Press Release:
U.S. Global Investors Reports Results for the Third Quarter of 2013 Fiscal Year

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

A strong stomach and a tremendous amount of patience are required for gold stock investors these days, as miners have been exhibiting their typical volatility pattern.

That’s why I often say to anticipate before you participate, because gold stocks are historically twice as volatile as U.S. stocks. As of March 31, 2013, using 10-year data, the NYSE Arca Gold BUGS Index (HUI) had a rolling one-year standard deviation of nearly 35 percent. The S&P 500’s was just under 15 percent.
 
I believe the drivers for the yellow metal remain intact, so for investors who can tolerate the ups and downs, gold stocks are a compelling buy. Here are three reasons:

1. Gold Companies are Cheap.

According to research from RBC Capital Markets, Tier I and Tier II producers are inexpensive on historical measures. Based on a price-to-earnings basis, RBC finds that “shares are currently trading not far from the recent trough valuations observed during the 2008 global financial crisis.”

And on a price-to-cash-flow basis, gold stocks are trading at bargain basement prices. The chart below shows that average annual cash flow multiples for North American Tier I gold companies have fallen to lows we haven’t seen in years. Since January 2000, forward price-to-cash-flow multiples have climbed as high as 26 times. This year, we see multiples at the high end that are less than half of that.

On the low end, today’s price-to-cash-flow of 6.5 times hasn’t been seen since 2001.

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Tier I and Tier II companies “offer investors an attractive entry point from an absolute valuation perspective with respect to the broader market,” says RBC.

2. Gold companies are increasing their dividends.

With the Federal Reserve suppressing interest rates, investors have had to adapt and reallocate investments to generate more income.

That’s where gold companies come in. I have discussed how miners have become much more sensitive toward the needs of their investors as they compete directly with bullion-backed ETFs and bar and coin buying programs.

In response to shareholders’ desire to get paid while they wait for capital appreciation, gold companies have rolled out dividend programs and increased payouts. “The growth in dividend payout has been spectacular when looking at the industry as a whole,” says my friend Barry Cooper from CIBC World Markets.

His data shows that over the past 15 years, the world’s top 20 gold companies have increased their dividends at a compound annual growth rate of 16 percent. By comparison, gold only rose 12 percent annually.

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Not only are gold companies increasing their payouts, the yields offer a tremendous income value to investors compared to government bonds today. Whereas investors receive a 1.5 percent yield on a 10-year Treasury, the stocks in the Philadelphia Stock Exchange Gold and Silver Index (XAU) are paying a full percentage point more!
 
This is a significant change from the past: In April 2008, the Treasury yield was nearly 3 percent more than the dividend yield of the XAU.

In addition, the yields of gold stocks have been climbing over the past year while the 10-year Treasury remains low.

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3. Enhanced returns in a diversified portfolio.

We have long advocated a conservative weighting of 5 to 10 percent in gold and gold stocks because of the inherent volatility you are seeing today. But despite the extreme moves, there’s a way to use gold stocks to enhance your portfolio’s returns without adding risk.

Take a look at the efficient frontier chart below, which creates an optimal portfolio allocation between gold stocks and the S&P 500, ranging from a 100 percent allocation to U.S. stocks and no allocation to gold stocks, and gradually increasing the share of gold stocks while decreasing the allocation to U.S. equities.

The blue dot shows that from September 1971 through March 2013, the S&P 500 averaged a decent annual return of 10.34 percent.

What happens when you add in gold stocks? Assuming an investor rebalanced annually, our research found that a portfolio holding an 85 percent of the S&P 500 and 15 percent in gold stocks increased the return with no additional risk. This portfolio averaged 10.96 percent over that same period, or an additional 0.62 percent per year, over holding the S&P 500 alone. Yet the average annual volatility was the same.

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Although 0.62 percent doesn’t seem like much, it adds up over time. Assuming the same average annual returns since 1971 and annual rebalancing every year, a hypothetical $100 investment in an S&P 500 portfolio with a 15 percent allocation in gold stocks would be worth about $7,899. This is greater than the $6,246 for the portfolio solely invested in the S&P 500 while adding virtually zero risk.

