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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.

Top 10 Countries with Largest Gold Reserves
May 25, 2016

Beginning in 2010, central banks around the world turned from being net sellers of gold to net buyers of gold. Last year they collectively added 483 tonnes—the second largest annual total since the end of the gold standard—with Russia and China accounting for most of the activity. The second half of 2015 saw the most robust purchasing on record, according to the World Gold Council (WGC).

lucara diamond at a nine-year high

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Not every top bank is a net buyer. The Bank of Canada has liquidated close to all of its gold, mainly in coin sales, while Venezuela is in the process of doing the same to pay off its debts.

But most of the world’s central banks right now are accumulating, holding and/or repatriating the precious metal. As of this month, they reportedly owned 32,754 tonnes, or about 17.8 percent of the total amount of gold ever mined, according to the WGC.

It’s worth noting that this global gold-buying spree coincides perfectly with the rise of unconventional monetary policies following the financial crisis—massive bond-buying programs, rapid money-printing schemes and near-zero or, in some cases, negative interest rates. The jury’s still out on whether these measures have been a success or not, but for now, it appears as if banks are hedging against their own policies.

Investors would be wise to do the same. Confidence in central banks’ ability to stem further economic deterioration continues to deflate.

Below are the top 10 countries with the largest gold holdings, beginning with India.

10. India

Tonnes: 557.7

Percent of foreign reserves: 6.3 percent

It’s no surprise that the Bank of India has one of the largest stores of gold in the world. The South Asian country, home to 1.25 billion people, is the number one or number two largest consumer of the precious metal, depending on who you ask, and is one of the most reliable drivers of global demand. India’s festival and wedding season, which runs from October to December, has historically been a huge boon to gold’s Love Trade.

Construction on the Golden Temple in Amritsar, India, concluded in 1604

9. Netherlands

Tonnes: 612.5

Percent of foreign reserves: 61.2 percent

The Dutch Central Bank is currently seeking a suitable place to store its gold while it renovates its vaults. As many others have pointed out, this seems odd, given that the bank fairly recently repatriated a large amount of its gold from the U.S.

The Gold Souk building in Beverwijk, The Netherlands, houses a marketplace for gold dealers and goldsmiths

8. Japan

Tonnes: 765.2

Percent of foreign reserves: 2.4 percent

Japan, the world’s third largest economy, is also the eighth largest hoarder of the yellow metal. Its central bank has been one of the most aggressive practitioners of quantitative easing—in January, it lowered interest rates below zero—which has helped fuel demand in gold around the world.

The Gold Pavilion in Kyoto, japan, features beautiful gold-leaf coating

7. Switzerland

Tonnes: 1,040

Percent of foreign reserves: 6.7 percent

In seventh place is Switzerland, which actually has the world’s largest reserves of gold per capita. During World War II, the neutral country became the center of the gold trade in Europe, making transactions with both the Allies and Axis powers. Today, much of its gold trading is done with Hong Kong and China. Just last quarter, the Swiss National Bank posted a $5.9 billion profit, largely a result of its sizable gold holdings.

Credit Suisse gold bars and coins

6. Russia

Tonnes: 1,460.4

Percent of foreign reserves: 15 percent

Russia has steadily been rebuilding its gold reserves in the last several years. In 2015, it was the top buyer, adding a record 206 tonnes in its effort to diversify away from the U.S. dollar, as its relationship with the West has grown chilly since the annexation of the Crimean Peninsula in mid-2014. To raise the cash for these purchases, Russia sold a huge percentage of its U.S. Treasuries.

Gilded domes of the Annunciation Cathedral in Moscow, Russia

5. China

Tonnes: 1,797.5

Percent of foreign reserves: 2.2 percent

In the summer of 2015, the People’s Bank of China began sharing its gold purchasing activity on a monthly basis for the first time since 2009. In December, the renminbi joined the dollar, euro, yen and pound as one of the International Monetary Fund’s reserve currencies, an expected move that required the Asian country to beef up its gold holdings. (The precious metal represents only 2.2 percent of its foreign reserves, so it’s probably safe to expect more heavy buying going forward.) And in April, China, the world’s largest gold producer, introduced a new renminbi-denominated gold fix in its quest for greater pricing power.

