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April 7, 2014
What’s Abuzz About Gold?

Recently I visited the breathtaking city of Hong Kong to speak at the seventh-annual Mines and Money conference, Asia-Pacific’s premier event for mining investment deal-making and capital-raising. During my time in Asia I had the additional privilege of addressing the audience of the Asia Mining Club, alongside my good friend Robert Friedland, Executive Chairman and Founder of Ivanhoe Mines.

Tesla Motors Showing Strong Performance

Asia Still Wants Physical Gold
The mission of the Asia Mining Club is to promote education among its members, and one way to achieve this is by hearing from experts in the financial markets, notably those focused on resources and commodities. During the club’s sell-out event, I too, confirmed a great deal about the commodity “buzz” on that side of the world, especially on gold.

The demand for the precious metal in Asia is truly phenomenal! In smaller countries like Indonesia, Thailand and Vietnam, consumption of gold totaled 300 tonnes in 2013, and according to Bloomberg, in 2014 mainland Chinese buyers purchased a total of 125 tonnes in February (including scrap). This number tops the 102.6 tonnes purchased in January and 97.1 tonnes purchased a year ago.

As I wrote about in February, Switzerland plays a role in the movement of physical gold into Asia as well. Home to many of the big gold refiners, Switzerland released monthly gold trade data this year for the first time in over 30 years, with the report showing that 80 percent of shipments went straight into Asia. If we continue to see these large movements of the physical metal, especially from the West to the East, it’s only a matter of time until these supply-and-demand factors lift the gold price.

Is Janet Yellen Yelling?
I often say there are two sides to the gold equation: the Love Trade and the Fear Trade. While Asia’s cultural affinity for gold continues to feed the Love Trade, concern over government policies which increase inflation and devalue currencies, fuel the Fear Trade. The Fear Trade demanded attention again on the back of Janet Yellen’s talk of the Federal Reserve raising interest rates in the next six months.

While low interest rates make it less expensive to borrow money, measures to keep rates low also chip away the value of the dollar and cause concern of accelerating inflation.  Once real rates start rising, gold isn’t as attractive to those who trade on fear.

As I’ve written about recently, a key driver in gold prices is the real interest rate environment—the real rate of return taking into account the level of inflation. When real interest rates are negative to low, gold prices historically turn positive because there is no opportunity cost to hold the metal. The lower the real rates, the better gold tends to do. So, Yellen’s initial hint of rising rates sent gold prices falling.

On Friday the March U.S. jobs number came in at 192,000. While the number is in line with expectations and clearly shows that hiring in the U.S. is rising, it fell a bit short of the 200,000 jobs projected.  The number was just enough of a miss to disturb investor confidence and drive some to seek refuge in hard assets, spurring the price of gold again. 

Tesla Motors Showing Strong Performance
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BCA Research believes that after Friday’s report, the current pace of employment will be sustained.  Although the movement is gradual, hiring is going up.

BCA continued by commenting that,“The data will underscore the Fed's view: that the need for quantitative easing or other non-conventional tools is waning, but that there is no rush to normalize interest rates.”

In my opinion, even with job numbers in line with expectations, the Fed is still going to focus on long-term job creation and keeping interest rates low, or at least not rushing to normalize them as BCA research stated. If inflation starts to rise while these rates are low, we could see a higher movement in the price of gold.

The Osisko Deal is Sweet and Sour
Another headline-maker for gold last week was Yamana Gold’s purchase of 50 percent of Osisko’s mining assets. I think our Portfolio Manager Ralph Aldis said it best in a recent BNN interview with Howard Green regarding the takeover; “This deal is both sweet and sour.”

The sour part is that by our models, which look at relative value of assets, it appears that both Osisko and Yamana are paying too much on this deal. On the flip side, the sweet part is that this bid caused companies like Mirasol, Pretium and SEMAFO to immediately rise. The structure of the entire deal is a complicated one, but witnessing these stocks finally waking up, is a change in the sentiment for the gold sector that, in my opinion, needed to be seen.

At U.S. Global Investors we are always watching for opportunity, while concurrently managing risk. Along with the “sweetness” of the Osisko deal, I find additional encouragement for the broader commodities space, as well as for gold, from Stifel Nicolaus’ Barry Banister. His strategy for the second quarter of the year is that we may see a one-year rally in commodity-related stocks.

