xi Jinping, possibly near the time of the summit with North Korea’s Kim Jong Un.

Ongoing U.S.-China Tension Expected to Divert Trade to the European Union

I’m confident that a resolution will come sooner rather than later, as neither side has anything to gain from continued trade hostility. In fact, they have much to lose. This week, the United Nations Conference on Trade and Development (UNCTD) estimated that the tariffs imposed by Washington and Beijing will do very little to protect the respective economies, and that a majority of the bilateral trade will instead be diverted to firms in other countries, most of them European. Those in Mexico, Japan and Canada would also stand to benefit.

US China trade tariffs expected to divert trade to other countries
click to enlarge

“Overall, European Union exports are those likely to increase the most, capturing about $70 billion of the United States-China bilateral trade—$50 billion of Chinese exports to the U.S., and $20 billion of U.S. exports to China,” the report reads.

I think it’s safe to say that neither China nor the U.S. wants this, which drives me to believe that we’ll see a satisfactory resolution in the coming weeks. Hopefully then China’s manufacturing sector and gross domestic product (GDP) growth can recover.

How to Gain Exposure to China and the Surrounding Region

An excellent way to participate, I believe, is with our China Region Fund (USCOX), which provides investors access to one of the world’s fastest growing regions.  

China and the surrounding region has experienced many changes since USCOX opened in 1994, but we believe the region continues to hold further investment opportunities. Many Asian countries possess characteristics similar to the U.S. prior to the industrial revolution: a thriving, young workforce; migration from rural to urban areas; and shifting sentiment toward consumption.

Curious to learn more? Explore and discover the China Region Fund (USCOX) today 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.

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 12/31/2018: Ctrip.com International Ltd. 0.00%, COFCO Group 0.00%, Sinograin Oils Corp. 0.00%.

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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Freezing Temperatures Could Heat Up Natural Gas Prices
November 19, 2018

Midterm Elections Gridlock Was the Best Possible Outcome

Here in San Antonio, the temperature hit a bone-chilling low of 27 degrees last Wednesday, breaking a 102-year-old record for mid-November. An out-of-state visitor, Cornerstone Macro’s Head of Portfolio Insights Stephen Gregory, speculated that the Central Texas temperature, ordinarily mild this time of year, was down more than three standard deviations. I didn’t make the calculation, but my guess would be about the same.

With temperatures so low, it’s perhaps no surprise that natural gas had one of its best days in years. Its price popped almost 18 percent last Wednesday—before falling nearly as much on Thursday. The Energy Information Administration (EIA) reported that natural gas storage in the lower 48 states was below the five-year average as of October 31. This, combined with a stronger-than-expected start to winter, prompted traders to push prices to a four-year high of $4.84 per million British thermal units (MBtu). Meanwhile, natural gas futures trading hit an all-time daily volume record of 1.2 million contracts, according to CME Group.

Natural gas prices exploded
click to enlarge

Freezing temperatures increase demand for heating, much of which is provided by natural gas. In January of this year, when temperatures fell below the average in many parts of the U.S., demand reached a single-day record of 150.7 billion cubic feet, according to the EIA. I can’t say we’ll beat this record again in the coming months, but forecasts for more freezing weather this Thanksgiving week and beyond should support additional moves to the upside.

What kind of moves? Says Jacob Meisel, chief weather analyst at Bespoke Weather Services, the price could get to $7 or $8 per MBtus, levels we haven’t seen since 2008. “This looks like a capitulation move today, but if cold weather really takes off, the sky is the limit,” Meisel told CNBC.

Oil Selloff Steepest in Three Years, “Overdone”

Natural gas wasn’t the only commodity that broke records last week. On Tuesday, West Texas Intermediate (WTI) crude oil ended an extraordinary 12 straight days of losses, settling at a 2018 low of $55.69 per barrel, down more than 27 percent from its 2018 high in early October. Triggered by concerns of a global demand slowdown, the plunge is oil’s steepest in three years, and a stunning reversal from last month’s calls for $100-per-barrel crude.

The bears appear to have overreacted, though. “Crude-oil-position liquidations have never been this extreme, indicating the purge in WTI futures is overdone,” writes Business Intelligence strategist Mike McGlone, adding that petroleum markets have “never experienced a comparable decline over a similar period.” 

World Needs the Equivalent of Another Russia’s Worth of Crude

Again, the oil selloff halted last Tuesday, the same day the International Energy Agency (IEA) announced its estimate that U.S. shale will need to add the equivalent of Russia’s entire oil production by 2025 to prevent a global shortage. In its flagship “World Energy Outlook 2018,” the Paris-based group says that world oil consumption will increase significantly in the coming decades due to “rising petrochemicals, trucking and aviation demand.”

“U.S. shale production, which has already been expanding at record pace, would have to add more than 10 million barrels a day from today to 2025, the equivalent of adding another Russia to global supply in seven years—which would be an historically unprecedented feat,” according to the IEA.

Jets fyling high

The U.S. produced 11.7 million barrels of crude per day in the week ended November 9. That means shale producers would need to ramp up output to at least 21 million barrels in seven years, if the IEA’s estimates are accurate.

I think this would be a challenge, but a real possibility. The reason I think this is because the U.S. fracking industry continues to prove it can produce more with less. According to a recent report by the EIA, U.S. crude oil and natural gas production increased in 2017, despite there being fewer wells. This is thanks in large part to horizontal wells, which “contact more reservoir rock and therefore produce greater volumes” of oil and gas. Although more expensive to drill, horizontal wells are growing faster than traditional vertical wells. In 2017 they accounted for 13 percent of total well drills, up from only 10 percent three years earlier.

