First Quarter 2019

For the quarter ended March 31, 2019, the World Precious Minerals Fund gained 0.37 percent, underperforming the fund’s benchmark, the NYSE Arca Gold Miners Index, which gained 6.62 percent. The Gold and Precious Metals Fund rose 7.31 percent, outperforming its benchmark, the FTSE Gold Mines Index, which rose 6.74 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

  • Central banks globally are buying gold at the fastest rate since 1971 when the gold standard was ended in the United States. Governments purchased 651.5 tonnes of gold in 2018, which is a 74 percent increase from the previous year. Metals Focus forecasts that these central banks might purchase another 600 tonnes in 2019. Russia and Turkey were among the largest buyers last year. Russia bought 274.3 tonnes of the yellow metal in an effort to de-dollarize its reserves. Renaissance Capital says that gold buying in Russia has now exceeded its mine supply and the country could soon start to import the metal. Russia is also taking steps to make gold investing accessible to more people. According to Bloomberg, the government is considering opening the precious metals market participation by allowing retail investors to buy bullion for their individual investment accounts. Many central banks could be purchasing gold on concerns that the U.S. is using the dollar to exert its dominance on the global financial system, writes the New York Times. Azerbaijan’s sovereign wealth fund is looking to nearly double its holdings of gold in 2019 to 100 tonnes, after going five years without buying any prior to 2018. Executive Director Shahmar Movsumov said in an interview that “we would not want to have something that is not someone else’s credit risk.”
  • China grew its gold reserves for the fourth straight month in March to 60.62 million ounces, up from 59.94 million ounces in January, according to data on the People’s Bank of China (PBOC) website. Robin Bhar, head of metals research at Societe Generale SA said: “Ongoing efforts to diversify total reserves – away from the U. S. dollar – have prompted gold purchases by the PBOC, which we believe will continue.” Physical gold demand also picked up in major Asian hubs, as bullion was sold at a premium for the first time in more than three months in India, the world’s second largest consumer, according to Reuters.
  • Gold traded up after Federal Reserve Chairman Jerome Powell announced that interest rates could be on hold for “some time.” Bloomberg reports that the yield on 10-year Treasuries fell to a 14-month low of 2.52 percent and a gauge of the dollar fell the most since January. Nicky Shiels, commodity strategist at Scotiabank, says that gold will be an outperformer in the longer run during this cycle of monetary policy in which the Fed applies a prolonged pause on interest rate hikes. Investors and traders are weighing the latest U.S.-China trade developments as some familiar with the matter are concerned that China is pushing back against American demands.

Weaknesses

  • South African gold output fell the most in six years in December 2018, with production declining 31 percent from a year earlier, according to Statistics South Africa. The drop marks the 15th straight month of declines. Bloomberg’s Prinesha Naidoo writes that most of South Africa’s gold mines are unprofitable at current gold prices. South African mining companies are challenging parts of a government charter, saying that it will hinder foreign investment and breaches a court order. The charter is aimed at redistributing South Africa’s mineral wealth.
  • The Gold Field’s board has asked its CEO for other options to get its flagship South Deep mine profitable again, should the fifth restructure in 13 years fail to do the job. The company recently invested $800 million in the South African mine. AngloGold Ashanti will be making a decision on its Mponeng mine, the world’s deepest, on whether or not to spend significant capital to extend its life beyond eight years. The number three gold miner rose as much as 10 percent in New York on the news of potentially shutting a higher cost mine. In other news, on South Africa’s Eskom, Citi Research analysts said in a recent note that “Eskom has run out of positive catalysts.” Goldman Sachs calls the company the “biggest single threat to South Africa’s economy.”
  • Venezuelan gold selling has been a major headwind to a rising gold price. Whenever it appears the country is about to sell, prices drop due to the market recognizing a distressed seller is seeking liquidity. Venezuelan opposition lawmaker Carlos Paparoni said at a press conference that the country’s central bank sold 73 tonnes of gold in 2018 to Turkish and United Arab Emirates (UAE) based companies, writes Bloomberg’s Alex Vasquez. The Venezuelan government attempted to move funds from Portuguese accounts to Uruguay recently, but it was blocked due to cooperation by Portugal’s central bank and opposition leaders in Venezuela. In another blow to the troubled nation, the Bank of England (BOE) is said to have frozen its gold assets worth $1.56 billion, according to Business Insider.