Based on the breakout of the Continuous Commodities Futures (CRB) Index, along with the movement in the U.S. dollar, he forecasts that commodities could rise 15 percent year-over-year in 2014.

Tesla Motors Showing Strong Performance
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HFT: The new buzz word
High Frequency Trading became a household word overnight when bestselling author Michael Lewis gave an interview to 60 Minutes in advance of his new book, “Flash Boys.”  Lewis’ allegations of high frequency trading practices that result in a rigged stock market have prompted a firestorm of support from Charles Schwab to Mark Cuban.

He dunks, he scores!I agree with Schwab, chairman of Charles Schwab Corp., who said “high frequency trading has run amok and is corrupting our capital market system by creating an unleveled playing field for individual investors and driving the wrong incentives for our commodity and equity exchanges.” I’m glad to see this issue getting the attention it deserves.

From short selling to overreaching regulation, over the years I’ve shared my opinions on practices that harm individual investors and create unjust advantages in our free market system. I believe that investing is key to long-term wealth creation and that investor confidence in the system is key to capitalism.

The first quarter of the year has certainly provided surprises for the gold market, but remember that every coin has two sides. Every downward data point has an upside opportunity. Follow the smart money, stay diversified and remain a curious investor.  

p.s. Don’t miss my new show on Kitco. Each week I’ll talk about the strengths, weaknesses, opportunities and threats in the gold market on Gold Game Film.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Past performance does not guarantee future results. The Continuous Commodity Index (CCI) is a broad grouping of 17 different commodity futures, which is a benchmark of performance for commodities as an investment.

The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 12/31/13:  Goldcorp, Mirasol Resources Ltd, Osisko Mining Corp., Pretium, Resources, Inc., SEMAFO, Inc., Yamana Gold, Inc.

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

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March 18, 2014
Feelin’ the Fire, Investors are Hot for Gold

Gold seems to be sparking more attention these days, as investors have seen the precious metal steadily rise from its December low of around $1,200, to a new high of $1,350 just three months later.

What’s Driving Gold?
The media has been focusing on the conflict in Ukraine and Russia as the main driver for gold, but I think an equally important driver relates to real interest rates.

For gold, the real fuel lies in negative-to-low real rates of return. Historically, the gold price rises when the inflationary rate (CPI) is greater than the current interest rate. Similarly, when real interest rates go above the positive 2-percent mark, you can expect the gold price to drop.

Investors can watch out for two factors. See if the embers still spark for gold. Take a look at what happened over the past year with real interest rates and gold.

A Year in Review

  • A year ago in March 2013, the five-year Treasury yield was offering investors 0.88 percent, while inflation was 1.5 percent. This equaled a real rate of return of -0.62 percent, so investors were losing money. That month we saw gold reach as high as $1,614.
  • The five-year Treasury yield rose to 1.74 percent in December of that year, as inflation lowered to 1.20 percent, returning a positive rate of 0.54 percent. What happened to gold? The price dropped to a staggering $1,187.
  • Today inflation has gone up 40 basis points to 1.60 percent while the five-year Treasury yield is at 1.53 percent. A negative real rate of return has resurfaced. Meanwhile, gold rose to $1,350.

More Inflation Coming?
Inflation has been off the radar for most people in the U.S., but Macquarie Research made an interesting observation as wage growth experienced the largest monthly increase in more than three years. Going back more than 15 years, you can see the six-month annualized change of 3.3 percent is “the highest pace of wage growth in over five years,” says Macquarie.

Will the Sectors that Lagged in January Outperform the Rest of 2014?
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Usually, wage growth leads to an increase in the cost of goods, which translates to higher inflation.

And, with the Federal Reserve expected to keep rates low for a period of time to allow the economy to continue growing, it looks like real interest rates will remain low-to-negative, which should keep investors hot for gold.

Check out our latest Special Gold Report to read more on how the gold price is driving Federal Reserve policy, unemployment and inflation.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.

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March 10, 2014
Making Green from Gold, Palladium and Pollution

Gold’s Bull Days Are Back?
Gold is coming back with a vengeance, experiencing a clear recovery and grabbing the attention of market cynics. Analysts from Noruma Securities even upgraded its outlook for gold, expecting bullion to climb over the next three years, according to Barron’s.

