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November 06, 2009
Another week, another major resource deal announced by China. This week it was Petrobras, Brazil’s national oil company, which announced a $10 billion loan from China in exchange for up to 200,000 barrels of oil per day for the next 10 years.
Another week, another major resource deal announced by China. This week it was Petrobras, Brazil’s national oil company, which announced a $10 billion loan from China in exchange for up to 200,000 barrels of oil per day for the next 10 years.This is the latest in a year that has seen China make $20 billion worth of overseas deals to acquire natural resources (left chart) and issue an additional $50 billion in loans backed by oil.
China’s overseas activity has picked up considerably over the past two years. All told China it has made about three dozen mining deals and another 32 energy deals since 2000.
All this activity has made some nervous, but when you put the deals into context it’s easy to see that Beijing isn’t taking over the world of resources. This year’s oil deals have given China access to an additional 1.2 million barrels per day (right chart).
That may seem like a lot, but China’s oil use is expected to increase from about 8 million barrels now to as much as 33 million barrels a day by 2025.
To keep its economy cooking, China has to find those additional barrels overseas – even now, its domestic production satisfies only 45 percent of its demand.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of 9/30/09. #09-779
Silver Bullet – Still on the Rails?
November 05, 2009
I’m often asked my view on the best way to play the current runup in gold, and typically my answer to that question includes a suggestion to look at silver.
Silver has long been called “the poor man’s gold,” and in the safe-haven trade since the start of 2009, its price has appreciated nearly 60 percent, though there have been a lot of ups and downs along the way. Over the same period, the price of gold has risen about 25 percent to an all-time high, also with a fair bit of volatility.
At the beginning of the year, the gold-silver price ratio was 79 to 1—it would take 79 ounces of silver to buy one ounce of gold. As of yesterday’s close of $1,090 per ounce for gold, that ratio was down to 62 to 1. This narrowing trend might be seen as a negative for silver, but that’s not necessarily the case.
This week, I saw a technical article from Lorimer Wilson on Financial Sense University’s Web site pointing out that, over the past five years, the gold-silver ratio has ranged from 43.6 to 1 in April 2006 to 84.4 to 1 in October 2008, and that the 28-year support line is 58 to 1.
Applying the five-year ratio range at yesterday’s closing gold price would yield a silver price range of $25 per ounce (+43 percent from yesterday’s close) to $12.91 per ounce (-26 percent). The 28-year support line suggests a silver price of $18.79 per ounce, which is 7.5 percent higher than yesterday’s close.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-777
India-IMF Deal: Great for Gold?
November 04, 2009
India’s deal to buy 200 metric tons (6.4 million troy ounces) of gold from the International Monetary Fund is a huge deal – not just the fact that the New Delhi government is handing over $6.7 billion for the metal, but what it may mean for gold going forward.
India is making a bullish call on gold. The supply of gold continues to decline – the biggest supply is from governments selling their gold to pay for social programs. The IMF is a classic case of this.
What's particularly interesting in this case is that the buyer is a developing economy. I see this as another sign of the wealth shift away from the developed markets of North America and Western Europe toward the emerging world.
China has also been a major buyer – its gold reserves have nearly doubled since the start of 2003, when the price was about $345 an ounce.
Another thing about India is that its government won't be criticized for buying gold because as a nation, Indians have a cultural affinity toward it. It's how they store their wealth, and they can wear it as jewelry.
If the U.S. government went out and spent nearly $7 billion for the IMF’s gold, there would be no end to the howling. But in India, the citizens say it's a good move because they are buying gold, too – they believe in it.
The presence of a big bullish buyer may create a big bullish buzz for gold. We’re seeing it today – gold is nudging close to $1,100 an ounce – and history suggests it may last a while.
Around this time in 2005, for example, Russia announced that it was doubling its gold holdings from 5 to 10 percent of its reserves. At that time, gold was selling for about $490 an ounce. A year later, the price was up 30 percent.
Of course, Russian purchases weren’t the only thing that drove up gold – back then the dollar was dropping, federal deficits were colossal, markets were volatile and investors faced negative real interest rates.
