Press Release:
U.S. Global Investors Reports Results for the Second Quarter of 2012 Fiscal Year

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

After prices fell 10 percent in December, many investors wondered if the bull market in gold was running out of steam. That was before Federal Reserve Chairman Ben Bernanke swooped in with a “red cape” and fired the bulls back up. Since the Fed reassured the world that interest rates will remain at “exceptionally low levels” for another two years, gold has jumped more than three percent.

UBS described the situation simply, “if investors needed a (further) reason why they should be long gold now, they got it yesterday … a more accommodative policy is a very good foundation for gold to build on the next move higher.”

To gold bugs, two more years of near-zero, short-term interest rates means negative real interest rates are here to stay, and this has historically been a strong driver for higher gold prices.

Bernanke and the Fed aren’t the only central bankers in the fiscal and monetary bullring. Brazil has cut its benchmark interest rate a few times and China lowered its reserve rate for banks in December. According to ISI Group, 78 “easing moves” have been announced around the world in just the past five months as countries look to stimulate economic activity.

One of the main weapons central bankers have employed is money supply, which has created a ton of liquidity in the global system. Global money supply rose 8 percent year-over-year in December, or about $4 trillion, according to ISI. I mentioned a few weeks ago how China experienced a record increase in the three-month change in M-2 money supply following China’s reserve rate cut.

Together, negative real interest rates and growing global money supply power the Fear Trade for gold. The pressure these two factors put on paper currencies motivates investors from Baby Boomers to central bankers to hold gold as an alternate currency.

Adrian Ash from Bullionvault says global central banks are on a buying spree and they have been since the Fed cut interest rates by 25 basis points in 2007. Central bankers’ shift to buying gold was a significant sea change for the yellow metal.

You can see from the chart below that official gold reserves have historically been much higher, averaging around 35,000 tons. In the 1990s, central banks began selling, with reserves hitting a 30-year low right around the time the Fed began cutting rates. Adrian says that gold holdings are now at a six-year high with the current amount of gold reserves just less than 31,000 tons.

These are countries large and small. In December, Russia, which has been routinely adding to the country’s gold reserves since 2005, purchased nearly 10 tons; Kazakhstan purchased 3.1 tons and Mongolia bought 1.2 tons. UBS says “although reported volumes are not very large, it is still an extension of the official sector accumulation trend.”

Not all central banks are recent buyers, though. The “debt-heavy West” has sold its gold holdings, while emerging markets increased their gold reserves 25 percent by weight since 2008, says Adrian.

Reserves as a percent of all the gold mined has also declined, with “a far greater tonnage of gold ... finding its way into private ownership,” says Adrian. Since 1979, you can see the percentage of reserves to total gold has declined at a much faster pace as individuals increasingly perceived gold as a financial asset.

Adrian points to China’s Gold Accumulation Plan as a recent example of this trend. A joint effort between the Industrial & Commercial Bank of China (ICBC) and the World Gold Council (WGC), the program allows Chinese citizens to buy gold in small increments as a way to build up their gold holdings over time. The WGC reported in September that the program had established 2 million accounts during its first few months in operation and the amount is growing by the day.

These programs open the door for gold as an investment to a whole new class of people in China but that’s only a fraction of the tremendous demand for gold that we are seeing from China. In addition to the Fear Trade, gold is driven by the Love Trade, which is the strong cultural affinity the East, namely China and India, has to the precious metal.

In 2010, the Indian Sub Continent and East Asia made up nearly 60 percent of the world’s gold demand and 66 percent of the world’s gold jewelry demand, according to the WGC.

Indian jewelry demand has historically increased during the Shradh period of the Hindu calendar, but last year, high prices and a volatile rupee kept many Indian buyers on the sideline.

If you thought $1,900 was too much to pay for an ounce of gold, imagine how Indians felt when the rupee fell against the U.S. dollar, causing a gold price spike in rupees. Gold in Indian rupee terms rose more than 35 percent from July to November, roughly three times the magnitude of gold priced in U.S. dollars, yuan or yen. This currency swing significantly impacted Indian gold imports, which dropped 56 percent in the fourth quarter, according to data from the Bombay Bullion Association.
 

“Indian buyers will be back” after they adjust to the higher prices, says Fred Hickey. In one of his latest editions of “The High-Tech Strategist,” he cites late 2007 as a recent example when the Indian gold market experienced a similar rough patch. That year, gold demand in India fell off a cliff after prices spiked more than $1,000 an ounce in one quarter, tarnishing the country’s love affair with gold for a “brief period.” Fred says their cultural affinity for gold as an important store of wealth and protection against inflation will drive Indian buyers back into the market.

The trend was already changing in 2012, as UBS reported that the first day of trading saw physical sales to India were twice what they usually are, according to Fred. Although this is a very short time frame, I believe the buying trend will continue in this gold-loving country.

