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July 2015

For the month ending July, spot gold closed at $1,095.82 down $76.60 per ounce, or 6.53 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 22.47 percent. The U.S. Trade-Weighted Dollar Index rose 1.94 percent for the month. The Philadelphia Gold & Silver Index (XAU) fell 24.67 percent. The S&P/TSX Global Gold Index fell 18.51 percent. The FTSE/JSE African Gold Mining Index fell 21.92 percent. See complete fund performance here.

Strengths

  • On July 17, in the first update since 2009, the People's Bank of China announced that it owns about 1,658 tonnes of gold, implying purchases of just 100 tonnes a year since its last update. That's significantly less than consensus expectations and thus leaves the door open for further accumulation as China attempts to internationalize the renminbi. In July, the U.S. Mint sold the most physical gold in two years, even as the price of the precious metal briefly slid to its lowest level in five years.
  • Comstock Mining announced it reached a definitive agreement with John Winfield to amend the terms of the operating agreement for its Northern Comstock LLC joint venture. The agreement will reduce the company's remaining capital contributions from $31.05 million down to $9.75 million. In addition, any prior or future royalty commitments for the Northern Comstock properties and Mr. Winfield will be eliminated. This strengthens the balance sheet by significantly reducing liabilities while improving liquidity and lowering future capital costs. The company has consolidated an unprecedented land position in the world-class Comstock silver and gold district. Mr. Winfield also announced that he intends to donate all of his resulting personal dividends to the Comstock Foundation, an established 501(c)3 organization dedicated to the protection, preservation and restoration of Comstock. He also informed the company of his intention to step down from his duties on its board to focus more on the community-enhancing work of the foundation. Comstock's share price rose 58 percent for the week on the good news as the change in capital structure will allow a new group of investors to start purchasing the stock.
  • Claude Resources reported second quarter 2015 gold production of 20,619 ounces, a 10-percent increase from a year ago. The record-breaking first half performance of 41,686 ounces has resulted in the company increasing its gold production guidance to between 68,000 and 72,000 ounces in 2015. Kirkland Lake reported results for its fiscal 2015 fourth quarter and achieved a head grade of 0.42 ounces per ton, or 14.4 grams per ton. It produced 37,979 ounces of gold in the quarter and a total of 153,957 ounces for the full year. Centamin's second quarter 2015 output results were up 33 percent year-over-year for a total of 107,781 ounces of gold.

Weaknesses

  • Gold is down more than 10 percent from its 2015 highs and the pervading negative sentiment is evident in the position of speculators in the futures market. The net long position is now the lowest since at least 2006 when gold was worth less than $600 per ounce.
  • The S&P Goldman Sachs Commodity Index has lost more than 12 percent month-to-date, bringing its level to the lowest since February 25, 2002. It has now exceeded the bottom of the 2008 global financial crisis.
  • With gold prices tumbling to five-year lows, investors aren't just selling out, they're betting against it. Speculators in July amassed record short holdings in the metal. Also telling is that the number of hedge funds that are hoping to profit from declines is near a record high. Further signs of trouble are the fact that Indian jewelry bargain hunters are holding off from buying because they believe the collapse in price has further to run.