We have the same conditions now, but on an even greater scale following the credit crisis, steep recession and the massive economic stimulus programs created around the world.
These factors alone tend to be positive for gold and gold investing – adding a vote of confidence by a serious buyer like India may make a good situation for gold even better.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-773
History Lesson: November Good for Dow
November 03, 2009
What happens in markets in the first 10 months of the year can shed light on what might happen in November and December.
The statistic-minded folks at Bespoke Investment Group crunched some numbers going back more than a century and came up with this interesting tidbit – when the Dow Jones Industrial Average is up 10 percent or more through October, the next two months have yielded positive Dow returns 87 percent of the time.
2009 marks the 47th time since 1901 that the Dow has topped 10 percent through October. When that occurs, Bespoke says, there has been an average Dow gain of 4.2 percent and a median gain of 3.6 percent through the end of the year.
Here’s another factoid – regardless of performance through October, the Dow has averaged a 65-basis-point gain in November over the past century. The results are better over the past 50 years and 20 years – monthly gains of 1.21 percent and 1.79 percent, respectively.
You can see in the yellow bar on the chart above that November is the second-best month for the Dow (trailing only April) over the past 20 years, and the reddish bar shows that November and December are two of the best months over the past 50 years.
There are, of course, no assurances, that this year will follow the strong November-December historical trend. In 2007, for instance, the Dow dropped nearly 5 percent in the last two months of the year as the U.S. and other countries slipped into recession.
But for what it’s worth, Bespoke says all of the other five November-Decembers with negative Dow performance came before the end of World War II (1912, 1918, 1919, 1925 and 1943).
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. #09-772
Are Higher Prices the ‘New Normal’ for Oil?
November 02, 2009
This analysis is from Evan Smith and Brian Hicks, co-managers of the Global Resources Fund (PSPFX).
Oil prices have bounced more than 150 percent off of December 2008 lows but inventory levels remain at historically high levels despite a healing global economy.
However, Goldman Sachs says robust 2010 oil demand growth will deplete these inventories over the next 12-to-18 months and diminishing production rates in key areas around the world will create a supply/demand imbalance.
The above chart shows the decline in production from the world’s top 230 projects. After peaking in 2009, production from these projects is set to fall for the next several years. Excluding OPEC countries (right chart), the decline rates quadruple from 2007 to 2012 (est).
Over that time period, non-OPEC production is expected to fall by 2.5 million barrels per day. Only Brazil, Canada and the former countries of the Soviet Union are expected to see production growth.
One of the largest contributing factors for this is chronic decline rates from some of the world’s top mature fields. Mexico’s Cantarell field, one of the largest oil fields in the world, produced 30 percent less oil in 2008 than it did in 2007—a trend that’s expected to continue.
Norway, the world’s 11th largest oil producer in 2008, saw its oil production peak in 2001 and is down 27 percent since. Another big producer, Venezuela’s state-owned oil company PdVSA has seen annual decline rates of more than 25 percent in certain fields according to the Energy Information Administration (EIA).
Adding to the dilemma, many countries without decline-rate issues have been holding out production increases until projects become more cost effective; this is why we recently saw Russia overtake Saudi Arabia as the world’s largest oil producer.
The Saudis have been content to sit on the sidelines while awaiting the return of higher prices. The same goes for other OPEC countries; PIRA, an oil-industry consultant, says the cost of oil will have to rise above $80 per barrel in order for the cartel to increase production.
With oil prices currently hovering around that $80 level, OPEC officials have recently hinted that production increases aren’t off the table for the cartel’s upcoming December meeting.
Even if we see a production increase out of OPEC, decline rates from maturing fields and high barriers of entry to bring new fields online should keep the supply/demand balance tight for years to come.
Brian Hicks and Evan Smith will be co-hosting a free webcast event with U.S. Global Investors CEO Frank Holmes titled “What’s Driving Energy?” on Tuesday, November 3 at 12:00 PM ET. The presenters will be detailing the critical factors supporting long-term energy demand. Click Here to Register
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. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. #09-762
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