December 2015

For the quarter ended December 2015, spot gold closed at $1,061.42 down $53.65 per ounce, or 4.81 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 0.88 percent. The U.S. Trade-Weighted Dollar Index gained 2.36 percent for the quarter. Also for the quarter, the Philadelphia Gold & Silver Index (XAU) fell 1.85 percent. The S&P/TSX Global Gold Index returned 1.29 percent, and the FTSE/JSE African Gold Mining Index climbed 1.33 percent. See complete fund performance here.

Strengths

  • The best-performing precious metals in 2015 were gold and silver, with returns of negative 10.47 percent and negative 12.45 percent, respectively. The NYSE Arca Gold Miners Index, by comparison, was down 24.51 percent for the year.
  • Klondex Mines, one of the few gold stocks to deliver positive returns each of the last three years, finished the year up 21.90 percent in U.S. dollar terms. A star performer over the last two years has been Northern Star, which was up 70.54 percent just over the trailing year. Another turnaround this year was led by Bob Vassie, the new CEO of St. Barbara, for a 1,111.70 percent gain. These kinds of outcomes don't come randomly. The management teams at Klondex, led by CEO Paul Huet, CEO Bill Beament at Northern Star, and Bob Vassie at St. Barbara all have the expertise and skillset needed to execute for shareholders and to deliver positive outcomes.
  • It seems that bullish gold investors might be able to breathe a little easier after the Fed finally made its decision to raise rates 25 basis points earlier this week. Bob Haberkorn, a senior market strategist at RJO Futures in Chicago, commented that sentiment has shifted, and traders are seeing less downside potential in the gold price. Some traders closed their bearish positions on the metal before year-end on speculation that physical purchases might pick up.

Weaknesses

  • The Bloomberg Commodity Index witnessed its worst performance since 2008, dropping 19 percent in 2015. A significant reason for the disappointing performance in commodities, reports Bloomberg, has been the strong U.S. dollar, which was up 9.40 percent for 2015 against a group of other global currencies. Many of the gold stocks are now trading below the levels they plummeted to in 2008.
  • More rate hikes could be on the way, warn some analysts. Macquarie analyst Matthew Turner said that if the economy continues to strengthen after this rate increase, then the Fed may go ahead with further tightening. Historically, gold doesn't perform well in periods of tightening monetary policy with rising real interest rates.
  • Barnabas Gan, an economist at Oversea-Chinese Banking Corp., believes that gold bullion will drop each quarter to $950 an ounce by the end of 2016. In addition, gold forecasters from Citigroup estimate that the precious metal will average $995 per ounce in 2016, with the decline in price being a short-term move and mildly improving to an average of $1,025 an ounce in 2017. Another price forecast from ABN Amro shows the metal at $900 an ounce, with the bank citing higher U.S. interest rates cutting the demand for gold.

Opportunities

  • Gold has been falling hard since 2013, being pulled down right alongside the rest of the commodities complex. However, as John Rubino points out in a Seeking Alpha article, this is only in U.S. dollar terms. Gold is behaving just fine in Canadian dollar terms, up 7 percent over the past year and which helped offset the negative returns of Canadian stock market which fell 11 percent. Rubino writes: "Protection from currency trouble is why people own it (gold), and why in the vast majority of places its owners are very happy."
  • The mine supply issue is coming to a head, according to Credit Suisse's 2015 Year-End Preview report. Reserve life has fallen from 14 to 10 years since 2011, and grades processed are 9 percent above reserve grade in 2015. The report continues by noting that gold is positioned to outperform the commodity complex next year as two more Fed hikes are priced in, physical demand should continue to be a source of strength and central banks will continue buying.
  • HSBC Research says there are two catalysts for gains in platinum in 2016, after touching seven-year lows: improved automobile and investment demand. Both platinum and palladium should benefit from limited supply growth and a weaker U.S. dollar, according to HSBC's report, as ample stockpiles may curb rallies.

Threats

  • A group of 10 Wall Street strategists announced their forecasts for 2016, as published on Zero Hedge. Five strategists say to avoid materials, four strategists warn against energy, while nearly all were bullish on financials and technology. The forecasts, originally sourced in Barron's, were brought to light during a Bloomberg TV interview with Marc Faber earlier in the week. Faber stated that the U.S. is headed into recession and rather than be bullish on U.S. equities--as a majority of the strategists were--"be realistic."
  • According to Financial Post data, 2015 could go down as the biggest year ever for metal streaming deals, as miners have raised $4.2 billion from 11 stream sales this year. This is almost double the amount raised in 2013, $2.2 billion, which was the second biggest year on record. One argument surrounding the dark side of metal streaming deals is that streams can eliminate exploration upside from a mine. In addition, John Ing, president and gold analyst at Maison Placements Canada, believes streaming is reminiscent of hedging. This was all the rage in the gold industry in the 1990s, but has since become a huge liability.
  • With the Asian economies struggling, jewelry demand could also end up being weak, notes Bill O'Neill, a partner at Logic Advisors. He sees an undesirable outlook for precious metal: "Fundamentally, the gold market doesn't look good, psychologically it doesn't look good and the money flows don't look good... so that's a negative trifecta."
  • Over the past 18 months the U.S. dollar has seen rapid appreciation and triggered a significant drop in commodity prices, reports Sputnik News. This drop includes precious metals, with gold selling at its six-year lowest price. Mark Bristow of Randgold Resources said: "In the medium term, it's a very bullish outlook for the gold industry. The question is, how long is the gold industry going to supply the market with unprofitable gold?"

Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. 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. Performance does not include the effect of any direct fees described in the fund's prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end here or by calling 1-800-US-FUNDS.

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. (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 Bloomberg Commodity Index tracks prices of futures contracts on physical commodities on the commodity markets. The index is designed to minimize concentration in any one commodity or sector. It currently has 22 commodity futures in seven sectors. No one commodity can compose less than 2% or more than 15% of the index, and no sector can represent more than 33% of the index (as of the annual weightings of the components).

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 12/31/2015: Klondex Mines Ltd. 14.47% in Gold and Precious Metals Fund, 15.77% in World Precious Minerals Fund; St. Barbara Ltd. 6.44% in Gold and Precious Metals Fund, 3.06% in World Precious Minerals Fund; Northern Star Resources Ltd. 5.23% in Gold and Precious Metals Fund, 0.71% in World Precious Minerals Fund; Randgold Resources Ltd. 1.07% in Gold and Precious Metals Fund, 0.01% in World Precious Minerals Fund, Oversea-Chinese Banking Corp. 0.00%, Citigroup Inc. 0.00%. ABN Amro Group 0.00%.

Net Asset Value
as of 02/12/2016

Global Resources Fund PSPFX $4.50 0.06 Gold and Precious Metals Fund USERX $6.25 0.13 World Precious Minerals Fund UNWPX $4.41 0.06 China Region Fund USCOX $6.29 0.01 Emerging Europe Fund EUROX $4.83 0.03 All American Equity Fund GBTFX $21.76 0.46 Holmes Macro Trends Fund MEGAX $16.05 0.16 Near-Term Tax Free Fund NEARX $2.27 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.01 No Change