Over 2,000 ancient Buddha statues have been excavated in China

4. France

Tonnes: 2,435.7

Percent of foreign reserves: 62.9 percent

France’s central bank has sold little of its gold over the past several years, and there are calls to halt it altogether. Marine Le Pen, president of the country’s far-right National Front party, has led the charge not only to put a freeze on selling the nation’s gold but also to repatriate the entire amount from foreign vaults.

Anne of Brittany's wedding crown

3. Italy

Tonnes: 2,451.8

Percent of foreign reserves: 68 percent

Italy has likewise maintained the size of its reserves over the years, and it has support from European Central Bank (ECB) President Mario Draghi. The former Bank of Italy governor, when asked by a reporter in 2013 what role gold plays in a central banks portfolio, answered that the metal was "a reserve of safety," adding, it gives you a fairly good protection against fluctuations against the dollar.

Detail of a gold lion in St. Mark's Basilica in Venice, Italy

2. Germany

Tonnes: 3,381

Percent of foreign reserves: 68.9 percent

Like the Netherlands, Germany is in the process of repatriating its gold from foreign storage locations, including New York and Paris. Last year, the country’s Bundesbank transferred 210 tonnes, and it plans to have the full 3,381 tonnes in-country by 2020.

A variety of Germman coins

1. United States

Tonnes: 8,133.5

Percent of foreign reserves: 74.9 percent

With the largest holding in the world, the U.S. lays claim to nearly as much gold as the next three countries combined. It also has one of the highest gold allocations as a percentage of its foreign reserves, second only to Tajikistan, where the metal accounts for more than 88 percent. Donald Trump made headlines recently, claiming “we do not have the gold,” but from what we know, the majority of U.S. gold is held at Fort Knox in Kentucky, with the remainder held at the Philadelphia Mint, Denver Mint, San Francisco Assay Office and West Point Bullion Depository.

The US holds most of its gold at the US Bullion Reservatory at Fort Knox

Can’t get enough gold? Register for our next webcast, “All Eyes on Gold: What’s Attracting Investors to the Yellow Metal.”

lucara diamond at a nine-year high

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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Gold Takes a Breather ... Is this the Buying Opportunity Investors Are Looking For?
May 23, 2016

It makes a great deal of sense to own gold. Billionaire hedge fund manager, Paul Singer

First it was Stan Druckenmiller, now it’s George Soros. Following billionaire former hedge fund manager Druckenmiller’s announcement that gold was his family office fund’s largest currency allocation, we learned last week that his old boss, billionaire investor George Soros, purchased a $264 million stake in Barrick Gold, the world’s largest gold producer, after liquidating $3.5 billion in U.S.-listed stocks. Additionally, he disclosed owning call options on a gold ETF.

Soros’ investment can be held up as further proof that sentiment toward gold has decidedly shifted positive, following the challenging last three years.

London-based precious metals consultancy Metals Focus just released its Gold Focus 2016 report in which the group calls an end to the gold bear market that began in late 2011, after the metal hit its all-time high of $1,900 per ounce. “We are optimistic about gold over the rest of this year and our projections see it peaking at $1,350 in the fourth quarter,” the group writes. Global negative interest rate policy fears have reawakened investors’ confidence in gold as a reliable currency and store of value.

The group adds: “In the near term, there may well be some liquidations of tactical positions.” This is to be expected, especially around the start of summer, based on historical precedent

Will Gold Follow Its Short or Long-Term Trading Pattern?

We’ve noticed that mining companies which have deleveraged their balance sheets this year have been some of the biggest gainers. Barrick, now Soros’s largest U.S.-listed allocation, started 18 months ago.

Glencore, Teck Resources and higher-risk junior producers such as Gran Colombia bounced off the canvas after being knocked down.

Gold equities always have a higher beta than bullion. Usually a ±1 percent move translates into 2 to 3 percent in gold stocks.

Regardless of it being a bull or bear market, there are still fairly predictable intra-year trends in the price of gold. Below is an updated composite chart of the metal’s historical yearly patterns over the last five, 15 and 30 years, courtesy of Moore Research.

lucara diamond at a nine-year high

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In all periods, gold contracted in May to early summer, then rallied in anticipation of Ramadan—this year beginning June 4—and India’s festival of lights and wedding season. India has one of the largest Muslim populations in the world, and for at least 5,000 years they’ve adhered to the tradition of giving gold as gifts during religious and other celebrations. .

