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January 2015

For the month ending January 2015, spot gold closed at $1,283.77, up $98.91 per ounce or 8.35 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 20.32 percent. The U.S. Trade-Weighted Dollar Index rose 5.02 percent for the quarter.

Also for January, the Philadelphia Gold & Silver Index (XAU) rose 15.43 percent.  The S&P/TSX Global Gold Index gained 33.13 percent. The FTSE/JSE African Gold Mining Index climbed 32.18 percent. See complete fund performance here.

Strengths

  • The CME Group launched a one-kilogram gold physical delivery futures contract in Hong Kong on January 26. It is tied directly to .9999 gold prices in Hong Kong and is physically delivered in Hong Kong to provide access to round-the-clock price discovery for the Asian gold market. Asia is the top consumer of physical bullion in the form of jewelry, bars and coins, but there is growing disenchantment with benchmark prices set in the West, which tend to be influenced by speculators. This new futures contract market will establish a price reference in the top-consuming region and better reflect Asian demand.
  • After a 47-year absence, the British Royal Mint is bringing back gold and silver bars bearing the mint’s historic refinery brand. The Royal Mint Refinery dates back to 1852 and was operated by N.M. Rothschild and Sons. Silver bars will be available in 100-gram units, while gold bars will be offered in a variety of sizes, ranging from one gram to 100-gram units. The gold bars in particular will be exempt from the value-added tax for British citizens.
  • Klondex Mines increased its mineral resource estimate at Fire Creek, announcing that measured and indicated ounces are up 47 percent. Wesdome Gold increased its proven and probable reserves 57 percent at its Eagle River Mine.

Weaknesses

  • Gold ended 2014 slightly down, declining 1.72 percent. This was the second-straight year that gold has declined. Gold-backed exchange-traded funds (ETFs) saw the negative effects of lower gold prices as holdings in gold-backed ETFs dropped to their lowest level since 2009, roughly $6.7 billion during the year.
  • Germany’s Bundesbank announced that it repatriated 120 tonnes of gold from Paris and New York in 2014. Since the transfers began in 2013, the bank has reclaimed a total of 157 tonnes. However, with Germany being the second biggest holder of gold, there is a question as to why the Bundesbank continues to struggle to get its gold reserves back. Previously, Germany has been denied requests for gold by New York as well as the opportunity to even view its gold on grounds of “security.” Further adding to this cloud of doubt is the fact that the last audit of the New York Federal Reserve took place over 50 years ago.
  • The International Monetary Fund (IMF) made the steepest cut to its global growth forecast in three years in an outlook released in January. It said slowing growth almost everywhere except in the U.S. will more than offset the boost to expansion from the slump in oil prices. The Fed upgraded its U.S. economic assessment to “solid growth” from “moderate growth” on strong job gains. It also noted the lower unemployment rate and voiced expectations of labor market improvement. The Fed is choosing to ignore soft retail sales, disappointing income growth, the lowest labor force participation rate since 1978, dismal durable goods orders, collapsing industrial commodity prices and a negative S&P 500 Index earnings growth rate (-0.5 percent, excluding Apple).

Opportunities

  • Big mining costs are expected to fall in first quarter 2015 as the fall in oil prices will have a positive effect on operating costs at mines employing diesel-powered equipment and particularly those which rely on oil-fueled generators. Energy consumption can account for as much as 40 percent of some mines’ operating costs, particularly those in remote locations, which have no access to grid power.
  • The Swiss franc soared as much as 38 percent on the news of its euro-cap rate abandonment, a currency move that normally takes years to accomplish. The markets interpreted the move as a preemptive action ahead of the European Central Bank’s quantitative easing. It also suggests that after six years of unprecedented intervention, central banks are losing control of markets and events. An unraveling of the markets would send investors rushing towards safe-haven assets such as gold.
  • The institution of the Swiss peg at 1.20 per euro, back on September 6, 2011, was the day that gold peaked at $1,920 per ounce. With the undoing of the peg and gold taking off, speculation abounds as to whether the Swiss National Bank’s actions will once again mark a turning point for gold.

Threats

  • Chilean President Michelle Bachelet presented a bill in January that would make union leaders the only authorized negotiators in wage bargaining, as well as outlaw mining companies’ rights to replace workers on strike. The proposal will risk further investment delays according to the mining companies affected.
  • The Zambia Mines Minister is refusing to undo the hike on mining royalties that came into effect on January 1. The policy raises royalties for open pit mines from 6 percent to 20 percent.
  • Greece’s new left-wing government is opposed to a Canadian gold mine that is one of the biggest foreign investment projects in the country. The gold mine, operated by Vancouver-based Eldorado Gold in northern Greece, was the flagship project of the previous government’s foreign investment drive and was considered a test case that would reveal whether Greece could protect foreign investors despite local opposition.  Eldorado’s share price fell more than 14 percent on the news.
  • The Democratic Republic of Congo (DRC) is jeopardizing billions of dollars of potential investment by seeking to rewrite the mining rules and raise royalties during a downturn in commodity prices. This is the view of Moise Katumbi, who is the governor of the mineral-rich province of Katanga. There is speculation that he is positioning himself as a potential successor to President Joseph Kabila. His opinions contrast sharply with those of the current prime minister who might remain in his role if Joseph Kabila stays in power.

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 Philadelphia Stock Exchange 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. (Returns are quoted as price return in the home currencies of each index. For example, the S&P/TSX Canadian Global Gold Index is calculated using Canadian Dollars.) The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

Returns are quoted as price return in the home currencies of each index. For example, the S&P/TSX Canadian Global Gold Index is calculated using Canadian Dollars.

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 12/31/2014: Apple 0.00%; CME Group 0.00%; Klondex Ltd. (10.00% Gold and Precious Metals Fund), (9.78% World Precious Minerals Fund); Wesdome Gold Mines Ltd. 0.83% World Precious Minerals Fund; Eldorado Gold Corp. (1.84% Gold and Precious Metals Fund), (0.16% World Precious Minerals Fund).

Net Asset Value
as of 03/03/2015

Global Resources Fund PSPFX $6.25 -0.02 Gold and Precious Metals Fund USERX $5.64 -0.06 World Precious Minerals Fund UNWPX $4.83 -0.04 China Region Fund USCOX $8.24 -0.12 Emerging Europe Fund EUROX $6.46 -0.02 All American Equity Fund GBTFX $28.62 -0.14 Holmes Macro Trends Fund MEGAX $20.95 -0.11 Near-Term Tax Free Fund NEARX $2.25 No Change China Region Fund USCOX $8.24 -0.12