If I asked you what is the most important factor driving emerging markets these days, how would you answer? Here are a few suggestions:

1. It’s the rapidly growing urban populations.
2. It’s the fact that emerging countries need improved roads, ports, airports.
3. It’s the investment in commodities, such as oil, coal, iron ore, steel and cement.
4. It’s the affinity for gold.

Our experience researching and meeting with companies around the world dictates that we create a fifth choice, “All of the above.”

The latest Shareholder Report magazine shows how these trends are intertwined. Our natural resources outlook focuses on how experts anticipate infrastructure spending to be in the trillions in several emerging market countries over the next few years. And gold demand continues to grow because of the developing markets’ rising wealth linked with a traditional affinity for the metal, and the accumulation of gold by central banks.

In a new feature entitled, “Minute with the Manager,” we sit down with Tim Steinle, the co-manager of the Eastern European Fund (EUROX), in between his trips around the region. Learn where he’ll be focusing his attention in 2011. You can also watch parts of the interview by clicking here.

Like Tim, all of our fund managers continuously try to find the best investment opportunities. That’s how we believe we can deliver superior investment performance over the long-term. Read my letter to see how our shareholders have benefitted from our experience.

Click on the link below to see the online version of Shareholder Report now. If you would like a hard copy, send us an email at editor@usfunds.com.

Download the Report.

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.

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. The Eastern European Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries.  The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

The prices for many commodities suffered the worst week in recent memory last week. Oil prices dipped below $100 per barrel, gold fell below $1,500 an ounce and silver gave back much of the past month’s gains by falling to the $35 an ounce level. The prices for other commodities such as sugar, tin, nickel, aluminum, lead and copper also pulled back.

Immediately, headlines on websites such as Marketwatch, Bloomberg and SmartMoney read “Has the Commodity Bubble Popped?” and “Imploding Commodities Complex.”

Is this the end? Has the great bull run for commodities come to an end?

In our opinion, not likely.

First of all, we wrote on April 24 that commodity prices were due for a pullback (Read: Don’t Fear a Pullback in Prices). Specifically, we pointed out that silver had wandered into “extreme” territory which exacerbated the reversal we saw this week.

On May 3 (before we saw the largest declines), BCA Research wrote “one look at the hyperbolic rise in silver prices should be sufficient to convince even a hardcore commodity bull that things are getting frothy.”

In fact, the silver trade had gotten so far ahead of itself, the iShares Silver Trust ETF was “the most highly traded security on the planet,” according to our friend Tom Lydon over at ETF Trends. Last week’s selloff was less of an end to the bull market and more a function of “stampeding speculators” (to borrow a line from Sarah Turner at Marketwatch) rushing for the exits.

But short-term speculators aren’t the only factor; last week’s strength in the U.S. dollar was just as much a facilitator of the price declines. The U.S. dollar found additional strength on Thursday after Jean-Claude Trichet, president of the European Central Bank (ECB), said the ECB would not raise rates until after June. By week’s end, the U.S. dollar was up 2.5 percent for the week, a pretty big move.

In addition, we entered the month of May which has historically proven to be a weak and volatile period for commodities. With the Federal Reserve set to wind down its quantitative easing (QE2) program by the end of next month, it’s possible we could continue to see volatility for a little while.

Despite the selloff, commodities were still the year’s top performing asset class as of Thursday. You can see from the chart that the year-to-date return for commodities has far outpaced the return for foreign exchange, bonds and emerging markets.

Looking out on the horizon, very little has changed for the long-term bull case for commodities. The U.S. is still struggling to come up with a feasible solution to its multi-trillion dollar debt problem. Emerging markets are still seeing incremental increases in demand for nearly all commodities. And, the reserves for many commodities are still struggling to keep pace with this demand.

Essentially, what happened last week was more of a “technical correction” than a fundamental shift in the long-term dynamics for commodities and we’ve already begun this week with big gains for silver and crude oil prices.

The party’s not over for commodities, so don’t turn out the lights just yet. While it’s impossible to predict the future, we think in a month or two investors may look back and see this downdraft as a good buying opportunity.

None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of March 31, 2011.