Nomura analysts attribute their increased gold forecast to real interest rates that “don’t seem to be heading anywhere at the moment.” In addition, there appears to be “long-term demand support from Asian nominal income growth, an evolving post-QE macroeconomic environment and lower disinvestment potential.”

Gold is also gleaming a little brighter in Japan, as its central bank announced that monetary policies will remain very accommodative. With a weakening yen, gold will likely be seen as a store of value for Japanese investors.

Palladium Near Its Highest Level in Almost a Year
Two global events recently colluded that dramatically affected the palladium and platinum market. The situation in Ukraine and Russia along with six-week-long strikes in South Africa began raising concerns that these palladium-rich countries may not be able to continue supplying the commodity at normal levels.

Currently South Africa supplies around 37 percent of the world’s palladium; Russia supplies close to 40 percent of the world’s palladium.

What does this all mean for the palladium and its sister platinum? It seems that fear surrounding the international political landscape is helping to push the precious metals prices higher and higher.

You can see the effect the political landscape is having on palladium. Over the past year, the metal has mainly traded sideways, but this week hit its highest level in almost a year. The precious metal reached $775 per ounce while its sister, platinum, climbed to nearly $1,500 an ounce.

Gold Jewelry, Bar and Coin Demand Resilient in 2013
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In January, I indicated that platinum and palladium looked extremely compelling. There were supply and demand drivers I felt would drive the metals higher.

Just last week, the U.S. Mint is “ending a four-year exit from the market” by selling one-ounce American Eagle platinum bullion coins, writes Frank Tang from Reuters. According to a wholesaler last week, initial demand is strong, as 1,000 coins have already been scooped up.

Like I discussed with Resource Investing News at the Vancouver Resource Investment Conference, industrial demand has been gaining strength. Take rising automobile sales in the U.S. that I talked about a few months ago. With interest rates on car loans so low, Americans have been replacing their clunkers with more fuel efficient cars, which is positive for platinum and palladium.

It’s a similar story in emerging markets. In Africa, the GDP without a leveraged economy is still growing at 5 percent, and you definitely need platinum and palladium for their vehicles, even if they are diesel.

In China, vehicle sales last year rose faster than expected, climbing nearly 14 percent compared to a year earlier, according to the China Association of Automobile Manufacturers. The country is already the biggest automobile market in the world and millions of new cars on the roads add up fast.

See the interview here.

We’re pleased that our technical models signaled initial bullish signs, as our palladium- and platinum-related holdings helped boost the returns of the Gold and Precious Metals Fund (USERX) and the World Precious Minerals Fund (UNWPX).

Renewable Energy Could Get You More Green

In our webcast last week, Brian Hicks, portfolio manager of the Global Resources Fund (PSPFX), talked about four opportunities he sees in resources over 2014.

One relates to China’s focus on alternative energy.

See the other three opportunities now.

In BP’s latest Energy Outlook 2035, you can see the incredible long-term growth anticipated in the renewable energy industry. In terms of volume growth, China is expected to surpass the European Union countries by 2035. Based on this secular transformation, the local clean energy sector should continue to benefit. 

China's Commitment to Combatting Pollution Should Benefit Renewable Energy Industry
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Specifically, wind power and solar look especially attractive, especially given the excessive pollution in the Asian giant. Take a look at CLSA data: In 2009, the country had about 0.2 percent of the global market. By 2014, it’s estimated to grow to one third of the global market.

China isn’t the only country with a growing renewable energy market. After the massive earthquake hit Japan in 2011, the solar market is taking off there too.

Gold Jewelry, Bar and Coin Demand Resilient in 2013
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If you were too busy to tune into our webcast last week, you missed a good discussion among Brian Hicks, John Derrick and me. It was an hour chock-filled with investing ideas in the U.S. market, emerging countries, resources and gold. However, it’s not too late to watch the replay at your leisure this weekend.

 

Watch it now.

 

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.

Past performance does not guarantee future results.

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.

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.

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March 6, 2014
Long Distance Investors Feeling the Gold Gain

Investing in gold stocks over the past few years has been tough. It’s like crossing the start line intending to run a 10K race, but the course turns out to be the distance of a marathon.