Case Study: Alamos Gold (AGI)

Not all miners are worthy of your investment, and the task of picking quality gold company candidates isn’t simple. One company we currently like is Alamos Gold, which reported first-quarter 2013 results last week.

To the delight of many mining analysts, the company beat analysts’ expectations on both the top and bottom line. Alamos grew its production to 55,000 ounces of gold from 40,500 ounces in the same quarter last year.

In addition, AGI boasts an 8.76 percent free cash flow yield, allowing executives to build the business through paying off debt, making acquisitions or returning money to shareholders. In Alamos’ case, the company announced a stock repurchase of 10 percent of its float over the next 12 months.

While the company trades at a premium to most junior producers, it may be well worth the extra coin, as its low cost profile, cash generation and self-funding capabilities, as well as its discipline in returning capital to shareholders fit our growth at a reasonable price (GARP) model.

Happy Mother’s Day!

As we honor and celebrate mothers this weekend, we thank them for their unconditional love and support. Alfred Lord Tennyson wrote, “Love is the only gold.” That may be true, but it wouldn’t hurt to stop by the jewelry store on your way to see Mom.

Recent Posts About Gold:
This Chart Answers a Classic Question About Gold
Gold Buyers Get Physical As Coin and Jewelry Sales Surge
Four Important Facts to Remember About Gold

 

Index Summary

• The major market indices moved higher this week.  The Dow Jones Industrial Average rose 0.97 percent. The S&P 500 Stock Index moved higher by 1.19 percent, while the Nasdaq Composite gained 1.72 percent. The Russell 2000 small capitalization index rose 2.17 percent this week.
• The Hang Seng Composite Index rose 3.01 percent; Taiwan gained 1.79 percent while the KOSPI declined 1.07 percent.
• The 10-year Treasury bond yield gained 16 basis points this week, to 1.90 percent.

Domestic Equity Market

The S&P 500 made new highs again this week as cyclical sectors powered ahead. Two weeks ago we highlighted that we could be at a potential inflection point in the market as the leadership of defensive areas such as telecommunications, staples, health care and utilities started to show signs of cracking and cyclicals began outperforming. This pattern was reinforced this week. 

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Strengths

• The industrials sector was the leader this week led by Precision Castparts, Fastenal and FedEx. Precision Castparts reported earnings this week which were ahead of expectations and made positive comments regarding the next few quarters.
• The consumer discretionary sector was also a strong performer this week as earnings from Fossil and DIRECTV were well received, with both companies rising by more than 10 percent for the week.
• Electronic Arts was the best performer this week, rising by more than 25 percent. The company gave positive 2014 earnings guidance and is showing discipline on margins.

Weaknesses

• The utility sector was the worst performer for the second week in a row as a sector rotation appears to be in the works as cyclicals gain favor and defensives retreat.
• The consumer staples sector underperformed as well this week in what is likely also sector-rotation driven after relatively strong performance for most of the year.
• Adobe Systems Inc. was the worst performer in the S&P 500 this week, declining 6.36 percent, as the company announced a decision to shift creative software to the cloud. This announcement caused confusion around their subscription model.

Opportunity

• The market continues to climb that proverbial wall of worry and just shakes off any bad news and rallies smartly on good news.
• Global central banks are literally pulling out all the stops in an attempt to ignite economic growth. The European Central Bank (ECB) cut interest rates last week, which is a move in the right direction as far as the market is concerned.

Threat

• A market consolidation wouldn’t be a surprise after a strong start to the year.  
• Expectations for cyclical areas of the market are low and allowing stocks to rally when companies just meet expectations. If the global economy were to deteriorate the market wouldn’t have much to fall back on.

The Economy and Bond Market

Treasury yields rose sharply higher this week even as economic data was benign. It likely reflects a sentiment shift that can also be seen in the equity markets as investors shift from relatively safe assets to riskier areas of the market.

