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Gold Rushing On
August 25, 2010
The World Gold Council’s latest quarterly recap of the gold market confirms much of the big-picture story we already knew: demand is strong (up 36 percent from a year earlier), supply is not keeping pace (up 17 percent), and global economic worries are driving investors toward gold as a safe haven.
Drilling down a little further turns up a number of interesting points:
- Investment demand in the second quarter of 2010 (red bar in the chart) more than doubled compared to the same period in 2009, and accounted for more than half of total global demand. Investors bought the most gold since the first quarter of 2009, at the depths of the Great Recession.
- Demand from exchange-traded funds rose more than 400 percent to about 291 metric tons (9.4 million troy ounces), and retail investors bought about 30 percent more bars, coins and gold in other forms.
- Industrial demand is approaching pre-recession levels. The WGC credits the growing popularity of new consumer devices like iPads, Kindle electronic readers and netbook computers with driving this trend.
- Jewelry demand is down only slightly year-over-year, even though the gold price has risen from the $900+ per ounce range to $1,200 per ounce. In Hong Kong, for example, jewelry demand rose more than 30 percent in physical terms and nearly 80 percent in U.S. dollar terms.
The WGC says it foresees strong gold demand through the end of 2010, with India and China leading the way, along with concerns about economic recovery and the massive sovereign debt loads in Western Europe and elsewhere.
So far, August has been an unusually good month for gold – as of midday today, the price is up 6 percent this month, where historically the August price tends to rise only 2.5 percent above July.
We recently wrote about gold seasonality – September, just a few days away now, is on average the best month for both gold and gold equities. Learn why September means ready, set, gold!
We also have written about gold in the context of the global economic uncertainty and also about China’s important role in future gold demand.
Money Flows to Emerging Markets
August 24, 2010
We often say that the global growth story is perhaps the planet’s most potent economic driver, and this opportunity is not lost on investors.
The Financial Times recently published an interactive map showing the growth of net private capital inflows into the key emerging market regions going back to the mid-1990s and through booms, busts and various regional fiscal and monetary crises.
Back in 1995, the combined net capital inflows to Latin America, Eastern Europe, Africa/Middle East and Asia ex-Japan was roughly $250 billion. A decade later, the same net inflow went into Eastern Europe alone and the total global figure topped $600 billion.
The peak is pictured above – in 2007, net private capital inflow totaled more than $1.2 trillion. Then came the Great Recession – in 2008, the number was less than half, with Asia falling from $413 billion to $107 billion. The net inflows are estimated at some $700 billion this year and about $750 billion in 2011.
Overall takeaway – global emerging markets are now well-established as an important asset class in the eyes of the investment community as the financial systems in these countries have matured and government policy changes have removed many obstacles that had impeded foreign investors.
And given GDP growth projections that far surpass those of the developed economies, the appeal of emerging markets is not likely to change any time soon.
Traffic Jam on the Superhighway
August 20, 2010
There’s growing congestion on one of America’s highways and reports say the problem will only get worse. In just the past few years, America’s technological network—our information superhighway—has gone from hare to tortoise. Dropped calls, Internet outages and surfing at a snail’s pace now seem to be commonplace.
One of the main causes of the congestion is the exponential growth of smartphones. Did you know that the new 4G iPhone uses the equivalent network capacity of 200 older generation cell phones?
Earlier this year when Apple sold 1.7 million of them in just three days, it was the data equivalent of dumping 340 million new cell phones into the system at once—no wonder there were problems. It isn’t Apple’s (or AT&T’s) fault so many people wanted their product, but it does highlight the investment opportunity.
According to tech research firm PacificCrest, the global technology buildout is a $200+ billion opportunity over the next five years. The infrastructure needs include $100 billion to relieve congestion and $50 billion for boosting networks by upgrading Internet protocols. PacificCrest also estimates $54 billion is needed for new routing systems to improve data flow.
PacificCrest says we’re entering the next phase of the Internet infrastructure build cycle as big firms boost their capital spending to alleviate bottlenecks and accommodate technological improvements.