Also in the IEA’s outlook: By 2040, emerging markets, led by China and India, will account for 40 percent of global energy demand, up from 20 percent in 2000. Below, note how the European Union is expected to be displaced by India and Africa in terms of energy demand within the next couple of decades.

Emerging markets will account for 40 percent of global energy demand by 2040
click to enlarge

I believe only the U.S. fracking industry would be able to meet this demand. Russia and Saudi Arabia are pumping at record levels right now, but production cuts of as much as 1.4 million barrels per day are being discussed among members of the Organization of Petroleum Exporting Countries (OPEC) to firm up prices. If cuts do go into effect, U.S. producers can be expected to fill in the supply gap.

“It can happen but would be a small miracle,” said Fatih Birol, the IEA’s executive director.

U.S. Shale “More Profitable Than Ever”

Normally, ever greater supply would weigh on prices and weaken profitability. Based on new data, it looks as if the U.S. fracking industry has changed the game.

According to Reuters, “U.S. shale firms are more profitable than ever after a strong third quarter,” according to the agency’s analysis of 32 independent producers. “These companies are producing more efficiently, generating more cash flow and consolidating in a wave of mergers.”

Nearly a third of these 32 companies “generates more cash from operations than they spent on drilling and shareholder payouts, a group including Devon Energy, EOG Resources and Continental Resources. A year ago, there were just three companies on that list,” Reuters writes.

Thanksgiving Travel to Hit 13-Year High

On a final but related note, this week is Thanksgiving, the busiest travel season of the year in the U.S. The American Automobile Association (AAA) predicts that the number of travelers on Thanksgiving Day, by auto and air, will top 54.3 million people, an increase of almost 5 percent from last year, and the highest volume since 2005.

Similarly, Airlines for America (A4A) believes U.S. Thanksgiving air travel demand between last Friday and November 27 will climb to an all-time high of 30.6 million passengers. “It is thanks to incredibly accessible and affordable flight options that more travelers than ever before are visiting loved ones, wrapping up year-end business or enjoying a vacation this Thanksgiving,” commented A4A Vice President and Chief Economist John Heimlich.

Thanksgiving 2018 US air travel demand estimated to rise 5 percent from last year
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While I’m on the topic of aviation, A4A also reported that U.S. airport revenues have grown faster than the consumer price index (CPI) as well as the number of air passengers and aircraft departures. From 2000 to 2017, airport revenues rose 87 percent, double the pace of U.S. inflation. Increased growth came thanks to a number of resources, from taxes and fees to the Passenger Facility Charge (PFC) and Airport & Airway Trust Fund (AATF).

US airport revenues have grown faster than flights passengers and inflation
click to enlarge

According to Fitch Ratings, “strong overall performance for U.S. airports should continue undeterred for the foreseeable future.” Over 90 percent of the airports Fitch currently rates have a “Stable Rating Outlook,” signifying continued stability deep into 2019.

Curious to learn more? Explore our latest slideshow, “How Do Airports Make Money?”

 

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 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.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 9/30/2018.

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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India's Booming Economy Expected to Firm Up Gold Demand
November 7, 2018

Gold and Diwali

Starting today, the five-day festival known as Diwali—literally, “a row of lights”—will be observed by millions of Hindus, Sikhs and Jains worldwide. A celebration of good triumphing over evil, the festival typically coincides with the Hindu new year. Regular readers of Frank Talk should know that Diwali is also an auspicious time to buy gold coins and jewelry as gifts for loved ones, and in the past the increased demand has been enough to move gold prices to the upside.

This year, however, demand for coins and jewelry was muted leading up to the fall festival on account of a weaker rupee relative to the U.S. dollar. This made the precious metal less affordable for some buyers. By the end of October, gold prices were at their highest level since September 2013, according to Reuters. Gold ordinarily goes for a premium in anticipation of Diwali, but this year many retailers reported trying to attract customers by offering discounts.

Price of gold surged in India on weaker rupee denting Diwali demand
click to enlarge

And there could be more rupee pain ahead. In a recent note to investors, UBS forecast that the Indian currency will likely remain under pressure as global oil prices stay elevated. India is a net importer of crude oil, which has risen more than 20 percent in the 12-month period, thanks to supply disruptions in Venezuela, Libya and elsewhere.

U.S. sanctions on major oil state Iran—India’s third largest supplier of crude following Iraq and Saudi Arabia—have also lifted prices. Those sanctions went into effect this week.

India’s Economy to Grow Faster Than China’s

Nevertheless, India’s economy is advancing at the world’s fastest pace right now. I believe this should have a positive effect on gold demand in the long term as the size of the country’s middle class expands. The International Monetary Fund (IMF) recently predicted the Indian economy this year to grow 7.3 percent, or 0.7 percentage points over China’s anticipated growth rate and an incredible 2.6 percentage points over emerging and developing economies on average. Next year India is expected to grow even faster, at 7.4 percent.

India projected to be fastest growing economy this year and next
click to enlarge

What’s more, India’s billionaire wealth increased 36 percent in 2017, according to a recent report by UBS. The number of billionaires in India rose by 19 to 119 in total. Again, I expect this to have a noticeable impact on gold demand, the greater this wealth builds.

Curious to learn more? Be sure to visit our slideshow:

 

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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Net Asset Value
as of 04/18/2019

Global Resources Fund PSPFX $4.63 -0.01 Gold and Precious Metals Fund USERX $6.79 -0.10 World Precious Minerals Fund UNWPX $2.60 -0.05 China Region Fund USCOX $9.22 0.02 Emerging Europe Fund EUROX $6.78 -0.02 All American Equity Fund GBTFX $24.85 -0.04 Holmes Macro Trends Fund MEGAX $17.59 0.02 Near-Term Tax Free Fund NEARX $2.21 0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change