Opportunities

  • Gold might be getting more recognition from mainstream investors. Bernstein Quants have joined the mix of gold bulls, as miners have gained almost twice the pace of bullion so far in 2019. Bloomberg writes that Bernstein strategists, led by Inigo Fraser Jenkins, are seeing a laundry list of reasons to like gold and gold miners just now. Gold’s mysterious rally could be due to liquidity, writes Bloomberg’s Kyoungwha Kim: “Expectations of improving liquidity may be fueling gold’s rally once again.” Mark Cudmore noted that ballooning balance sheets at major central banks could have already foretold what is going to happen to bullion next. Another reason to be bullish on the metal is that the Basel III rules will be enforced in full in 2019. These rules say that gold held in an institution’s vaults or in a trust now qualifies as “a 0 percent risk weighting for risk-based capital purposes.” This means that gold will now be treated as safer and more like actual money. Nick Barisheff, CEO of BMG Group, writes that “Canadian banks are now free to add monetary gold to their increased reserve positions, and to treat it in the same as they would cash of AAA-rated government bonds.”
  • One of last year’s best-performing hedge funds, the Global Macro Fund by Crescat Capital, says the “trade of the century” is to buy gold and sell stocks as risk assets are due for another meltdown, writes Bloomberg’s Sarah Ponczek. According to the firm, it’s only a matter of time before bearish bets pay off as indicators are warning that a recession is imminent in the coming quarters. Crescat says that corporate insiders are currently selling stocks hand over fist, which indicates a potential stock bubble burst. Two gold miners are buying back their shares – a sign of responsible management. Roxgold announced that it recently purchased for cancellation a total of 4,949,000 common shares at an average price of $0.84 per share, in Canadian dollars. Golden Star Resources said that it will buy back up to 5.4 million common shares, or 5 percent of issued and outstanding shares.
  • Billionaire and founder of Equity Group Investments Sam Zell said in a Bloomberg interview that he has bought gold for the first time in his life “because it is a good hedge.” Zell continued to say that “supply is shrinking and that is going to have a positive impact on the price.” Another bullish recommendation on gold comes from Cornerstone Marco. The investment shop writes that gold could be set up for a breakout above the well-defined annual tops of the last five years. Analysts write that gold is a bona fide investment vehicle because it has “matched the performance of the S&P 500 with dividends reinvested over a 20-year basis” and that gold’s performance is “not too shabby.”

Threats

  • The U.S. Treasury Department announced that it plans to issue another record-breaking amount of debt, creating growing criticism and questioning of whether President Donald Trump’s tax cuts will pay for themselves. The Treasury is raising its long-term debt issuance at its quarterly refunding auctions to $84 billion, which is $1 billion more than three months ago, writes Bloomberg. Debt sales have already risen past those last seen after the worst economic crisis since the Great Depression. Bloomberg writes that bond demand is falling drastically. The bid-to-cover ratio is at its lowest point since 2009 and that of the $2.4 trillion of notes and bonds the Treasury issued last year, investors submitted bids for just 2.6 times that amount, according to Bloomberg data. Torsten Slok, chief international economist at Deutsche Bank, writes that “all fiscal crises begin with a declining bid-to-cover ratio.”
  • UBS Financial Services agreed to pay Virginia’s State Corporation Commission $319,000 to settle charges that a former broker made unsuitable recommendations of gold and precious metals securities to 18 clients, reports Investment News. The state alleged that the clients held an overconcentration and that the securities were not appropriate to certain clients’ goals.
  • South Africa continues to experience rolling blackouts that pose big risks for the mining industry. In an effort to avoid a total grid collapse, state-run Eskom has implemented rotating blackouts and is working to assess the breakdowns across the grid. In another big hit to South Africa’s mining industry, Sibanye Gold announced that it will not extend the life of its Driefontein mine, which was once among the biggest mines on the continent. Bloomberg reports that the company plans to shut down operations within 10 years and will cut thousands of jobs as it closes unprofitable shafts. South Africa has some of the deepest and most dangerous gold mines in the world. Rene Hochreiter, an analyst at Noah Capital Markets, said that “below 3,000 meters you are not going to make money and you probably end up killing a lot of people.” Sibanye CEO Neal Froneman said that “it’s difficult to convince shareholders that South African mining is an investment case.”

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.

The bid-to-cover ratio is the dollar amount of bids received in a Treasury security auction versus the amount sold. The bid-to-cover ratio is an indicator of the demand for Treasury securities.

A bond’s credit quality is determined by private independent rating agencies such as Standard & Poor’s, Moody’s and Fitch. Credit quality designations range from high (AAA to AA) to medium (A to BBB) to low (BB, B, CCC, CC to C).

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 3/31/2019: Gold Fields Ltd. (1.00% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund), AngloGold Ashanti Ltd. (0.00% in Gold and Precious Metals Fund and World Precious Minerals Fund), Roxgold Inc. (2.31% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund), Golden Star Resources Ltd. (2.55% in Gold and Precious Metals Fund, 0.28% in World Precious Minerals Fund), BMG Resources Ltd. (0.00% in Gold and Precious Metals Fund and World Precious Minerals Fund), Apple Inc. (0.00% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund), Sibanye Gold Ltd. (0.00% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund).

Net Asset Value
as of 04/25/2019

Global Resources Fund PSPFX $4.54 -0.02 Gold and Precious Metals Fund USERX $6.68 -0.04 World Precious Minerals Fund UNWPX $2.54 No Change China Region Fund USCOX $8.89 -0.13 Emerging Europe Fund EUROX $6.69 -0.06 All American Equity Fund GBTFX $25.04 -0.11 Holmes Macro Trends Fund MEGAX $17.73 -0.10 Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change