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May 2015

For the month ending May, the Philadelphia Gold & Silver Index (XAU) fell 4.35 percent.  The S&P/TSX Global Gold Index trimmed 0.66 percent. The FTSE/JSE African Gold Mining Index tumbled 17.89 percent. Also, spot gold closed at $1,190.55 up $6.18 per ounce, or 0.52 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 2.96 percent. The U.S. Trade-Weighted Dollar Index gained 2.44 percent for the month. See complete fund performance here.

Strengths

  • Speaking recently in London, Harriet Hunnable, executive director of precious metals markets at CME Group, said that the Shanghai Gold Exchange is the most successful challenger so far in terms of liquidity in the gold market versus trading houses in the West. She added that the CME Hong Kong kilobar gold contract is doing phenomenally well for such a new product. As the physical trading in London has come to a crawl due to fear of regulatory oversight, this is a positive move as it increases transparency and hopefully becomes the benchmark for gold price setting.
  • According to Credit Suisse, the gold monetization plan in India may boost imports if banks pay investors interest on bullion deposits. The Austrian central bank announced it has adopted a new storage strategy whereby it will store 50 percent of its total gold reserves in Austria by 2020. It currently has only 17 percent within the country.
  • Klondex Mines released drilling results at Fire Creek showing intercepts of 13.5 ounces per tonne (opt) over 11.5 feet on the Hui Wu Vein. These results provided further data that the initial grades reported are likely understating the grades and the additional infill results are pointing to overall higher grades. Dundee Capital Markets noted the new data increased its estimate to 3.45 opt versus 0.45 opt for the area in question, increasing its target net asset value (NAV) by 22 percent for Klondex Mines’ share price.

Weaknesses

  • Rallying Chinese stocks and a six-year U.S. bull market cut the appetite for gold in the first quarter, according to the World Gold Council. Global demand for jewelry, coins and bars fell 5 percent in the first quarter from a year earlier as shoppers in the Middle East, China and the U.S. reigned in purchases. Trading volumes in the global spot gold market have fallen to their lowest in a year, with shrinking liquidity and a slowdown in interbank trade, making customers reluctant to transact on a large scale.  Tighter regulatory oversight post the accusations of price manipulation have curtailed interbank activity.
  • Australia, an engine room of the decade-long global commodity boom, is forecasting a staggering 90-percent plunge in spending on projects, according to Mineweb. The fall in spending could portend more mergers in the future.
  • Northern Star Resources managing director Bill Beament said that after an attractive few years for acquisitions, the pendulum has swung too far and the market for gold assets up for sale has reached an elevated level. Thus, he deems it better to drill for gold than the price being offered on the corporate side to buy an asset.

Opportunities

  • 2015 has been a busy year for acquisitions as the value of gold deals jumped more than 150 percent in the first quarter compared to a year earlier. Producers are seizing on a wave of mine sales and tumbling asset valuations to expand output or secure growth projects. China has announced the establishment of a new international gold fund with over 60 countries as members. The fund, which expects to raise 100 billion yuan ($16 billion), will develop gold mining projects across the economic region known as the New Silk Road. The project will facilitate the central banks of member states to acquire gold for their reserves more easily.
  • Bank of America points out U.S. equity funds have suffered $100 billion of outflows in 2015 while the S&P 500 Index has held steady and is currently flirting with all-time highs. The bank says the upcoming summer months offer a lose-lose proposition for risky assets: Either the macro improves and the Federal Reserve gets to hike rates, or it doesn’t and earnings per share downgrades drag risky assets lower. Thus, BoA advocates higher-than-normal cash levels and adding gold to portfolios. Further, summer starts the transition to seasonally stronger gold prices that in the past have remained into the fall. Bridgewater’s Ray Dalio announced that everyone should allocate some of their portfolio to gold, saying that those who don’t “either don’t know history or don’t know the economics of it.”

  • Did you think quantitative easing (QE) had ended? In spite of having “ended” QE in October of last year, the Fed has continued to purchase about $30 billion of securities per month in order to offset maturities and reinvestments and keep its balance sheet constant. Cornerstone Macro notes the Fed will face a sort of “balance sheet cliff” next year, whereby a lot of Treasury securities in its portfolio will start maturing. The Fed is very unlikely to go off such a cliff and will most likely “reverse taper” the cessation of reinvestments. Note that the Fed’s portfolio of bonds maturing in 2017 and 2018 surges, as shown in the second chart below, which means that Fed purchases of Treasuries and MBS securities are likely to continue for a lot longer.

Threats

  • South Africa’s biggest gold-mining labor union demanded a pay package of more than 80 percent for entry-level underground workers. The union’s wage request far outstrips the country’s annual rate of inflation. Negotiations are set to start in June. Along these issues, AngloGold Ashanti’s CEO said that South Africa’s competitive position is deteriorating rapidly. He said that there cannot be a debate on wage increases without economic consequences and pointed out that South Africa used to be the number-one gold producer in the world and is now ranked eighth. 
  • Bron Suchecki, the Perth Mint’s manager of analysis and strategy, came out with his thoughts on the “war on cash” and its possible impact on gold. With negative rates and various governments around the world restricting consumer’s use of cash, he said people will turn to gold instead of holding bank deposits. However, if this is the case, he proposes that governments will move from restrictions on cash to restrictions on gold.
  • Governments around the world are making it more difficult to save and transact with cash in their latest attempts to financially suppress their citizens. Their goal is to force citizens to deposit cash and charge interest as well as having total control over the money on deposit. In France, individuals will not be allowed to make cash payments exceeding 1,000 euros. Additionally, cash deposits and withdrawals totaling more than 10,000 per month will be reported to the anti-fraud and money laundering agency. Spain has prohibited cash transactions over 2,500 euros. In Sweden and Denmark, the use of cash is being steadily eliminated. In Israel, individuals and businesses are still allowed to make small cash transactions, but eventually all transactions will be converted to electronic forms of payment.

Past performance does not guarantee future results.

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.

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 3/31/2015: Klondex Mines Ltd. 12.37% in Gold and Precious Metals Fund, 13.18% in World Precious Minerals Fund; CME Group Inc. 0.00%; Dundee Capital Markets Inc. 0.00%; Northern Star Resources Ltd. 5.52% in Gold and Precious Metals Fund, 0.59% in World Precious Minerals Fund; AngloGold Ashanti Ltd. 0.07% in Gold and Precious Metals Fund, 0.08% in World Precious Minerals Fund.

Net Asset Value
as of 06/30/2015

Global Resources Fund PSPFX $5.51 0.01 Gold and Precious Metals Fund USERX $5.49 -0.06 World Precious Minerals Fund UNWPX $4.54 -0.03 China Region Fund USCOX $9.21 0.20 Emerging Europe Fund EUROX $6.11 0.07 All American Equity Fund GBTFX $27.72 0.08 Holmes Macro Trends Fund MEGAX $21.22 0.12 Near-Term Tax Free Fund NEARX $2.24 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 -0.01