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One of the Best Gold Watchers
July 28, 2010
Pierre Lassonde is one of the smartest people in the gold world, and he has the track record to prove it.
He’s a former president of Newmont Mining, the world’s largest gold producer, and was chairman of the World Gold Council. His achievements aren’t all in the past – now he’s chairman of Franco-Nevada Corp., the most successful gold royalty company.
I’ve known Pierre for years, and have learned that when he talks about gold, it makes sense to listen.
In a recent interview with Mineweb.com, Pierre said gold sector investment is still in its early days, and it will continue for at least five more years.
His reasoning is similar to some of the things we have been saying for a while:
- Gold can provide some protection against currency debasement as governments try to inflate away their massive sovereign debt burdens;
- A rising middle class in China, India and other countries that value gold is a key demand driver for both jewelry and gold as an investment;
- China’s appreciating currency will make U.S. dollar-denominated products (including gold) cheaper for Chinese consumers.
Of course, the interviewer asked Pierre to forecast the price of gold.
I believe in two things. One is that the gold price will have three zeros after the first number - I just don't know how big the first number is going to be. We are now at $1,200 gold and I do not believe for one second that that's the end of the bull market in gold… The U.S. politicians have absolutely no guts for another depression and they will always allow the printing press to run to answer their problem and therefore when I look at the long term gold price - very bullish.
Read Pierre’s Interview with Mineweb’s Geoff Candy
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 following securities mentioned in the interview were held by one or more of U.S. Global Investors family of funds as of June 30, 2010: Barrick, Newmont Mining, Franco-Nevada.
Seeing the Good and Bad in Latin America
July 27, 2010
Global Strategist Jack Dzierwa is just back from an extensive research trip across Latin America. In addition to checking on agricultural prospects in Brazil (detailed here: Brazil Feeds the World), Jack traveled to Chile and Argentina. There he found two very different stories – one good, the other not.
The Good: Chile
Compared to Western Europe and the U.S., which are dealing with massive sovereign debt burdens and growing default worries, Chile offers a fiscally prudent alternative.
Its public debt-to-GDP is a mere 7 percent, well below Latin American peers like Brazil (60 percent) and Colombia (46 percent), to say nothing of the developed nations near or above triple digits.
Chile’s devastating earthquake in February isn’t stopping the country’s economic growth – forecasters predict 5.5 percent growth this year and 6.5 percent in 2011 as resource exports to emerging markets in Asia accelerate.
The earthquake caused $32 billion in destruction and the government plans to lean on the corporate sector to help fix the damage. Corporate tax rates will be raised from 17 percent to 20 percent across the board this year and 18.5 percent in 2011. The plan is to return to a 17 percent rate by 2012.
Chile has high hopes for President Sebastian Pinera, who took office shortly after the quake. Pinera, a billionaire businessman, will look to improve Chile’s public service and education sectors by making labor laws more flexible.
Another suggestion for Pinera: privatize more of the state-run companies as a way to attract more investment. For example, the mining sector accounts for 40 percent of Chile’s GDP, but there is not a single mining company listed on the local stock exchange.
The Bad: Argentina
Argentina is looking at GDP growth in the 8 percent to 9 percent range, in part driven by a 50 percent jump in auto production. But this good news is largely offset by 25 percent annual inflation due to excessive money printing.
This has long been the story for Argentina, a resource-rich nation that is still struggling to recover from a 2002 crisis sparked by a sovereign debt default.
Over the past decade many foreign companies have left the country. The number of foreign banks has nearly been cut in half since 2001, and foreign direct investment was just under $5 billion in 2009 -- well below the annual average of $7 billion from 1995-2005.
Protectionist policies have also hurt economic growth. In April, the government imposed an import duty on goods from China, and China responded by refusing to purchase soybeans from Argentina (the country’s largest export) – instead Beijing took its business to neighboring Brazil.
Even the expectation of future taxes appears to be suppressing growth and investment. Private businesses seem afraid to invest in growth or expansion because they’re worried about the tax implications.
And the fear of another sovereign debt default remains. Five years ago, the credit default swap spreads for Argentina and Brazil were roughly the same at around 500 basis points. Today, Argentina’s CDS spread stands at 850 basis points, while Brazil’s has narrowed to 180 basis points.
Jack is sitting down with our video team to recap his Latin American findings, stay tuned to USFunds.com for the video update.
Rupee Gets a Symbol
July 26, 2010
India’s rupee is now in an exclusive club – it joins Japan, Britain, the European Union and the U.S. as the only currencies to have globally recognized symbols.
The new symbol, shown in the picture, came out of a contest held by the Indian government that attracted more than 3,000 entries. A student at the Indian Institute of Technology was the winner.
