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Ancient Gold, Modern Value
August 12, 2010
A 2,200-year-old gold coin was found recently in northern Israel. No, this isn’t one of those radio commercials you hear all the time about a surprising discovery of a stash of rare gold coins in Europe. This is the real deal.
Archaeologists from the U.S. uncovered the gold coin while digging near the border of Lebanon. At nearly one ounce in weight, it is the heaviest and most valuable coin ever found in Israel, a state official said. And somewhat oddly, the official added that the coin served a symbolic function and wasn’t used as currency.
The coin dates back to 191 B.C., making it older than the Roman Empire, but gold's history goes much further back than that.
The Sumer civilization in ancient Mesopatamia used gold for jewelry and ornaments for headdresses, and thousands of gold artifacts were found in the Varna Necropolis, a gravesite in present-day Bulgaria that goes back to 4600 B.C. Egyptians are believed to have mined gold as early as 2000 B.C.
It’s believed gold as money originated in China about 3,000 years ago, and that the first pure gold coins came from King Croesus of Lydia between 560 and 547 B.C.
Over the millennia, gold’s prices have changed but its intrinsic value as a store of wealth hasn’t. During these uncertain economic times, it seems that more and more investors are appreciating gold’s protective properties.
Chart of the Week – Is Indonesia Overheating?
August 11, 2010
Indonesia’s 21 percent gain so far this year is tops in the region but is Asia’s hottest market in danger of overheating? Not exactly but there are a few concerns.
Inflation is beginning to become an issue. Food prices are rising at 14 percent a year, energy at 18 percent a year and land prices at 20 percent a year, according to CLSA. CLSA cautions that conventional monetary measures could make matters worse so policy changes—like an anticipated rise in interest rates—must be monitored closely.
This year’s performance has also pushed Indonesia’s valuation ahead of other emerging markets. Stocks in Jakarta trade at roughly 13.5 times earnings over the next 12 months while the MSCI Emerging Markets Index and the MSCI BRIC Index trade at around 11 times, according to a Bloomberg story.
However, it’s important to remember that Indonesia is starting from a very low base. Just two decades ago, only 21 companies were listed and today the country’s stock market remains one of the smallest as a percentage of GDP among major emerging markets.
Investible options are currently limited to energy, telecom and banking sectors and the number of domestic retail investors is less than one percent of the population. As more companies go public and market capitalization grows, increased liquidity should attract more foreign investment.
Domestically, the economy should benefit from its rapidly urbanizing population, rich natural resources, appreciating currency and political stability. All of these should insulate Indonesia’s economy from external headwinds and keep the country on a path of growth for the next five years.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI BRIC Index is a free float-adjusted market capitalization index that is designed to measure equity performance of Brazil, Russia, China and India.
Ready, Set, Gold: Best Months Are Just Ahead
August 09, 2010
Global economic conditions are now favorable for gold as a safe-haven investment. The U.S., Western Europe and Japan are close to buckling under the weight of their sovereign debt loads, government budget deficits remain large and persistent and, as a result, faith in major paper currencies is low.
On top of this, China – the world’s No. 1 gold producer and No. 2 gold consumer – is encouraging gold investing by its rapidly growing middle class, and will likely have to increase imports to meet this new demand.
If history is any guide, gold is about to get even more attractive because we are heading into the fall and winter gift-giving season. This is the time of year that gold jewelers typically do their biggest business. The kickoff is the Muslim holy month of Ramadan, which starts next week and ends with generous gift-giving in early September.
After Ramadan comes India’s post-monsoon wedding season, and in November there’s Diwali, one of India’s most important festivals. During the fall, jewelry makers in the U.S. and Europe stock up in advance of the Christmas shopping season. And in China, there are two big gold opportunities: the week-long National Day celebration starting October 1, and the Chinese New Year in early 2011.
Looking at more than four decades of seasonality, September has been the best month of the year for gold and gold stocks.
The clear trend can be seen on the seasonality chart for spot gold. In a typical year, the September price rises 2.5 percent above the August price. And to make the case even more compelling, the gold price has risen in 17 of the 21 Septembers since 1989, by far the best success ratio of any month of the year.
In September 2009, the gold price jumped nearly 6 percent, well above the long-term average.
September is historically an even better month for gold stocks as measured by the NYSE Arca Gold Miners Index (GDM).
After the typically weak months of June and July, the gold miners start moving up in August and make an 8.3 percent leap in September. In September 2009, the jump was 14.5 percent. Since 1993, the GDM has been up 12 times in September and down just five times.
The strong correlation between the gold price and gold-mining stocks explains much of the average September jump for gold stocks, which have historically offered leverage to the gold price. In up markets, earnings growth has tended to exceed the increase in gold price. In down markets, the leverage works in the opposite direction — gold stocks also tend to decline more when the price of bullion is falling.
This leverage is shown on the chart of how bullion and the miners have fared in late-summer and fall rallies during the gold bull market that began in 2001. These uptrends have generally occurred between mid-July and early October, though in 2004 it extended into late November.