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Strengths

• The Mortgage Bankers Association activity index rose 7 percent, led by an 8.3 percent rise in refinancing applications. The Federal Reserve’s zero interest rate policy is driving this trend and spurring other housing-related activity.
• Central banks in Australia, Korea and Vietnam cut interest rates this week as the global easing cycle continues.
• Initial jobless claims fell to 323,000, which is the lowest level since January 2008, and claims have fallen for three weeks in a row.

Weaknesses

• Initial indications for April retail sales were below estimates.
• Eurozone retail sales fell 2.4 percent year-over-year in March and have declined for 19 months in a row.
• In the U.K., April retail same store sales fell 2.2 percent, which is the worst decline in a year.

Opportunity

• The Fed continues to remain committed to an extremely accommodative policy.
• Key global central bankers are still in easing mode, such as the European Central Bank (ECB), Bank of England and the Bank of Japan. The Bank of Japan in particular is aggressively easing currently and the ECB recently cut interest rates.

Threat

• Inflation in some corners of the globe is getting the attention of policymakers and may be an early indicator for the rest of the world.
• Trade and/or currency “wars” cannot be ruled out which may cause unintended consequences and volatility in the financial markets.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

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For the week, spot gold closed at $1,448.20, down $22.55 per ounce, or 1.53 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 0.47 percent. The U.S. Trade-Weighted Dollar Index rose 1.24 percent for the week.

Strengths

• At the risk of sounding like a broken record, there is yet more evidence of the unprecedented demand for physical gold. Christopher Wood in his Greed & Fear report this Thursday notes that Chinese gold imports from Hong Kong in March more than tripled from a year ago, from 62.9 metric tons to 223.5 metric tons. Similarly, India is heading for its second-straight month of 100 plus metric tons of gold imports according to the Bombay Bullion Association. There is only one way to view this data, and it is bullish for gold.
• Franco-Nevada announced that it has acquired a 1.2 percent NSR royalty on Pretium's Brucejack project for $45 million. The royalty covers both the Valley of the Kings and West Zone and becomes payable after approximately 500,000 ounce. The investment by Franco-Nevada is certainly a vote of confidence in the project and serves to remind investors that there is value in junior mining stocks.

• Timmins Gold reported first-quarter results this week; the company’s operating earnings beat analysts’ expectations reflecting strong gold sales and lower than forecast costs.With production ramping up in the course of the year and a decline in capital expenses as the drilling season ends, the company is in a strong position and will likely see rising free cash flow and cash balances through the remainder of the year.

Weaknesses

• India’s silver imports slid 80 percent in 2012 and have continued falling in 2013. Despite producing sizable silver, unlike gold where the country is totally import dependent, the fall in demand is almost fully attributed to a decline in purchases for investment purposes, according to data from the All India Gem and Jewellery Trade Federation. Unlike gold which attracted massive physical buying after its historic fall mid April, silver has failed to garner any buying interest in India.
• Investors pulled $8.7 billion from gold exchange traded products (ETPs) globally in April, Blackrock's data showed, after bullion plunged half-way through the month. It appears the strong demand for coins, bars, and jewelry has not been enough to arrest the levels of institutional selling. In fact, ETP investors are net sellers into May, which Ole Hansen, head of commodity strategy at Saxo Bank, continues to attribute to institutional accounts. Wealth managers have been rotating out of commodities and into high-dividend equities and bonds as they look for yield.
• Despite having unbundled some of its labor-intensive, wildcat strike-prone mining assets earlier in the year, Gold Fields reported earnings per share 5 percent below estimates and 66 percent lower than last quarter. Production from the company’s mines came in 11 percent below last quarter at 477,000 ounces, making the once controversial split even more unappealing to investors.

Opportunities

• Drew Mason of St. Joseph Partners noted in his Weekly Gold Review how equity investors are holding on to the single most negative viewpoint on gold in the market today, which is that central banks are on the verge of ending their money printing and again becoming responsible. However, the first days in May brought a broad amount of economic data which showed how weak the economy continues to be. At some point the consensus will remember the Fed has repeatedly broken its exit promise.  The view will shift from the Fed “will be exiting QE any minute now” to the realization the Fed is trapped and cannot exit which should be very positive for the metals.