During the last cycle (2004-2008) the top five Internet firms spent roughly $15 billion on infrastructure, but that figure is expected to jump to $28 billion over the next four years.
The infrastructure upgrades and additional networks are important because much of the world still isn’t connected. There are 183 billion emails sent each day, but 78 percent of the world’s population still doesn’t have email. There are roughly 6 billion devices (4.6 billion mobile phones, 1.2 billion computers) hooked up to the Internet today, but less than 10 percent of those have high-speed access.
As more people—especially in the developing world—join the broadband and mobile communities, immense strains will be placed on the global network over the next few years. There should be substantial opportunities to participate in this buildout along the way.
The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 6/30/10: Apple, AT&T
The Biggest (And Getting Bigger) City You’ve Never Heard Of
August 19, 2010
Deep inside China, the city of Chongqing is growing so fast that maps are out of date the moment they’re printed. Even for a country busting at the seams with development, Chongqing is exceptional—it’s the world’s fastest growing city.
From just 200,000 people in the 1930s, the city’s population has ballooned to 32 million and there are no signs of slowing – the metropolitan area absorbs an additional 1 million people every year.
Like many other places in China, this high-speed transition has overwhelmed infrastructure and the very idea of “city planning.” An article about Chongqing in the latest issue of Foreign Policy magazine likens the city’s growth to “a railroad car hurtling down the line at the same time that attendants scramble to hitch on the wheels and lay the track.”
Speaking of laying track, $1.5 billion is to be spent on the city’s light-rail system and $1.2 billion on other rail lines this year, Foreign Policy writes. On top of that key infrastructure outlay, $2.3 billion is going to highways and a massive project is under way to double Chongqing’s airport capacity to 30 million passengers by 2011 and 70 million by 2020. Financing for these and other projects is a mix of government and foreign investment.
On the jobs front, the local government slashed corporate tax rates to 15 percent (the national rate is 25 percent) to woo foreign corporations. That appealed to Hewlett-Packard, which is setting up shop in the area.
The “Chongqing model,” as it is called, has quadrupled the city’s GDP since 1998 to $86 billion. Currently, the city’s per capita income is only $3,300 a year, well below Beijing’s $10,000 level.
Chongqing’s robust weapons, motorcycle manufacturing and chemicals factories aren’t cheap-labor exporters to the developed world. Nearly 90 percent of the industrial goods produced in Chongqing are kept in the country.
This is a good example for the Beijing government to point at as it works to transition China from an export-led economy to one built on domestic consumption.
Read more about investing in the China Region.
Read “Chicago on the Yangtze” from Foreign Policy Magazine
By clicking the links above, you will be directed to the Foreign Policy website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of 6/30/10.
Chart of the Week: China’s Energy Needs
August 18, 2010
All indications are that China will see a GDP growth slowdown through the end of 2010 as the Beijing government works to take some of the heat out of property prices in the country’s key cities.
We see this short-term slowdown as a good thing in the longer term because, by acting before there’s an economy-wrecking crisis, China can position itself for a more sustainable growth pace going forward. This means a lesser reliance on exports and fixed-asset investment, and more emphasis on the domestic sector.
This chart from Deutsche Bank, which appeared in U.S. Global’s weekly Investor Alert, shows the progression of China’s crude oil imports going back to 2002.
As you can see, the trend—represented by the red annual average lines—shows that China is importing three times more crude than eight years ago to support its economic growth.
Last month’s imports (the farthest right vertical blue line) show a steep fall off from June’s levels, and PetroChina forecasts slow growth through year-end as industrial production and GDP growth fall off.
But in 2011, Deutsche Bank’s analysts say, the story gets better. Refining capacity is scheduled to expand beginning in September, and these refineries will need more imported crude to operate.
The International Energy Agency (IEA) predicted last week that China will use more than 9.3 million barrels per day in 2011, up 4.5 percent from this year. The IEA says China will account for one-third of new crude oil demand next year.
Another driver for imports: China is building its strategic petroleum reserve and will add 40 million barrels worth of storage capacity in the first half of 2011.
Read how China factors into our Case for Natural Resources.
The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 6/30/10: PetroChina
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