Predictably so, the yellow metal has retreated somewhat this month, following its best start to a year in 30 years and its best-ever first quarter for demand. As I told Daniela Cambone during last week’s Gold Game Film, this pullback provides an attractive buying opportunity

The five-year period decoupled from the other two starting in mid-autumn, but the annual losses in 2013 (when the yellow metal fell 28 percent), 2014 and 2015 skewed the data. Metals Focus sees gold following its more typical trading pattern this year, possibly climbing to as high as $1,350 an ounce

lucara diamond at a nine-year high

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In the near-term, gold is threatened by a rate hike, possibly as early as next month’s Federal Open Market Committee meeting. The metal fell to a three-week low this week on hawkish Fed minutes. If the Fed ends up delaying a hike, it could give gold the chance to take off.

Analysts See a Possible 25 Percent Depreciation in China’s Currency

One of the concerns the Fed has right now is the depreciation of the Chinese renminbi. In a special report, CLSA estimates it could fall as much as 25 percent before rebounding somewhat. Because the trade volume with China is so massive, the fear is that it could affect the U.S. economy

lucara diamond at a nine-year high

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This would have many obvious negative consequences. For one, because China’s oil contracts with the Middle East are denominated in renminbi, not dollars, Middle East suppliers would be hurt.

CLSA points to several winners, however, including investors. The devaluation could very well “represent the best opportunity to buy Chinese assets that investors have had since the financial crisis,” the investment banking firm writes. China’s materials sector, local exporting producers and mainland gold producers should also benefit. The renminbi will “inevitably” fall, CLSA says, “irrespective of economic fundamentals, as a free market works out what it is worth.”

It’s little wonder then that, in the meantime, the country’s consumption of gold has skyrocketed in recent years as it vies to become one of the world’s key gold price makers. (Remember, China just introduced a new renminbi-denominated gold fix price.)

lucara diamond at a nine-year high

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In addition, it was reported last week that Chinese bank ICBC Standard just purchased one of Europe’s largest gold vaults from Barclays, located in London, for $90 billion. This will help give the country greater control over gold transactions around the world, about $5 trillion of which are cleared in London every year

Should They Stay or Should They Go?

Likely to help gold this summer are geopolitical events, specifically the potential “Brexit” next month when U.K. voters decide on whether to remain members of or leave the European Union.

former libertarian vice presedential nominee wayne allyn root whose latest book is the power of relenetless

Various analysts have warned that such an event could trigger a crisis with both the euro and pound, which might spread to other economies. A recent Bank of America Merrill Lynch survey found, in fact, that the idea of a Brexit has risen to the top of global investors’ worries. What’s more, no consensus was reached during a meeting among G7 nations this past weekend on how to deal with fiscal policy, other than to take a “go your own way” approach.

In the past, gold has been used as a hedge against the risk of not only negative interest rates but also inflation.

High inflation might also be coming to the U.S. thanks to the Labor Department’s new regulation on overtime pay, which doubles the eligibility threshold from $23,660 a year to $47,476 a year, on condition that the worker puts in more than 40 hours a week. It’s estimated that the ruling will affect 2.2 million retail and restaurant workers, among others.

President Barack Obama’s heart is certainly in the right place by wanting to boost workers’ wages. But it’s important to be aware of the unintended consequences that have often accompanied such sweeping edicts throughout history. We could end up with rampant inflation as companies will have little choice but to raise prices to offset the increased expense. Again, having part of your portfolio invested in gold and gold stocks, as much as 10 percent, could help counterbalance inflationary pressures on your wealth.

Learn how you can prepare your portfolio for inflation.

Defense Stocks Hit All-Time Highs on Terrorism Jitters

Global fears of terrorism persist, of course, with a Cairo-bound EgyptAir flight crashing in the Mediterranean Sea last week. Although the cause of the crash is not clear at this point, officials have not ruled out terrorism. In light of this and other tragedies—the attacks in Belgium, for instance—defense and military stocks have made huge moves in recent weeks. Shares of Northrop Grumman, Raytheon and L-3 Communications all hit all-time highs the week before last.

In a recent call, an analyst with Cornerstone Macro predicted that a presidential victory for Donald Trump would be good for defense stocks, as he’s made promises to “rebuild” the military should he make it into the White House. It appears the market is already betting on such a win.

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.