• The question on when is the right time to step into the gold market and pick up stocks has been asked too frequently. The quantitative analysts at GMP Securities provided an interesting view this week. When the ratio of gold bullion to gold stocks is falling, it means gold stocks are appreciating at a higher rate than bullion, and that is exactly when you want to be in stocks. The ratio of gold relative to stocks as measured by the HUI Index has been rising constantly since early 2011 and is now at 5.65. From a statistical standpoint, the current level is above the two standard deviation level—despite the current gold weakness—implying a correction is imminent. During the correction you want to be long gold stocks.
• Peter Schiff, outspoken author of The Real Crash, permanent bear, and head of Euro Pacific Capital, is now an official gold supporter. On Friday Schiff released a video stating that the same unprecedented negative sentiment in the space will provide the “wall of worry” gold needs to climb back. In his opinion, he is now convinced the fundamentals have never been better for the yellow metal as the pace of currency debasement only accelerates, regardless where you are looking at.

Threats

• This month, the South African Chamber of Mines will sit down with unions to hammer out its next set of wage agreements. Despite recent questioning of the role of unions by workers themselves, who are worried that leadership has lost touch with its members, the National Union of Mineworkers spokesperson asserts they are prepared to fight for double-digit figure raises, leveraging on their opinion that companies acted in bad faith following negotiations last year. Costs have increased to a point where further, significant wage hikes are just not an option if the sector is to stay above water.
• The province of Quebec has defined the new hybrid royalty tax model applicable to mining companies. The levy will require producers to pay the greater of two amounts: a royalty on output, also deemed the minimum mining tax, or a tax on profits, deemed the progressive mining tax on profit. Minimum taxes will range from 1 percent to 4 percent depending on the size of the project, and profit taxes will range from 16 percent to 28 percent. Although the plan appears less damaging than initially thought, it adds pressure at a time when falling metal prices have already cut into the tight margins in the mining sector.
• The Colombian government has officially postponed a highly anticipated auction for 50 million acres of strategic mineral concessions. Thom Calandra reports that mining regulators in Colombia appear to need more time to gather information about the properties, which were to have gone to bid later this year. Other properties, known as concession applications, which have long been delayed, appear thus far not to be at risk of postponement.

Energy and Natural Resources Market

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Strengths

• China consumed a total of 320.54 tons of gold in the first quarter, surging 25.6 percent year-over-year, according to a report released by the China Gold Association Tuesday. In the first quarter, China produced 89.91 tons of gold - an 11.26 percent increase over the same period last year, according to the association. "The big increase shows that Chinese consumers have strong demand for gold products," Zhang Bingnan, secretary-general of the China Gold Association, told the Global Times Tuesday.
• Recent data showed the strongest monthly US. coal exports since 1973, rising 58 percent in March (24 percent year-over-year) helped by higher shipments to Asia and Europe.

Weaknesses

• Commodity-based exchange traded products (ETPs) suffered record outflows of $9.3 billion in April, data showed on Thursday, as institutional investors dumped gold holdings. Leading wealth managers have been switching out of commodities since the start of the year in favor of equities and bonds as they look for yield, a trend which accelerated in April with a major sell-off across the commodities field, led by a collapse in the gold price.
• Chinese steel giant Baoshan Iron & Steel Co has cut product prices for the first time in nine months because of domestic oversupply. The company cut rates of hot-rolled products for June delivery by 180 yuan a ton and of cold-rolled products by 150 yuan. Baosteel had officially kept May prices flat after raising them for five consecutive months, but traders said the mill has been offering discounts for May bookings. Last time Shanghai-based Baoshan cut prices was on August 10, 2012, for September delivery.
• Copper imports by China declined to the lowest level in 22 months in April, raising concern that demand is waning from the biggest user. Inbound shipments of the refined metal, alloy and products were 295,799 metric tons last month, the General Administration of Customs said on its website today. That was the lowest since June 2011, down 7.4 percent from March and 21 percent lower than a year earlier, according to data compiled by Bloomberg. A drop in arrivals may help bring down local stockpiles as both official and private surveys showed China’s manufacturing expanded at a weaker pace in April.