The Deutsche Bank Liquid Commodities Index (DBLCI) tracks six commodities, rolling positions in crude oil and heating oil monthly, and in gold, aluminum, corn and wheat once per year. The Deutsche Bank Currency Return Index (DBCR) is a foreign exchange index that is designed to capture the long0term systemic returns in currency markets. The DBCR replicated the three most widely employed FX strategies–carry, momentum and valuation.

The DBIQ Global Sovereign suite of indices offers coverage of both the fixed coupon and inflation linked government bond markets. The creation of the DBIQ Global Inflation-Linked Sovereign reflects the growing importance of the inflation-linked market. The suite covers 21 countries with an inception date of 31-Dec-97. The objective of producing a highly liquid and replicable index has been achieved by defining strict and transparent index rules with high liquidity requirements resulting in only the most actively traded debt of each country being captured. Global IG Sovereign reflects the returns of the Global Developed Country Fixed Coupon Government bond market.

Barclays Capital Municipal Bond Index A broad-based, total return index. The Index is comprised of 8,000 actual bonds. The bonds are all investment-grade, fixed-rate, long-term maturities (greater than two years) and are selected from issues larger than $50 million dated since January 1984. Bonds are added to the Index and weighted and updated monthly, with a one-month lag.

The MSCI AC (All Country) Asia ex Japan Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of Asia, excluding Japan. The MSCI AC Asia ex Japan Index consists of the following 10 developed and emerging market country indices: China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand.

Global crude oil and liquid fuel consumption grew at its second-fastest pace in over three decades in 2010, rising 2.8 percent to 86.7 million barrels per day, according to the U.S. Energy Information Administration (EIA). In fact, worldwide oil consumption surpassed 2007 pre-recession levels.

For 2011 and 2012, the EIA forecasts that, around the world, we’ll use an annual average of 1.6 million barrels of oil per day. The EIA says this increase is expected to be driven by rising demand from the emerging world, mainly China, Brazil and the Middle East.

While Chinese oil consumption growth is expected to slow from the blistering 13.1 percent growth the country experienced in 2010, China is still expected to see a 6.6 percent growth in consumption this year. By 2015, the International Energy Agency (IEA) estimates that the use of oil in China will increase some 70 percent from 2009 levels, accounting for 42 percent of global demand over that time period.

One key driver of the increase in oil consumption is the continued rise in economic wealth of China and other emerging countries. Historically, the amount of oil consumed per capita is strongly linked with the country’s GDP per capita.

This chart from Barclays compares selected Asian countries’ use of oil over several decades by their population and GDP. You can see that Chinese per capita oil consumption is well behind the pace of its Asian peers when they had a comparable level of GDP per capita.

Currently, China’s GDP per capita is just over $5,000 on a purchasing power parity (PPP) basis. That translates into consumption levels of just over 2 barrels of oil per person, per year.  At the same PPP levels, Japan (over 18 barrels per person), Taiwan (about 6 barrels per person) and Korea (just over 4 barrels per person) consumed much larger amounts of oil at a similar level of GDP per capita.

Barclays says that China’s per capita oil consumption would have to increase nine-fold from 2010 levels in order to match that of the U.S. and India’s would have to increase 23 times what it was in 2010. If this were to happen an additional 170 million barrels a day of production would be needed to meet demand.

Considering the U.S. roughly consumes as much oil, in terms of total consumption, as the next five highest oil-consuming countries (China, Japan, India, Russia, Germany) combined and China has over 1.3 billion people, it’s doubtful we’ll see this come to fruition any time soon. However, China only needs to catch up with the likes of South Korea or Taiwan to put a severe strain on global oil supply.

This means that the global oil market will remain tight for the extended future. Barclays says “relative to other sectors of economic activity, oil has become scarce, implying a need to divert ever larger shares of total economic resources into the exploration and recovery of oil.”

Watch Evan Smith discuss ways to play higher energy prices with Margaret Brennan on Bloomberg’s “In Business.”

Watch Evan on Bloomberg

Purchasing power parity (PPP) is a theory of long-term equilibrium exchange rates based on relative price levels of two countries.