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Demand for Gold Rising in China
November 20, 2009
You can add gold demand to the list of items being supported by China. China was the sole market to see positive growth in consumer demand for gold, rising 12 percent from a year ago the World Gold Council reports.
You can add gold demand to the list of items being supported by China. China was the sole market to see positive growth in consumer demand for gold, rising 12 percent from a year ago the World Gold Council reports.
Total gold demand in China reached 120 tonnes, nearly double the amount from just four years ago.
Overall, gold demand was off 34 percent from 2008 but that is largely the result of exceptionally high demand increases during the darkest time of the financial crisis. On a year-to-date basis, gold demand is only down 6.3 percent.
China’s improving economy has made consumers less price sensitive than those in India and the Middle East who have not fully adjusted to gold prices at current levels.
Jewelry demand in India fell 42 percent on a year-over-year basis but Indians haven’t abandoned their strong cultural connection to gold. Exchange activity among consumers—where old pieces are swapped for new ones—has spiked.
The WGC says this “suggests a strong desire by consumers to remain attractive in the [gold] market.”
BMO doesn’t believe that the downtick in demand is a symptom of a long-term trend. In a research note, they write that “the combination of a strengthening economy, modest supply growth, central-bank buying and concerns surrounding the U.S. dollar and inflation should continue to support gold demand and prices into 2010.”
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-819
Gold on Your Gift List
November 19, 2009
While the Indian government buys its gold in the hundred of tons, a growing number of people around the world are buying by the ounce.
For years I’ve been saying on TV and elsewhere that one-ounce coins like the American Eagle and the Canadian Maple Leaf make excellent gifts that the recipients will always remember and treasure. The same goes for 24-karat gold jewelry.
The U.S. Mint seems to be thinking the same thing – it plans to restart the sale of half-ounce, quarter-ounce and one-tenth-ounce gold coins on December 3, just in time for Christmas gift-giving. Last year, the Mint ran out.
Coin sales have been impressive this year – the Mint has sold more than 1.1 million of the one-ounce American Eagles and 140,000 American Buffalo coins, also one ounce.
In Britain, the Royal Mint quadrupled its gold-coin output in the third quarter of 2009 to meet demand.
The World Gold Council says gold demand overall was up 10 percent in the third quarter of 2009 compared to the second quarter. The council says jewelry demand was up 17 percent to 473 metric tons, and that 81 tons worth of gold bars were purchased, up 30 percent from the previous quarter.
Even at the current record prices, gold in the form of coins and jewelry may prove to be gifts of good value.
If someone offered to sell you a one-ounce gold coin for $50, would you buy it? It may seem like a silly question, but apparently not everyone would make that deal. Watch this humorous video to see.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-816
Small Funds, Hidden Gems?
November 18, 2009
An article this week from Morningstar analyst Greg Wolper “Give Small Fund Shops a Chance” argues that investors who ignore small fund complexes may be missing out on growth opportunities.
It’s long been hard for small fund companies to get attention – they don’t have the money to spend on advertising that the giants have. But Wolper writes that “lesser-known firms, and funds, have advantages that make it worth the time to seek them out.”
He also makes a good point when he says that small fund managers can struggle when they try to cover too many asset classes and sectors. He says “a good small firm often focuses on one thing it does well.”
We recently revamped our company site—USFunds.com—to make it easier for new and returning visitors to quickly learn about U.S. Global Investors and its focus on the global growth theme, which is at the intersection of emerging markets and natural resources.
Wolper finishes by giving his readers some sound advice:
When you come across an intriguing fund in one of your screens, or in a media report, don’t ignore it just because the name is unfamiliar. Some investigation through Morningstar and on the fund’s Web site might lead you to conclude that this obscure fund is worth serious thought.
By clicking the link to the Morningstar story, you will be directed to Morningstar.com. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-812
Gold ETFs - Big Surprise at Tax Time
November 17, 2009
In TV commercials and across the Internet, managers of exchange-traded funds tout the tax advantages of their products.
But according to a story in the latest issue of Barron’s, many investors in precious-metals ETFs have to deal with an unwelcome surprise come April 15.
The issue is that gold and silver fall under the heading of “collectibles” in the eyes of the Internal Revenue Service, making these metals similar to artworks, antiques, vintage wine and rare baseball cards.
This status means that profits from gold and silver investments do not qualify for the 15 percent maximum on long-term capital gains that pertain to stock and mutual fund investments.
These profits are instead taxed at a 28 percent maximum if held for more than a year, and at ordinary income rates if held for less than a year.
With the rapid appreciation of gold in recent years – the current price is nearly double where it was in early 2007 — many investors who cashed out their gains in gold ETFs may be hit with unexpectedly big tax bills.
The same liability may hold true for investors who didn’t sell a single share of their gold ETF. That’s because when the ETF itself sells physical gold or silver, any gains or losses are passed along to investors, who then face the maximum 28 percent tax liability even if they didn't actually realize the gain.
Not all gold–related ETFs are considered collectibles, but for those that are, investors should be aware of the rules so they can weigh the advantages and disadvantages of their investment options.