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

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 3/31/2016: Barrick Gold Corp., Gran Colombia Gold Corp., Northrop Grumman Corp., Raytheon Co.

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Yield-Starved Foreign Investors Are Flooding the U.S. Muni Market
May 18, 2016

Stampede! American Munis are attracting foreign investment, validating their Safe Haven status

Strange are the times when a third of all government debt around the world carries a negative yield, and yet such is the case today. From Japan to eurozone countries, investors are faced with the tough decision of accepting subzero yields, doing nothing—or seeking other so-called “safe haven” options. Many have rediscovered gold, and as I pointed out earlier this week, demand for the yellow metal as an investment just had its best first quarter ever, with near-record inflows into gold ETFs.

Gold ETF Holdings Have Jumped 25% Since January
click to enlarge

But gold hasn’t been the only beneficiary.

Overseas investors, starved for yield, are also flocking to investment-grade U.S. municipal bonds, which help fund infrastructure projects at the state and local levels. (Seventy-five percent of all infrastructure spending in the U.S., in fact, is financed with municipal bonds.) Munis offer a history of low volatility and near-zero default rates, not to mention diversification and attractive yields in a world of little to no yield. Below, notice that Japan’s 10-year government bond yield continues to edge lower into negative territory.

Low-Yielding Government Debt Pushing Foreign Investors into U.S. muni bonds
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Unlike U.S. citizens, foreign investors are ineligible to take advantage of munis’ income tax-exempt feature. Nevertheless, they’re piling into the $3.7 trillion muni market, validating the “safe haven” status many investors assign to munis. By the end of 2015, foreign investors held more than $85 billion in American municipal debt, up from $72 billion in 2010.

Foreign Investment in U.S. Muni Bonds Surges on Negative INterest Rates
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As of the end of April, nearly $10 trillion worth of government bonds across the globe bore a negative yield. As this amount climbs, inflows into high-quality, short-term munis are expected to accelerate.

Muni bond funds are already seeing a sustained run of weekly inflows that began in October, with a massive $1.2 billion entering the market in the week ended May 11, following $709.7 million the previous week. This includes both American mutual funds and ETFs, so domestic and foreign investors are reflected here.

31 consecutive weeks of Municipal bond fund inflows
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One of my favorite investing proverbs is “Follow the money,” and in the case of short-term munis, it’s important to recognize that a global surge in demand is taking place as central banks continue to lower rates and debase their nations’ currencies. Municipal bonds, as well as gold, have traditionally satisfied investors’ need for a store of value when other options seem too volatile or risky. Today, the unfavorable monetary climate abroad makes American munis all the more attractive.

Interested in learning more about the power of municipal bonds? Explore my special presentation, “Tax-Free, Stress-Free Income,” complete with downloadable, shareable slides

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

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 3/31/2016.

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Gold Demand Just Had Its Strongest-Ever First Quarter
May 16, 2016

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

It makes a great deal of sense to own gold. Billionaire hedge fund manager, Paul Singer

This year’s first quarter is one for the history books. Not only did gold appreciate at its fastest pace in 30 years, but demand for the yellow metal was the strongest it’s ever been on record.

Let me repeat that: the strongest it has ever been.

Demand surged 21 percent from the same period a year ago, according to the latest World Gold Council (WGC) report. Most of this demand was driven by investment, with net inflows into gold ETFs reaching 363.7 tonnes, a seven-year high.

click to enlarge

Meanwhile, demand for bars and coins shot up 55 percent year-over-year, from 11.8 tonnes to 18.3 tonnes. Appetite for American Eagle coins jumped 68 percent.

Bad News Is Good News for Investors Who Have Diversified with Gold

Uncertainty over the world economy, not to mention central bank policy, continues to act as a major catalyst for demand, heating up the Fear Trade. With many countries currently locked in a global race to see who can devalue their currencies the fastest, investors are seeking better, more reliable stores of value, and gold is happy to oblige.

former libertarian vice presedential nominee wayne allyn root whose latest book is the power of relenetless

This was the message shared by Wayne Allyn Root, the “Capitalist Evangelist,” whose presentation I had the pleasure to see at the MoneyShow last week in Las Vegas. The week before last I said I would be speaking at the event, which was founded in 1981 by my dear friend Kim Githler, and I had no idea how popular Root really was. A businessman, politician and author, Root was the vice presidential candidate for the Libertarian party in 2008 and this year endorsed Donald Trump for president. At the MoneyShow, he packed the room with 1,400 people. Whole crowds turned out to hear him sermonize on entrepreneurship, individual rights and the importance of owning tangible assets such as precious metals and rare coins as a hedge against inflation and today’s uncertain financial markets. Owning gold, he said, is no longer a luxury but a necessity.