Opportunities

• Mining assets apparently are depressed enough to attract private equity buyers.  The Wall Street Journal reported that Carlyle has bid for a Rio Tinto copper mine in Australia. The initial bid is for a majority stake in the Northparkes mine in New South Wales, WSJ said, citing an unidentified person with knowledge of the matter. The bid price was not revealed according to the report. Rio holds an 80 percent stake in the copper and gold mine and the remaining 20 percent is held by Sumitomo Group.
• Is sub-Saharan Africa, in agriculture, the Brazil of the 1970s?  Savills, the property consultancy, believes so – although acknowledging that acquiring land in the Dark Continent is "not for the faint-hearted." "The African model is likely to show a similar, although accelerated, pattern to agricultural investment opportunities in Brazil," the group said. "Forty years ago, Brazil had limited agriculture potential with poor infrastructure and a weak economy. However, investment in infrastructure, the availability of credit facilities and policy reform to consolidate land has turned around Brazil into a global hub of commercial agriculture". The company highlighted "significant growth corridors" developing in southern and eastern Africa "that not only unlock the potential for export for investors, but also significantly strengthen local and regional markets." These include swathes from Beira in Mozambique to Zambia and from Dar es Salaam in Tanzania to the Congo.
• Merger and acquisition opportunities continue in the oilfield equipment industry as Bloomberg reported that Dresser-Rand could be a takeover target for buyers such as Siemens AG, National Oilwell Varco and Cameron International Corp.

Threats

• Iron Ore supply growth to top demand, lowering prices, BHP says. Supply growth over the long term will outpace demand growth, Alan Chirgwin, GM of iron ore marketing, told a conference in Singapore. New supply will displace high-cost production, mainly from China, and result in lower prices and recent price volatility was a result of China’s inventory cycle after aggressive destocking in 2012. While the view on China is unchanged, rebalancing of the Chinese economy suggests resource intensity will consolidate at about half of GDP growth, Chirgwin said. China’s demand growth rate for many of company’s core products is expected to remain in the 2- to 4-percent per year range, he said at a gathering in Singapore.

May 9, 2013 Basking in Berkshire Hathaway's Glow	May 6, 2013 Don’t Sell in May: Here are Reasons to Extend Your Stay	May 1, 2013 A Case for Owning Commodities When No One Else Is

China Region Fund - USCOX  •  Emerging Europe Fund - EUROX
Global Emerging Markets Fund - GEMFX