Here is a link to the Barron’s story (subscription required):
Gold Is Precious to the IRS, Too
By clicking the link to the Barron’s story, you will be directed to Barrons.com. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Information provided is neither tax nor legal advice and is general in nature. You should consult your tax advisor, financial advisor or local taxing authority for specific information regarding your tax situation as every tax situation is different. The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 9/30/09: SPDR Gold Trust #09-809
Five Reasons China Is Not a Bubble
November 16, 2009
This analysis is from Romeo Dator, co-manager of the China Region Fund (USCOX).
A year ago, nobody thought China could manage 8 percent GDP growth in 2009. With year-to-date growth coming in at 7.7 percent through the first three quarters and getting stronger, China is poised to break that 8 percent mark rather easily.
The success of the stimulus and the lofty economic numbers China has managed to produce amidst a global crisis has led many to claim China is the next great bubble.
We see five reasons China is not a bubble and believe that its prospects remain strong for at least the next 20 years.
1) Consumption Continues to be Strong
China is transitioning to a consumption-based workforce. Retail sales rose 16.2 percent in nominal terms during October and have been accelerating. The retail sales figure isn’t a perfect proxy, but it is the best available indicator of overall consumption because it does include sales to consumers and not just purchases made by the government.
We also saw strong growth in industrial production (IP) and power generation both were up more than 16 percent on a year-over-year basis in October. Housing starts were up more than 50 percent (yoy) for the second straight month.
2) Structural Changes to Domestic Economy
We’re seeing a transition to a service-related economy. The service industry is the fastest-growing sector (roughly 20 percent faster than construction) and now accounts for one-third of China’s workforce.
In general, the size of the service sector is directly correlated to the amount of goods and services an economy consumes. This is why the government has spent such a large amount of the stimulus on areas that benefit the domestic market—that’s where it thinks the economy is headed.
3) Stimulus Exit Strategy in Place
China’s stimulus exit strategy is simple--create a strong economic base that the private sector can launch from. After private investment surpassed that of state-owned enterprises in September, the two flip-flopped during October.
Given the environment, month-to-month fluctuations like this are to be expected since private investment is dependent on how willing Chinese citizens are to put their own money at risk. Even though Beijing is determined to wean China’s economy off of government stimulus, the government will not hesitate to ramp up activity should the private investors become risk-averse.
4) Government Controls on Flow of Money
After lending more money over the first five months of 2009 than all of 2008, we’ve seen loan numbers come down. There’s a longstanding pattern of new loans slowing down during the second part of the year as banks have historically rushed to meet government-mandated loan quotas.
The magnitude of this year’s slowdown—trillions of yuan—is evident of Beijing’s dedication to prevent a bubble from forming. Once the figures grew too large, the government moved quickly to hit the brakes.
While U.S. regulators have many holes to plug in order to keep the economy afloat, the limited number of investment options available to Chinese citizens—basically stocks, bank savings and property—makes it easier for the government to institute controls.
This is what happened in 2007 when the government forced a slowdown in the housing market before it overheated. After its economy grew 12.6 percent in the second quarter of 2007, China took more aggressive actions to cool its economic growth. The government raised lending rates and also raised reserve requirements to shrink the pool of money available for lending.
5) China’s Long-Term Goals Match Up With Short-Term Goals
In the U.S., the Federal Reserve and policymakers are faced with conflicting goals. They need people to spend in order to get the economy rolling again, but their end game is to have the American people spend less and save more.
It’s the opposite for China.
The problem in China is excess savings and not enough spending. The short-term and long-term challenges are the same—to get people to spend more.
Recent signals that China will begin letting the yuan appreciate against the U.S. dollar are not new. For several years, Beijing has stated a gradual appreciation of the yuan will benefit the economy, and CLSA expects Beijing to resume a 5 to 7 percent annualized appreciation process about midway through 2010.
Rapid economic growth may be common in emerging economies, but there’s only one China. Already the world’s third-largest economy on a nominal GDP basis and second-largest based on purchasing power parity, the Chinese aren’t making a break from the back of the pack—they’re leading it.
Domestic consumption, the rise of the service sector and increased private investment won’t make China immune to economic bubbles, but these strengths will provide some protection from external forces.
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.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. 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. #09-803
Net Asset Value
as of 11/19/2009
- Global Resources Fund
PSPFX $8.59 -0.15 - Gold and Precious Metals Fund
USERX $16.13 +0.01 - World Precious Minerals Fund
UNWPX $17.99 +0.02 - China Region Fund
USCOX $8.24 -0.12 - Eastern European Fund
EUROX $9.07 -0.17 - Global Emerging Markets Fund
GEMFX $7.96 -0.11 - Global MegaTrends Fund
MEGAX $7.98 -0.07 - All American Equity Fund
GBTFX $19.31 -0.30 - Holmes Growth Fund
ACBGX $15.18 -0.23 - Tax Free Fund
USUTX $12.23 +0.02 - Near-Term Tax Free Fund
NEARX $2.22 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change