Opportunities

  • Canaccord Genuity maintained its buy rating and C$5.00 price target on Klondex Mines following better-than-expected consolidated second quarter operating results. Sales exceeded their expectations by 10 percent, primarily due to higher mill throughput and considerably higher gold grades. Management also increased 2015 guidance to between 125,000 and 130,000 ounces. This marks the second consecutive year that Klondex has raised guidance. Klondex currently trades at more than a 10 percent discount to its peers based on premium to net asset value. Canaccord believes this is an attractive entry point into one of the highest quality intermediate gold producers in the sector.
  • First Majestic agreed to purchase SilverCrest Mines for C$154 million, which represents a 37-percent premium to SilverCrest's 30-day weighted average price. Separately, OceanaGold announced it will acquire Romarco Minerals in an all-share transaction representing a 73-percent premium based on the July 29 closing prices. The combination is expected to create the lowest-cost gold producer in the market that is propelled by a long reserve life, a portfolio of high-quality assets that generate significant free cash flow, and a solid pipeline of organic growth opportunities. This represents two acquisitions announced in less than a week. This is a good sign that parties are now more willing to get a deal done, and could bode well for more deals in the near future.
  • In an interview with The Gold Report, Jeb Handwerger debunks the myth that when the U.S. Federal Reserve raises interest rates later this year, it will prove negative for gold. He argues that we've had a four-year parabolic rise in the Dow Jones Industrial Average without a meaningful correction, and history has shown that usually every four years you see a 30- to 50-percent correction. He says rising interest rates may be the catalyst that causes investors to flee the general stock market, which has proven attractive in a low rate environment. Thus, higher interest rates, concurrent with a pickup in inflation, could result in a rush to safe-haven assets such as gold.

Threats

  • Although the old trading mantra says “sell in May and go away," the current three-month seasonality suggests that the worst three-month period of the year is actually August-October.

  • The incumbent presidential cycle calls for a mid-year 2015 peak ahead of a weaker period into year-end and 2016. This weaker part of the cycle opens the window for a cyclical bear market within the larger secular bull market trend, according to Bank of America Merrill Lynch. Weakness ahead might also be foreshadowed by the collapse of net free credit to a new record low. Net free credit is free credit balances in cash and margin accounts net of the debit balance in margin accounts. As of April, net free credit stood at a new record low of -$227 billion. If the market drops and triggers margin calls, investors do not have cash in their accounts and would be forced to sell stocks or get cash from other sources to meet the margin calls. This would likely exacerbate an equity market selloff.

  • Cornerstone Macro has released a report about the unprecedented disconnect between central bank easing and economic activity. Despite 57 global central bank easing policies since the beginning of 2015, China has continued to deteriorate, the eurozone economy has run into structural headwinds, and Japan's economic recovery appears to have stalled in the second quarter. This is a very unusual time where, despite a global easing cycle, global growth is not accelerating and, if anything, is continuing to slow.

Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund's prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end here or by calling 1-800-US-FUNDS.

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 index benchmark value was 500.0 at the close of trading on December 20, 2002. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Philadelphia Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of 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 FTSE/JSE African Gold Mining Index is a market capitalization weighted index. The S&P GSCI Spot index tracks the price of the nearby futures contracts for a basket of commodities. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund and the World Precious Minerals Fund as a percentage of net assets as of 6/30/2015: Comstock Mining Inc. 1.98% in Gold and Precious Metals Fund, 1.33% in World Precious Minerals Fund; Claude Resources Inc. 1.59% in Gold and Precious Metals Fund, 0.71% in World Precious Minerals Fund; Kirkland Lake Gold Inc. 5.74% in Gold and Precious Metals Fund, 1.59% in World Precious Minerals Fund; Centamin PLC 1.33% in Gold and Precious Metals Fund; Canaccord Genuity Group Inc. 0.00%; Klondex Mines Ltd. 16.18% in Gold and Precious Metals Fund, 17.34% in World Precious Minerals Fund; First Majestic Silver Corp. 0.00%; SilverCrest Mines Inc. 1.01% in Gold and Precious Metals Fund; OceanaGold Corp. 1.35% in Gold and Precious Metals Fund, 0.40% in World Precious Minerals Fund; Romarco Minerals Inc. 0.70% in World Precious Minerals Fund.

Net Asset Value
as of 08/27/2015

Global Resources Fund PSPFX $4.88 0.15 Gold and Precious Metals Fund USERX $4.71 0.12 World Precious Minerals Fund UNWPX $3.95 0.14 China Region Fund USCOX $7.36 0.25 Emerging Europe Fund EUROX $5.47 0.12 All American Equity Fund GBTFX $26.59 0.59 Holmes Macro Trends Fund MEGAX $19.92 0.38 Near-Term Tax Free Fund NEARX $2.24 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.01 No Change