For the quarter ended March 31, 2017, the World Precious Minerals Fund gained 5.51 percent, underperforming the fund's benchmark, the NYSE Arca Gold Miners Index, which rose 8.57 percent. The Gold and Precious Metals Fund gained 8.10 percent, slightly underperforming its benchmark, the FTSE Gold Mines Index, which rose 8.85 percent. See complete fund performance here.

Past performance does not guarantee future results. 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.

Strengths

  • Bloomberg reports that China’s holdings of U.S. Treasuries, which are backed by the full faith and credit of the U.S. Government, dropped by the most on record last year. The second-largest economy has been seeking to rely less on U.S. currency. Japan, which is the largest holder of Treasuries, also sold nearly $202 billion in Treasuries last year. These countries seem to be backing away from financing the U.S. government in the era of the Donald Trump presidency, and concerned about the prospects of rising inflation. Meanwhile, China's gold reserves have held steady. According to Zero Hedge, a new trend is gaining popularity in China – digital gold "gifting." Tencent's digital gold packets, known as microgold, are backed by the country's biggest bank and allow users to send funds that track the real-time value of gold over the WeChat platform. An ICBC document shows that during the Lunar New Year, WeChat users sent 70,000 microgold packets across the platform worth $14.5 million.
  • Noting a drop in net long gold positions to their lowest level since the beginning of the year during the run-up to the Fed meeting, one analyst wrote that this means there is ample upside potential for gold. As seen in the chart below, we are seeing the longest losing run for the dollar since November, reports Bloomberg, as gold advanced to its highest level in three weeks on haven demand amid a global selloff in stocks.

  • Following the Fed's anticipated 25 basis point rate hike in March, gold bounced over $20 the next day, reflecting that the decision was already baked into the price, reports Joni Teves at UBS. Federal Reserve Chair Janet Yellen says the Fed intends to keep its monetary policy accommodative for "some time," reports Bloomberg. Gold rose 8.43 percent this quarter, its best performance in a year. Gold has risen on the perceived inability of President Donald Trump to advance his economic agenda after the failed health care reform plan. Traders and analysts are divided on the outlook for gold, given the uncertainty around interest rates.

Weaknesses

  • Overseas, the People's Bank of China reports gold holdings unchanged for a fourth-straight month, coming in at 59.24 million ounces by the end of February. Ole Hanson of Saxo Bank A/S states that China may be reducing focus on gold in favor of its large purchases of foreign currency lately. Sales of U.S. Mint American Eagle gold coins fell to a 14-month low, reports Reuters, while silver coin sales were also sharply lower last month. The U.S. Mint sold 27,500 ounces of the gold coins in February, down 67 percent from last year. Despite analysts expecting nervousness ahead of elections in the Netherlands, France and Germany to help the gold price this year, new expectations for higher U.S. interest rates could provide a source of pressure, the article continues.
  • Gold fell briefly below $1,200 an ounce in the week leading up to March Federal Open Market Committee (FOMC) meeting, the longest losing streak since October, on better-than-expected U.S. private jobs data – adding to positive economic talk that boosted the dollar. "Three weeks ago the possibility of a rate hike in March was very small, but now it's 100 percent," said Bob Takai, CEO and president of Sumitomo Corp. Both platinum and palladium slumped too. CPM Group reported it sees palladium and platinum in surplus for the next few years and estimated there are 25 million ounces of palladium in stockpiles, most held by investors. Toyota announced that it has developed a new smaller catalytic converter that uses 20 percent less platinum group metals, but is just as effective as current technology. Toyota plans to introduce the new module into its production lineup later this year.
  • Robert Burgess wrote for the Bloomberg Daily Prophet recently, warning investors that it may be time to prepare for the Trump "correction" and forget about the Trump trade. Prize-winning economist Robert Shiller recently said that the last time he remembers equity investors being as bullish as they are now was in 2000 and that didn't end well. If the markets really thought Trump's policies would juice up the economy then the dollar would be the prime beneficiary, the article continued, but instead the greenback is on an epic slump .

Opportunities

  • Gold bulls looking forward to a rally in bullion with the arrival of a new U.S. president may have history on their side, says Bloomberg. "Gold has averaged gains of almost 15 percent in years marking the inauguration of a new president since the 1970s, advancing in five of those seven years," the article continues. And because markets are seeing the first annual return for raw materials since 2010, many fund managers that played the last commodity slump want back in, according to Societe Generale SA and Barclays. Mike McGlone, a BI Commodity Strategist, wrote that commodities often prevail in tightening cycles, perhaps now more than ever. For example, bullion gained 52 percent in the June 2004 to June 2006 tightening cycle and 5 percent from the June 1999 to May 2000 tightening cycle. "The Fed is only tightening when they are concerned about inflation," McGlone said. "That is good for gold." In fact, the yellow metal bottomed a day after the past two tightenings and rallied thereafter.
  • "Miners now are really starting to focus on profitability and cash flow," says George Cheveley, a fund manager at Investec Asset Management. Randgold Resources announced it will increase dividends 52 percent after a jump in profits; Centamin Plc increased dividends five-fold. Both Pan American Silver and Acacia Mining followed through with an increase in their dividends this past quarter. This is the latest in a trend whereby management at gold mining companies are showing stronger confidence in their operations to increase dividends with more certainty that profits will be sustainable.
  • Klondex Mines (KDX CN, KLDX US) had its share price driven down by an index rebalance that did not happen and an earnings miss from a change in accounting standards, that was exacerbated by trading algorithms that immediately start selling the stock. This unusual set of events may provide investors have an exceptional opportunity to establish positions in a high quality set of assets operated by strong team of operators. On March 17, the Market Vectors Junior Gold Miners ETF (GDXJ) was anticipated to sell roughly three of its largest holdings as they no longer met the criteria for the benchmark index. The proceeds generated from the expected sales were thought to be redeployed into most of the existing holdings, meaning potentially 11.5 million shares of new demand for Klondex by the GDXJ ETF. This led many index arbitragers to start accumulating shares in Klondex in anticipation they could sell the shares at a higher price into the index rebalance. However, when the index rebalance date arrived on March 17, the managers of the GDXJ ETF did not sell their largest names as expected, thus the arbitragers were left with no easy money exit from their accumulated positions. This weighed on Klondex's share price performance as the arbitrage buyers chose to exit their positions to move on to other trades. Over the last couple of years, the share registry of U.S. holders of Klondex Mines has grown significantly, thus requiring the company to transition from IFRS accounting to U.S. GAAP reporting. Therefore, on March 24, when Klondex reported earnings for yearend 2016, analyst estimates were based on IFRS rules but the earning reported by Klondex were based on GAAP which requires more costs to be expensed. Klondex Mines has been making capital improvements to rehabilitate the True North Mine purchased out of receivership last year, but because there are no proven and probable reserves associated with the asset yet, all the capital invested in bringing the operation up to production readiness had to be expensed according to U.S. GAPP. Had they reported under the IFRS rules it would have been an earning beat.