Emerging Markets

Strengths

• The eurozone as a whole has posted two consecutive quarters of substantial current account surpluses with the rest of the world. Initially it was thought only a sustained boost in domestic consumption in Germany could pull the peripheral and eastern European countries back into a strong growth trajectory. The current situation bodes well for eastern European nations’ exports while retaining the optionality of a strong recovery in German inter-European imports.
• The Central Bank of Peru kept its benchmark interest rate unchanged at 4.25 percent for the 24th straight month while highlighting the historically low inflation, as well as the Bank’s view of the economy operating near its full potential. The mining industry, which dominates the local stock market, should be able to benefit from the low inflation and give a strong boost to the markets when commodities strengthen. As for this week, the Lima stock exchange is closing in positive territory, ahead of its main Latin American peers.
• China’s April money supply (M2) was up 16.1 percent, higher than the market expectation of 15.5 percent, while bank loans were RMB 792.9 billion, more than the estimated RMB 755 billion. Total social financing was RMB 1.75 trillion versus the market estimate of RMB1.5 billion and RMB2.5 billion in March. With faster credit expansion, the economy should grow well in the second and third quarters.
• China’s April CPI was still low at 2.4 percent, though a little higher than the consensus of 2.3 percent and 2.1 percent in March.
• China’s April exports went up 14.7 percent year-over-year versus the consensus 9.2 percent and 10 percent in March; imports were up 16.8 percent versus the consensus 13 percent and 14.1 percent in March. Although many analysts and journalists don’t believe the better-than-expected export numbers, citing lower exports to the U.S. and Europe and discrepancies between what China said it exported to Taiwan and what Taiwan said it had bought from Mainland China; the stock market reacted positively to the trade statistics. This might prove the point that the wisdom of crowds comes from general population or investors other than “informed” specialists.
• China’s State Council had two-day policy meetings in Beijing. The results are a list of reforms for 2013, e.g., interest rate liberalization, capital account convertibility and hukou reform. Those reforms are aimed at releasing the potential for industrial growth quality and efficiency, and to facilitate consumption and urbanization.
• China’s power generation improved in April as average daily power production was up 7.2 percent versus 2.4 and 5.2 percent for February and March, respectively, due to improved industrial demand, according to CICC.
• ; China’s April passenger vehicle sales went up 15 percent year-over-year, driven by new models. Domestic auto makers should be winners when government thrifty spending policies and anti-corruption policies are enforced by the central governments, while luxury brands are having short-term downside impact.
• Korea cut its benchmark interest rate by 25 basis points to stimulate the housing market and exports.
• Malaysia kept its benchmark rate unchanged at 3 percent, which economists and investors think is an appropriate rate after Malaysia’s ruling coalition, Barisan Nasional (BN), won the election to remain in control. Investors like that the economic policy will be in status-quo under the new government.

Weaknesses

• Turkey lost some ground this week relative to its eastern European peers as speculation that the possible sovereign credit re-rating by Moody’s would not take place until the end of the year. It appears the market was expecting the review to take place earlier in the year following the advancements highlighted by the agency in recent weeks. 
• Venezuelan inflation soared to 4.3 percent month-over-month in April, significantly exceeding analysts’ expectations of a 3.0 percent rise. The central government, the sole provider of foreign currency, has only held one U.S.-dollar auction following the March elections, effectively making fewer dollars available for importers. This is especially problematic for a country that imports most of its consumption goods. In fact, the scarcity index, which tracks the amount of goods that are out of stock on the market, rose to 21.3 percent, the highest since the central bank began tracking the measure. Shortages of basic goods risk worsening both the fragile economy as well as the deteriorating social tensions.
• China’s April Producer Price Index (PPI) was down 2.6 percent versus down 1.9 percent in March, which showed weak downstream production demand for midstream materials and products. It also is the reason we believe inflation will stay low for a while, which would keep the People’s Bank of China (PBOC) accommodative.
• Malaysia’s March exports contracted 2.9 percent year-over-year, but better than a contraction of 7.7 percent in February this year. For the first quarter, exports fell 2.4 percent, mostly due to lower palm oil prices; imports were up 6.2 percent due to strong domestic demand. The decline in March industrial production eased to -0.2 percent year-over-year from -5.2 percent in February, but below consensus expectations for +0.2 percent.
• Indonesia’s GDP growth moderated to 6 percent in the first quarter of 2013, down from 6.1 percent in the fourth quarter of 2012, and consensus was 6.1 percent. The slower growth rate was due to weak exports and slower growth in gross fixed asset formation and domestic consumption.