The gold price has climbed an average of 12.4 percent during the 2001-09 seasonal rallies even as the price steadily moved into four digits. As good as that result was, the impact on gold stocks was even stronger – their annual jump averaged more than 26 percent.
In 2010 the trend could be shaping up right on schedule. From a recent bottom of $1,157 per ounce in late July, spot gold had risen more than 4 percent through mid-afternoon on August 6 and the TSX/S&P Global Gold Index had gained more than 6 percent.
Bank of America-Merrill Lynch recently called for $1,300 gold by October-November 2010 as a result of the seasonal demand, and the gold watchers at CIBC World Markets in Toronto see $1,400 gold next year due to strong investment demand and inadequate supply response.
Given the current economic weakness, CIBC pointed out that during the Great Recession, “gold was one of the only investment classes that provided positive returns. This fact will not be forgotten if the next recession materializes.”
Its analysts also say that gold equities look relatively cheap compared to bullion, adding that, for the first time ever, some of the big producers are trading at price-earnings ratios below the S&P 500 Index average.
Going back to 1971, when President Nixon ended dollar convertibility into gold and deregulated the price of gold, gold stocks have tended to outperform the S&P 500 when the federal government runs budget deficits. Through 2019, the annual federal deficit is projected to average around $1 trillion, creating the potential for gold stocks to remain an attractive investment relative to the broader market for years to come.
Based on the long-term record, this may be a good time for investors to consider establishing or adding to a gold or gold-stock position in advance of seasonal demand growth. Historical patterns may be a useful guide and improve the chances for investment success, but of course, there are no guarantees that the fall of 2010 will follow the well-established trend.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500 at the close of trading on December 20, 2002. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Toronto Stock Exchange Gold and Precious Minerals Index is a capitalization-weighted index designed to measure the performance of the gold and precious minerals sector of the TSX 300 Index. The S&P/TSX Global Gold Index is an international benchmark tracking the world's leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies.
Risk and Recovery in Russia
August 06, 2010
Russia has a lot of upside, and a big part of why is the risk trade.
Russia was one of the top emerging markets in July, rising 10.3 percent as risk tolerance came back into the market.
And we think this upward trend can continue – Russia has a lot of catch-up potential. Its stock market remains 51 percent down from its May 2008 peak despite a 143 percent rally from its bottom in January 2009, according to Credit Suisse.
While the other BRICs have taken measures to keep their economies from overheating, Russia is just starting to benefit from stimulus implemented during the crisis.
Rising consumer demand accelerated GDP growth to 5.4 percent during the second quarter, and we think the consumer story is just getting started. Money supply is growing at a historically high rate of 30 percent, which should grease the economic engines for further expansion during the back half of the year.
U.S. dollar strength had been a headwind for Russian markets but that appears to have reversed. We’ve also seen a turnaround in the banking sector, which has historically been a positive for emerging markets.
The Russia story is just catching on. Capital inflows have been slightly positive so far in 2010, but still lagging the 2006-07 period, when monthly inflows exceeding $150 million were not uncommon.
Despite the promising outlook, some potential hurdles remain. For instance, to raise capital, Moscow is selling $35 billion of its equity in Russian companies between 2011 and 2013. This large amount of shares could pressure equity markets until this overhang is removed.
BRIC refers to the emerging market countries Brazil, Russia, India and China.
Home Prices on the Move
August 06, 2010
The U.S. housing market is still sputtering, but other places in the world are zooming.
CNBC.com recently did a slideshow showing 20 countries where home prices are rising. Many of the strongest markets are in western Europe, despite the region’s economic woes.
Housing in Britain has jumped about 9 percent over the past year. The average home in Central London costs nearly $900,000 -- about the same as in downtown Los Angeles.
Sweden, Norway and Finland all saw home prices rise by more than 10 percent over the past year.
Among emerging markets, India, Malaysia, South Africa, Singapore and Colombia all saw appreciation.
Then there’s China, where a 68 percent jump in key cities of China prompted government moves to slow things down on the property front. The average home price in Beijing cost nearly 20 times average annual income, according to data from CLSA.
Renters are also feeling the squeeze -- China’s Xinhua news agency reported last month that rental rates in Beijing exceeded the average monthly income for many of the city’s migrant workers.
By clicking the link above, you will be directed to CNBC.com. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.
The Knight Frank Global House Price Index is compiled using official government statistical office or central bank data where possible. In some instances reliable indices from third-party sources have been used.
Net Asset Value
as of 09/08/2010
- Global Resources Fund
PSPFX $8.78 +0.05 - Gold and Precious Metals Fund
USERX $17.44 +0.03 - World Precious Minerals Fund
UNWPX $20.18 -0.01 - China Region Fund
USCOX $8.61 -0.02 - Eastern European Fund
EUROX $9.11 +0.13 - Global Emerging Markets Fund
GEMFX $8.17 +0.08 - Global MegaTrends Fund
MEGAX $7.71 +0.04 - All American Equity Fund
GBTFX $20.02 +0.09 - Holmes Growth Fund
ACBGX $16.04 +0.15 - Tax Free Fund
USUTX $12.58 -0.01 - Near-Term Tax Free Fund
NEARX $2.26 -0.01 - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change