One of Root's most interesting data points is just how much purchasing power the dollar has lost since 1913, the year the Federal Reserve was created: A million dollars then is worth about $25,000 today. Gold, on the other hand, has not only held its value but appreciated. One million dollars in gold in 1913 would now be worth more than $60 million.

Get educated on diversifying into gold!

Other huge names that presented at the MoneyShow included Gary Shilling, Art Laffer and Craig Johnson, a Piper Jaffray CFA and President of the Market Technicians Association. I had an enjoyable dinner with Craig, who called the current rally a “FOMO” rally. (I only recently learned, from my niece, that FOMO stands for “fear of missing out” and is widely used on social media.)

Another illuminating presentation I’d like to mention was conducted by IBD’s Amy Smith, who convincingly spoke on how the 2016 elections might change the stock market. The most actionable takeaway was that most blue chip stocks have typically done well no matter who occupies the White House, confirming my own attitude that, at the end of the day, it’s the policies that matter, not the party. The most compelling example she used was Netflix, whose stock has been a steady climber throughout both Bush 43 and Obama’s presidencies.

A reasonable, well-positioned portfolio, then, consists of strong, entrepreneurial names; gold (I always recommend a 10 percent weighting: 5 percent in gold stocks, 5 percent in physical bullion); and short-term, tax-free municipal bonds, which have historically done well even in times of economic turmoil, such as the tech bubble and the financial crisis.

Learn more about the $3.7 trillion muni market! 

Follow the Smart Money

The smart money is indeed flowing into gold right now. Earlier this month I shared with you the fact that hedge fund manager Stanley Drukenmiller, notable for having one of the best money management track records in history, cited gold as being his family office fund’s number one allocation. Druckenmiller is joined by billionaire Paul Singer, whose hedge fund oversees $28 billion. In his letter to clients last month, Singer wrote: “It makes a great deal of sense to own gold… Investors have increasingly started processing the fact that the world’s central bankers are completely focused on debasing their currencies.”

About a third of global debt right now comes with a negative yield.

Elsewhere in the letter, Singer suggested that gold’s phenomenal first quarter, in which the metal rose 16.5 percent, is “just the beginning.” Further loss of confidence in central bankers’ ability to jumpstart growth could take the metal even higher.

This is the assessment of Paradigm Capital, who wrote in a recent report that “a standard gold price rally, a percentage exceeded or achieved in four of five major upcycles since 1976, would take us to around $1,800 ounces over the next three to four years.”

Lucara Diamond Sparkles Brightly

Lucara's 'Lesedi La Rona' diamond, scheduled to be auctioned next month, is expected to fetch a record amount.

It seems only natural to follow a discussion on gold with one on diamonds. Just as gold demand is largely driven by the Love Trade, especially in India and China during religious and cultural festivals, diamonds rely largely on celebratory lifestyle events such as engagements, weddings and anniversaries.

Lucara Diamond has given us another reason to celebrate.

The Vancouver-based company was founded by billionaire Lukas Lundin, an old friend. We believed in his vision to build a profitable diamond company in South Africa, and we were one of its earliest investors. In any case, Lucara just sold an incredible 813-carat diamond for $63 million, a new record for a rough gem. Known as “The Constellation,” the rock was discovered in the company’s Karowe mine, located in Botswana, the second largest diamond producer following Russia. In 2013, diamonds accounted for more than 80 percent of the small African country’s export earnings and 26 percent of its GDP.

As part of the deal, Lucara retains a 10 percent interest in the diamond, allowing the company to continue to profit from the stone after it’s been polished and cut.

The Constellation’s record might be short-lived, however. Another Lucara diamond—the 1,109-carat “Lesedi La Rona,” the second largest diamond ever discovered—is scheduled to be auctioned off next month at Sotheby’s and could very well fetch an even higher price.