For those who have persevered and pushed through the pain, it’s been nothing-but-elation lately as gold companies have seen incredible moves. Over the past three months through March 3, the Philadelphia Gold & Silver Index (XAU) rose an incredible 25 percent, significantly outperforming the S&P 500 Index by about 22 percent.

Gold Jewelry, Bar and Coin Demand Resilient in 2013
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We’re pleased to say that the mutual funds within Morningstar’s equity precious metals funds category grew even more in the same time frame, averaging a three-month return of nearly 30 percent.

What’s more impressive is that these funds collectively were the best performers among the entire fund universe.

Back in January, we said that gold stocks had reached the historical limits of their multi-year decline. Morningstar also anticipated this rebound. In its annual “Buy the Unloved” strategy that looks at annual flows in and out of equity funds to figure out what’s loved and hated by investors, precious metals funds were among the most unloved fund categories.

The strategy suggests investors buy funds from “stock categories with heavy redemptions and sell those with the greatest inflows.” Historically, the approach worked well. Assuming a three-year holding period and category average returns, “the unloved funds returned an annualized 10.4 percent versus 6.4 percent for loved,” according to the article.

“Of course there’s no guarantee those results will repeat, but it does illustrate the value in going against the grain,” says Morningstar.

Where will gold stocks go from here? I recently told Palisades Radio that I look forward to gold stocks experiencing a nice, slow move up, so if you haven’t been a long distance runner in gold companies, you might not want to miss out on this exciting course.

Two ways to participate are U.S. Global’s Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX). Each fund seeks companies that have historically experienced growth on a per share basis and offer potential capital appreciation. We believe this selective approach has helped the funds outperform the indices over the one-year period through February.

Download the USERX fact sheet or UNWPX fact sheet to see long-term performance today and take time to listen to the Palisades Radio conversation to learn more about what’s going on with gold miners.

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.

Past performance does not guarantee future results.

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 percent to 10 percent of your portfolio in these sectors.

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 above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

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February 24, 2014
Going for the Gold

Everyone wants the gold. Around the world, athletes train for years to compete for a gold medal. In Hong Kong and China, the Love Trade seeks gold coins, bars and jewelry.

We found out this week the extent that gold is sought in the East. For the first time since 1980, Switzerland released monthly gold trade data, providing a more transparent picture of physical gold flows.

In January alone, the Swiss report showed an incredible 80 percent of gold shipments went to Asia.

Switzerland plays a key role in the gold market because it is home to many big gold refiners, so its report confirms what we’ve been saying about gold’s move out of the West to the strong hands of the East.

So even though the gold price fell in 2013, the smart money tuned into this flow of physical gold that was moving into the East. Meanwhile, naysayers were distracted by the Fear Trade’s selling out of gold ETFs.

“Gold flooding onto the market as a result [of large-scale ETF selling] was used to feed the voracious appetite for physical metal among consumers in India, China and numerous Asian and Middle Eastern markets,” says the World Gold Council in its latest report. You can see in the chart that gold demand reached record levels in the jewelry, bar and coin areas of the market last year. In fact, there was a 21 percent increase in demand from consumers, which was in contrast to the outflows from gold ETFs, per the WGC.

Gold Jewelry, Bar and Coin Demand Resilient in 2013
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Along with this continued demand in January, Daniela Cambone from Kitco and I discussed the factors that could drive gold to $1,400 an ounce. Find out what those are now.

Join us for our live webcast on March 5
We’re getting ready for our upcoming webcast on the “5 Reasons the Naysayers are Wrong about the Markets,” happening on March 5. Director of Research John Derrick and resources expert Brian Hicks will join me to share with you key strategies in following the smart money in gold, resources, emerging markets, the domestic market and bonds.

I invite you to register today and join us live. If you want to make sure we cover a specific topic, feel free to email us today at editor@usfunds.com.

5 Reasons the Naysayers are Wrong About the Markets

By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.

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Net Asset Value
as of 04/17/2014

Global Resources Fund PSPFX $9.70 0.07 Gold and Precious Metals Fund USERX $6.60 -0.08 World Precious Minerals Fund UNWPX $6.32 -0.04 China Region Fund USCOX $8.03 0.08 Emerging Europe Fund EUROX $8.11 0.11 All American Equity Fund GBTFX $31.98 0.01 Holmes Macro Trends Fund MEGAX $23.29 0.07 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change