Along with its role in global commerce, the new symbol will standardize currency communication across India, where 15 languages are commonly spoken. The government also hopes the symbol will set it apart from other countries with currencies of the same name, among them Pakistan, Nepal, Indonesia and Sri Lanka.
The rupee symbol combines ancient Hindi script with the letter R. The parallel horizontal lines at the top are a reference to the Indian flag and to the nation’s efforts to promote equality among its people.
India’s $1.2 trillion economy is the 10th largest in the world. That wealth, however, is not spread evenly among its people. The country ranks 139th in per-capita income, and some 450 million people – 40 percent of the population – live below the poverty line.
As bad as this number is, it used to be much worse: 90 percent of Indians were below the poverty line in 1980.
But if India is to meet the high expectations many have for it, it has to aim much higher than just the poverty line. The government must have effective policies to build much-needed infrastructure and stimulate the growth of India’s middle class.
This is the strategy that worked for China, and we think it could work for India as well.
Chart of the Week - Oil Demand Returns
July 23, 2010
China was crowned the world’s top energy consumer earlier this week but demand growth in all parts of the world except Western Europe has pushed global oil demand growth past pre-financial crisis levels. Oil-industry analyst PIRA is forecasting demand growth will exceed 2 million barrels per day by mid-2011.
As you can see from the chart, demand growth in emerging Asia has remained steady throughout the crisis except for a hiccup in early 2009. Meanwhile, the U.S., Japan and the rest of the world experienced substantial contractions in demand.
PIRA says strong global economic growth—it estimates 4.2 percent GDP growth in 2010—will push global oil demand 1.95 million barrels per day higher than it was a year ago. More than 60 percent of this growth will come from China, India and other developing areas of the world such as the Middle East. The U.S. will kick in an additional 20 percent—adding 400,000 barrels per day in year-over-year demand growth.
That’s a strong pace that may slow down next year.
The International Energy Agency (IEA), the Paris-based agency that broke the news on China’s top status this week, is heading in the opposite direction. The IEA sees world oil demand increasing by 1.3 million barrels a day (1.6 percent) in 2011. That’s a slowdown from 2010 but close to the average 1.7 percent annual growth rate we saw from 2000-2007.
The pace of oil demand growth is going to depend on the pace of the recovery. If some of the economic fears come to fruition in Europe and even China, we could see global demand for oil suffer some setbacks.
This chart appeared in last week’s edition of the weekly Investor Alert. Sign up to receive the Investor Alert via email at http://www.usfunds.com/alert.
A New Age of Energy
July 21, 2010
Five years ago, nearly every natural resource investor knew two things to be true. First, South Africa was the world’s largest producer of gold and second, that the U.S. used more energy than anyone else in the world. Titles both countries had held for a century.
Now, both of those truisms are false.
The International Energy Agency (IEA) reported this week that China overtook the U.S. in energy consumption last year, outpacing the U.S. by 4 percent (2.252 billion tons vs. 2.170 billion tons). The IEA measures energy usage in tons of oil equivalent which includes all crude oil, nuclear power, coal, natural gas and renewable sources.
The IEA’s chief economist said the announcement begins “a new age in the industry of energy.”
While most, if not all, had predicted China would become the world’s largest energy user, many didn’t think it was going to happen for another five years. China’s rise to the top can largely be attributed to a decline in energy usage in the U.S. China’s 2009 energy usage was below that of the U.S. from 2004-2008, before the financial crisis.
In fact, just ten years ago China’s energy consumption was less than half that of the U.S., according to the Wall Street Journal. The U.S. remains the biggest energy consumer on a per capita basis, the IEA economist said, consuming three times more per citizen than China. The U.S. also consumes more than twice the amount of oil that China does in a day.
But like most things with China, that statistic won’t last long. The IEA reported in last year’s World Energy Outlook that China and India will represent more than half of all incremental demand increases by 2030.
Well aware of the global politics of energy, the Chinese government was quick to dismiss the story as an overestimation by the IEA. Probably not the last time we’ll see modesty from Beijing as the country continues to put “world’s largest” in front of more and more resources.
Net Asset Value
as of 09/02/2010
- Global Resources Fund
PSPFX $8.72 +0.08 - Gold and Precious Metals Fund
USERX $17.25 +0.18 - World Precious Minerals Fund
UNWPX $19.21 +0.13 - China Region Fund
USCOX $8.50 No Change - Eastern European Fund
EUROX $9.05 +0.03 - Global Emerging Markets Fund
GEMFX $8.15 +0.01 - Global MegaTrends Fund
MEGAX $7.67 +0.03 - All American Equity Fund
GBTFX $19.86 +0.15 - Holmes Growth Fund
ACBGX $15.79 +0.19 - Tax Free Fund
USUTX $12.61 No Change - Near-Term Tax Free Fund
NEARX $2.27 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change