We’ve been very happy with Lucara’s leadership and performance. So far this year, its share price has appreciated 75 percent and is now trending at a nine-year high.

lucara diamond at a nine-year high

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The mid-tier company posted a stellar first-quarter net income of $17.1 million, up 185 percent from the same period a year ago. Total sales averaged $649 per carat, compared to $278 per carat in 2015. This is especially impressive considering overall diamond prices have declined more than 10 percent over the last 12 months, according to the Zimnisky Global Rough Diamond Price Index, mainly due to subdued demand and excess supply.

Register Today for Our Next Gold Webcast!

I invite all of you to register today for our next webcast, titled “All Eyes on Gold: What’s Attracting Investors to the Yellow Metal.” I’ll be discussing the chief factors driving gold demand right now, how historical and seasonal patterns affect gold and why the metal can be an integral part of your portfolio. The webcast will be held on June 8, starting at 4:15 PM Eastern time (3:15 PM Central time).

This is an exciting time for gold. I hope you’ll join me!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The Zimnisky Global Rough Diamond Price Index was created to consolidate reliable rough diamond price information and publish current respective price changes of rough diamonds on a weekly basis in the form of an index. The Index is based on an initial value of 100 using data starting on April 4, 2004. The Index is updated on a weekly basis, typically on Saturday.

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 3/31//2016: Lucara Diamond Corp.

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Trump Isn't the Only Thing Investors Should Worry about this Election Year
May 9, 2016

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Donald Trump

Sixteen. That’s the number of Republican presidential candidates who ended their campaigns since last summer, leaving only businessman Donald J. Trump as the presumptive GOP nominee. Love him or hate him, it’s time to come to terms with the reality that Trump’s name will likely be appearing on the ballot in November.

As a money manager, I’ve always said that it’s the policies and not the party that matter. So it is with Trump. Many of his proposed policies certainly bode well for the market, including lowering taxes and scrapping needless regulations that slow business growth. Like his former rival for the GOP nomination, Ted Cruz, he has expressed support for a return to the gold standard and reportedly owns between $100,000 and $200,000 in gold bullion. In 2011, he even accepted a 32-ounce bar of gold as a deposit from a Trump Tower tenant.

However, as I told Kitco last week, I believe investors’ fears of a socialist Bernie Sanders presidency, not to mention negative interest rates, have driven a lot of gold’s recent momentum, more so than the idea of a Trump presidency.

At the same time, Trump has taken positions that should concern investors. Besides exhibiting a volatile temperament and leadership style, he’s been a harsh critic of free trade agreements and has made clear his opposition to the Trans-Pacific Partnership (TPP), which aims to eliminate up to 18,000 tariffs among 12 participating countries. Andy Laperriere, head of policy research at Cornerstone Macro, believes Trump’s trade agenda could even pose some risks to American multinationals, especially those dealing with Mexico and China, and the U.S. dollar.

Plus, there’s the troubling comment he made last week on CNBC, proclaiming himself “the king of debt,” before adding: “I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good. So therefore you can’t lose.”

So What Are the Odds, Really?

Pic Your Poison NBC/WSJ Poll among Registered Voters, April 10 - 14

The cards are markedly stacked against Trump when it comes to winning in November. Most national polls show Hillary Clinton beating him in the general election, even though she is nearly as unfavorable to registered voters, according to an NBC/Wall Street Journal survey. Renaissance Macro Research calls Trump’s “net negatives prohibitively high.” And as I shared with you way back in August of last year, Moody’s Analytics forecasts a win for the Democratic nominee, whether that’s Clinton or someone else. Since 1980, Moody’s sophisticated election model has accurately predicted the outcome of every single contest, and in 2012 it even nailed the Electoral College vote.

Trump still has quite a lot of support in the financial industry. A Financial Advisor poll found that a little over 50 percent of respondents say Trump will win the White House, while nearly 37 percent say Clinton. Doubleline Capital founder Jeff Gundlach also believes Trump will be the victor, arguing that in the short term, this would be positive for the U.S. economy. The New York billionaire, Gundlach points out, has promised to build up the military and initiate an infrastructure program.  

Whomever voters end up electing in November, there will be winners and losers. Again, what’s important to look at are the policies because they’re precursors to change. We’ll be watching the events as they unfold closely and adjusting our allocations accordingly.

Municipal Bonds: The Solution to “Sell in May”?

We’re now in May, which is when many investors consider whether to sell or stay in the game during the summer months, thought to have some of the worst performance of the year.

