Third Quarter 2019

The World Precious Minerals Fund had a total return of 8.36 percent in the third quarter of 2019, outperforming its benchmark, the NYSE Arca Gold Miners Index, which returned 5.10 percent. See complete fund performance here.

Gold bullion continued to move higher in the third quarter, with spot prices gaining 4.47 percent. Tariffs and economic uncertainty continue to be key drivers for the yellow metal. The Fed responded to market expectations with two 25 basis point interest rate cuts, at the July and then the September meetings.  Gold prices rallied strongly in July and exceeded $1,550 per ounce by August. By the September interest rate cut, gold traders essentially were consolidating their positions at the $1,500 level, waiting for a new catalyst.

Senior gold mining stocks rose on the price change in gold, but money flows into the precious metals space broadened with silver gaining 10.98 percent and platinum gaining 5.79 percent for the quarter – both better than gold. While we did outperform our benchmark in the third quarter we are still lagging our benchmark on a trailing year basis. Should a robust gold market materialize, we would expect to start outperforming our benchmark on the longer-term periods.  

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

  • The largest contributor to fund performance was New Pacific Metals, which gained 77.24 percent. With an average fund weighting of 2.80 percent, the company contributed 166 basis points. New Pacific’s Silver Sand project in Bolivia may contain up to 480 million ounces of silver, according to Roth Captial Partners, and was recently highlighted by a newsletter to retail investors. New Pacific is not a member of the NYSE Arca Gold Miners Index.
  • The second largest contributor to the fund performance was Dolly Varden Silver, with an average fund weighting of 3.14 percent for the quarter. The company gained 71.81 percent, contributing 165 basis points to the fund’s return. Dollar Varden gained on new high- grade silver drill results, plus legendary investor Eric Sprott bought a 15 percent stake in the company through a private placement. The company is not a member of the NYSE Arca Gold Miners Index.
  • Barsele Minerals was our third best contributor to the fund with a 48.72 percent gain on an average portfolio weight of 3.77 percent, which yielded 136 basis points to the fund. Barsele and Agnico-Eagle, their JV partner, released positive infill and expansion drilling results, leading NBF to raise their price target on the stock to $1.20. The company is not a member of the NYSE Arca Gold Miners Index.

Weaknesses

  • The largest detractor from fund performance was Chakana Copper, which declined 59.21 percent with an average weighting of 1.28 percent in the fund. This cost World Precious 117 basis points. Chakana closed an $8 million investment from Gold Fields in the second quarter to fund a systemic drilling program of the copper-gold tourmaline breccia pipes they are delineating. The first sets of drill results came out in July and were not impressive, but holes released in late September were much better. However, trade tariffs and slowing economic growth have depressed the copper price back to the lows at the start of the year. Chakana Copper is not a member of the NYSE Arca Gold Miners Index.
  • Auryn Resources was the second biggest detractor to fund performance falling 29.19 percent with an average weighting in the fund of 1.44 percent, yielding a loss of 60 basis points.  Auryn has seven active gold and copper projects they are advancing.  The weakness in copper prices weighed on the share price. Auryn Resources is not a member of the NYSE Arca Gold Miners Index.
  • Nano One Materials was the third biggest detractor to fund performance relative to its benchmark. Nano One’s share price fell only 7.98 percent during the quarter and its average weighting in the fund was 3.87 percent, but it cost the fund 60 basis points of relative performance for the quarter. Lithium prices have weakened in 2019 causing some money to exit the space, but Nano One’s future is more a function of their 13 patents and 30 pending, which protect their technology in designing better batteries. They have secured contracts with Pulead in China and Saint-Gobain, which operates in 68 countries.  Nano One is not a member of the NYSE Arca Gold Miners index.

Outlook

Gold broke through $1,500 per ounce in the third quarter which has raised its profile among investors.  Central banks continue to accumulate gold, most notably China, which has purchased over 100 tons of the yellow metal since December 2018. Negative-yielding government debt appears to be a driver of higher prices for gold as pension investors search for alternative investments.  Citigroup is very bullish on gold with a $2,000 per ounce forecast.

With the gold rally broadening out to silver, and platinum beginning to perform well, it bodes well for the overall precious metals sector.  We are entering an election year, so the current administration is looking for economic wins that would enhance their reelection; hence positive economic action could derail the rally. Palladium continues to perform strongly with increased pollution standards on gasoline powered vehicles driver demand for the metal for its use in autos.

 

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 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 S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001). A warrant is a derivative that gives the right, but not the obligation, to buy or sell a security—most commonly an equity—at a certain price before expiration.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the World Precious Minerals Fund as a percentage of net assets as of 9/30/2019: New Pacific Metals Corp 3.98%, Dolly Varden Silver Corp 4.40%, Barsele Minerals Corp 4.91%, Agnico Eagle Mines Ltd 0.00%, Chakana Copper Corp 0.76%, Gold Fields Ltd 0.00%, Auryn Resources Inc 1.23%, Nano One Materials Corp 3.94%.

Net Asset Value
as of 12/05/2019

Global Resources Fund PSPFX $4.35 0.01 Gold and Precious Metals Fund USERX $9.28 0.10 World Precious Minerals Fund UNWPX $2.98 0.01 China Region Fund USCOX $8.81 0.04 Emerging Europe Fund EUROX $7.33 0.02 All American Equity Fund GBTFX $25.61 0.03 Holmes Macro Trends Fund MEGAX $16.81 -0.01 Near-Term Tax Free Fund NEARX $2.22 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change