Threats

  • Chronically low productivity and labor force growth will make it difficult for central banks to contain inflation once it does begin to accelerate, writes BCA Research in its year-end report. Global bond yields will rise only modestly in 2017, the group believes, but could begin to surge as the decade wears on. In the report entitled "The Long and Winding Road to Stagflation," the group goes on to say that for the next few years, the likelihood of a disorderly rise in inflation is extremely low. Beyond then, however, the risk is that inflation surprises to the upside, perhaps significantly so. According to BlackRock, inflation is rising faster than many investors may realize, citing examples such as rising housing prices, uncontained medical inflation, rising wages and more. So what does this mean for investors? BlackRock says, "Should inflation expectations rise faster than nominal rates, gold is likely to continue to merit a place in most portfolios."
  • At least 10 bills to limit protests have been introduced in recent months by Republicans in statehouses across the U.S., reports Bloomberg, with the goal of regulating public dissent as demonstrators take to the streets to protest Trump. The bills range from a possible protection in North Dakota for motorists who unintentionally kill protestors blocking roads, to a bill in North Carolina which would call for imprisoning people who taunt ex-officials. "I've been monitoring free speech legislation for about a dozen years now, and I've never seen anti-protest legislation in the states anywhere near as large as we're seeing now," Lee Rowland, senior staff attorney for the American Civil Liberties Union said. And if you thought Russian hacking in the U.S. has pulled back since the election, you would be wrong. Liberal think tanks, critical of President Trump, around the U.S. are finding that their firewalls have been breached by Cozy Bear and they are being asked to pay ransoms in bitcoin to prevent sensitive data from potentially being leaked.
  • Construction economist Ed Zarenski, who teaches at the Worcester Polytechnic Institute, writes that any economists or investors who are talking seriously about $100 billion in new infrastructure spending each year for a decade are dreaming. An article from Bloomberg recaps Zarenski's reasoning – he notes that only three times in history has the entire construction industry ever seen a $100 billion increase in a year. Zarenski estimates there is perhaps room for an additional $26 billion per year in infrastructure spending. He notes that industry capacity, not the money itself, is the big constraint on the president's ambitious budgetary plans. Uncertainty in the markets seems to be at an extreme, as Bloomberg data shows that frequency of the word "uncertainty" has reached record levels in news stories from multiple sources. The difference between the CBOE Volatility Index (VIX) and the Global Economic Policy Uncertainty Index is at its highest level on record, indicating more fear in Washington than on Wall Street.

 

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 FTSE Gold Mines Index Series encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold.

The Bloomberg Dollar Spot Index (BBDXY) tracks the performance of a basket of 10 leading global currencies versus the U.S. Dollar. Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market's expectation of 30-day volatility. The Global Economic Policy Uncertainty (GEPU) Index is a GDP-weighted average of national EPU indices for 18 countries: Australia, Brazil, Canada, Chile, China, France, Germany, India, Ireland, Italy, Japan, Russia, South Korea, Spain, Sweden, the United Kingdom, and the United States. Each national EPU index reflects the relative frequency of own-country newspaper articles that contain a trio of terms pertaining to the economy (E), policy (P) and uncertainty (U). In other words, each monthly national EPU index value is proportional to the share of own-country newspaper articles that discuss economic policy uncertainty in that month.

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 3/31/2017: Acacia Mining 0.00%; Centamin Plc 0.00%; Klondex Mines (Gold and Precious Metals Fund 16.65%, World Precious Minerals Fund 15.86%); Pan American Silver (Gold and Precious Metals Fund 2.08%); Randgold Resources 0.00%; Sumitomo Corp. 0.00%; Tencent 0.00%; Toyota 0.00%.

Net Asset Value
as of 06/26/2017

Global Resources Fund PSPFX $5.31 -0.01 Gold and Precious Metals Fund USERX $7.29 -0.03 World Precious Minerals Fund UNWPX $6.22 -0.04 China Region Fund USCOX $9.49 0.10 Emerging Europe Fund EUROX $6.26 0.03 All American Equity Fund GBTFX $24.39 0.06 Holmes Macro Trends Fund MEGAX $19.82 0.01 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change