Sell in May and Go Away?
click to enlarge

While there might be evidence to support this strategy, it’s worth digging deeper before making a decision. Again, this is an election year, and today McClellan Financial reports that in the fourth year of a president’s second term—in other words, when he is ineligible for reelection and we must therefore choose a new president—the market has fallen 1.6 percent on average during the May-October period, based on data from 1936 to 2012. This is caused presumably by the uncertainty over who might replace the incumbent, and how his (or her) policies might affect the market.

McClellan also suggests that May might not be the most opportune time to get out of stocks in these years, as the market has typically bottomed mid-month, then rallied into June and July. That means it might pay to hold out until then to sell off, if that’s what you plan to do.

What’s more, Cornerstone Macro says that “sell in May and go away” only works when leading economic indicators are decelerating. (In such years, returns have been negative 2 percent on average.) When they’re rising, the summer months have returned an average 6 percent.

So are the leading indicators rising or lowering? Well, the Bureau of Labor Statistics revealed on Friday that the U.S. added 160,000 jobs in April. Although this figure is positive, it represents a seven-year low and is well below the 205,000 that economists had expected.

Manufacturing also shows continued signs of weakness. The April global purchasing manager’s index (PMI), which we follow closely, came in at 50.1, a reading that’s barely above the standstill threshold of 50. In addition, the U.S. manufacturing PMI fell to 50.8, its lowest level since September 2009.

JP Morgan Global Manufacturing Purchasing Manager's Index
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There’s also the news that Chinese banks’ bad credit could actually be nine times larger than previously believed. Although not an “economic indicator,” this should give investors pause, as potential losses could reach as high as $1.1 trillion, according to brokerage firm CLSA.

So there’s a lot of overlapping analyses to consider here. Regardless of how you see it, when you take into account the additional volatility this second-term election year could yield, it might be a good time to consider diversifying into investment-grade, short-term municipal bonds. Munis have been shown to perform well over time, even during periods of market instability and rising interest rates. They’re also tax-free at the federal level and often at the state level if you happen not to live in one of the seven states that doesn’t levy a tax on income.

An old investing rule of thumb suggests that whatever your age is, that is the percentage you should have allocated toward tax-free munis. So if you’re 40 years old, 40 percent of your portfolio should be in short-term munis, 50 percent if you’re 50 years old, and so on.

The bottom line is, if you feel skeptical or fearful of the consequences of Election Day, it might behoove you to look into short-term, tax-free munis.

Follow the Money: Druckenmiller Maintains His Massive Bet on this “5,000-Year-Old Currency”

Speaking at the Sohn Investment Conference in New York last week, legendary hedge fund manager Stanley Druckenmiller warned investors that the equity bull market, propped up by “the longest period ever of excessively easy monetary policies,” is now close to exhaustion. He called negative interest rates an “absurd notion” and noted that central banks are now borrowing more “from future consumption than ever before.”

As such, Druckenmiller is wagering on gold. Heavily.

Hedge fund giant Stanley Druckenmiller on gold: Some regard it as a metal. We regard it as a currency and it remains our largest currency allocation.'

“Some regard it as a metal,” he said. “We regard it as a currency and it remains our largest currency allocation.”

Between 1986 and 2010, the year he closed his fund to investors, Druckenmiller consistently delivered a spectacular 30 percent on an average annual basis. That’s a superhuman feat, one that unequivocally demands we take note of his investment choices. His Duquesne Family Office fund is reportedly up 8 percent so far this year.

In August, I reported on his move to make a gold ETF his number one holding, followed by Facebook, a choice that has served him well. The yellow metal is currently up 18 percent since the beginning of August.

As always, I recommend a 10 percent weighting in gold—5 percent in gold stocks, 5 percent in bullion, coins and jewelry. Rebalance every year.

MoneyShow This Week

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I hope you’ll join me!

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Net Asset Value
as of 05/27/2016

Global Resources Fund PSPFX $5.07 -0.01 Gold and Precious Metals Fund USERX $7.67 -0.23 World Precious Minerals Fund UNWPX $6.42 -0.14 China Region Fund USCOX $6.91 0.08 Emerging Europe Fund EUROX $5.58 -0.01 All American Equity Fund GBTFX $23.67 0.06 Holmes Macro Trends Fund MEGAX $18.01 0.12 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 -0.01