Opportunities

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• As shown in the graph above, money supply (M2) was up 16.1 percent in April. The PBOC has recently stayed in an easing monetary stand by injecting liquidity into the system, and the bank systems are lending out faster than the market expectation. This bodes well for the economy in the second and third quarters, particularly helping fixed asset investments and domestic consumption.
• Speculation of more monetary easing in the Czech Republic has been gaining momentum among policymakers in the past week. After four months with the benchmark rate at 0.05 percent, members of the Central Bank’s board have expressed their intention to increase monetary stimulus through foreign exchange intervention.
• Mexico had its sovereign debt rating raised to BBB+ from BBB by Fitch Ratings on Wednesday. The agency cited strong macroeconomic fundamentals, credibility in the inflation targeting and flexible exchange rate regimes, and greater commitment of the new administration in order to pass structural reforms. In addition, the Citibank Latin America Strategy team issued a positive report highlighting opportunities in the country’s staples, financials, and consumer discretionary sectors despite the recent earnings weakness.
• Mexico recently reported a $3.27 billion fiscal surplus for the first three months of 2013, as well as $6 billion in Japanese foreign direct investment over the last eight quarters. It can only be expected for this strength to give momentum to the economy and build on the competitiveness platform President Pena Nieto is submitting to Parliament. In addition, President Obama is on an official visit to Mexico this week and, despite the fact that the President is visiting mainly to discuss immigration and security, the trip presents an opportunity to touch on other bilateral items in the agenda such as immigration and trade.

Threats

• China’s April PPI was down 2.6 percent, showing weak demand for midstream products and fragile economic growth recovery. Particularly, the weak PPI statistics might reflect the fact that the small- to medium-sized firms, which are the driving forces in China’s exports, are facing weak external demand and headwind from the appreciating Yuan.
• Business Monitor International issued a report highlighting the current trend of the Russian current account balance and its implied rapid erosion of export competitiveness. The report demonstrates how lower oil prices, very low levels of export diversification, as well as ineffective measures to address the uncompetitive nature of non-oil exports are likely to bring Russia into a current account deficit scenario within the next five years.
• The government of President Dilma Rousseff appears to have lost coordination with Brazil’s congress at a pivotal time for approving structural reforms. Earlier this week the federal government pulled its proposed value-added tax reform, allegedly following multiple modifications introduced by congress which disfigured the original reform. In addition, the lower house failed to vote on a decree, backed at the federal level, to increase private investment in the ports, which are running at overcapacity and worsening the cost structure of export-driven industries.

Leaders and Laggards

The tables show the weekly, monthly and quarterly performance statistics of major equity and commodity market benchmarks of our family of funds.

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.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

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 Emerging Europe Fund invests more than 25 percent 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.

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.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 03/31/12:

Baoshan Iron & Steel Co.: 0.0%
Shanghai Baosteel Group Corp.: 0.0%
Rio Tinto Group: 0.0%
The Carlyle Group LP: 0.0%
Sumitomo Mitsui Financial Group, Inc.: 0.0%
Dress-Rand Group Inc.: Global Resources Fund, 0.35%
Siemens AG: 0.0%
National Oilwell Varco, Inc.: 0.0%
Cameron International Corp.: 0.0%
Precision Castparts Corp.: 0.0%
Fastenal Co.: 0.0%
FedEx Corp.: 0.0%
Fossil Inc.: 0.0%
DIRECTV: 0.0%
Electronic Arts Inc.: 0.0%
Adobe Systems Inc.: 0.0%
Franco-Nevada Corp.: Global Resources Fund, 0.06%; Gold and Precious Metals Fund, 3.17%; World Precious Minerals Fund, 1.33%
Alamos Gold Inc.: Global Resources Fund, 0.96%; Gold and Precious Metals Fund, 1.90%; World Precious Minerals Fund, 1.95%
Pretium Resources Inc.: World Precious Minerals Fund, 0.74%
Timmins Gold Corp.: Gold and Precious Metals Fund, 0.40%; World Precious Minerals Fund, 0.53%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

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The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
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The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
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The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The Bloomberg Gold Bear/Bull Sentiment Indicator charts the percent of respondents in a weekly Bloomberg News survey of traders, investors, and analysts predicting gold prices will rise the following week. The number of participants in the survey, which is completed every Friday, may vary.
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 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.
The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Producer Price Index (PPI) measures prices received by producers at the first commercial sale. The index measures goods at three stages of production: finished, intermediate and crude.
The MSCI China Free Index is a capitalization weighted index that monitors the performance of stocks from the country of China.
The Mortgage Bankers Association Market Composite Index measures mortgage loan application volume.
M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.
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.

These market comments were compiled using Bloomberg and Reuters financial news.