In China, “just as in India, gold is seen as a store of wealth and a hedge against inflation,” says Fred. Demand has been growing, especially in the third quarter, when China’s gold purchases outpaced India. “Physical demand for gold from the Chinese has been voracious all year,” says Fred. As of the third quarter, China had already obtained 612 tons, eclipsing its total 2010 demand, according to the WGC.

Across the Chinese retail sector, gold, silver and jewelry demand was the strongest performing segment in 2011, says J.P.Morgan in its “Hands-On China Report.” Growth in this segment far outpaced clothing and footwear, household electrical appliances, and even food, beverage, tobacco and liquor, all of which experienced more modest growth.

J.P.Morgan says the bulk of the increase came from lower-tier cities “where income levels are rising the fastest and improvements in retail infrastructure have allowed for rapid store expansion.”

Increasing incomes coupled with government policies that support growth have been the main drivers for rising gold prices. Take a look at the chart below, which shows the strong correlation between incomes in China and India and the gold price. As residents in these countries acquire higher incomes, they have historically purchased more gold, driving gold prices higher.

We anticipated that the Year of the Dragon would spur an increase in the buying of traditional gifts of gold dragon pendants and coins. Gold buying did hit new records, says Mineweb, with sales of precious metals jumping nearly 50 percent from the same time last year, according to the Beijing Municipal Commission of Commerce.

This should serve as a warning to all of gold’s naysayers. Gold bullfighters beware—you now have to fight the gold bull while fending off a golden Chinese dragon.
 

Index Summary

• The major market indices were higher this week. The Dow Jones Industrial Average rose 1.59 percent. The S&P 500 Stock Index increased 2.17 percent, while the Nasdaq Composite gained 3.16 percent.
• Barra Value outperformed Barra Growth as Barra Value finished 2.49 percent higher while Barra Growth gained 1.90 percent. The Russell 2000 closed the week with a gain of 4.04 percent.
• The Hang Seng Composite finished higher, gaining 1.25 percent, Taiwan gained 6.10 percent for the week, and the KOSPI rose 0.38 percent.
• The 10-year Treasury bond yield closed 3 basis points higher at 1.92 percent.

Domestic Equity Market

The domestic stock market as measured by the S&P 500 Index rose by more than 2 percent for the week. The financial and technology sectors led the way, with both rising by more than 3 percent.

Strengths

• The S&P 500 Financials had a very strong week, rising by more than 4 percent as this sector continues to respond to positive economic and government policy developments.
• The S&P 500 Technology sector also had a strong week, led by strong results from Mastercard, a bounce back from the prior week for Corning and rising expectations for NetApp in front of earnings.
• Individual stocks that performed well this week include Whirlpool Corp., Marathon Petroleum, and Genworth Financial, all three stocks rose by at least 16 percent this week.

Weaknesses

• Defensive, noncyclical sectors underperformed as utilities, consumer staples and healthcare all lagged the market this week.

• The consumer & electronics retail industry group was among the worst performers as both Best Buy and GameStop fell for the week as Radio Shack reported disappointing preliminary results.

• Abercrombie & Fitch Co. was the worst performer in the S&P 500 after giving weak preliminary results and 2012 guidance.

Opportunities

• Earning results have been encouraging so far and the market has responded. We have another heavy week of earnings announcements next week.

Threats

• An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.

The Economy and Bond Market

Employment data released on Friday, which put the current unemployment rate at 8.3 percent, showed strong improvement. This is the latest in a series of data points that show the U.S. economy is continuing to make strides in the right direction. ISI Group says that this was the 18th straight week of stronger economic data in the U.S. We’ve recently seen upticks in vehicle sales, same store sales, homebuilding and manufacturing.

Manufacturing PMI rose during the fourth quarter of 2011 and ISI Group thinks that it will rise another 3 percent to the 54 level during the first quarter of 2012. ISI says that over the past two years employment in the manufacturing sector has posted its strongest increase in almost three decades. But it’s not just the U.S. Manufacturing PMI on the rise, data from Europe and China also exceeded most forecasts and global PMI has jumped considerably since November.

One other factor that is likely driving better economic results is the year-over-year increase in U.S. money supply, which is growing at a robust 10 percent pace. Nominal GDP growth in the fourth quarter was 3.7 percent compared with the previous year and the current rate of money supply growth greases the wheels for America’s economic engine. Adequate money supply is the lubricant that allows the wheels of commerce to accelerate.

An article in the Wall Street Journal this week highlighted that in 2011 U.S. corporate tax receipts as a share of profits were at their lowest level in at least 40 years. Corporations paid a tax rate of 12.1 percent on profits during the fiscal year that ended September 30, 2011, less than half the average rate companies paid from 1987 to 2008. Those figures grabbed a lot of headlines in the press, but they don’t tell the whole story. In addition to putting aside more than $2 trillion in cash over the past five years, many corporations have employed a tax incentive known as “bonus depreciation” that allows companies to deduct from their taxes the capital that they invest back into their businesses.

The incentive has worked. Capital expenditures for American companies reached $1.5 trillion in 2011, up 10 percent from 2010. We believe this increase in capex has been a significant driver of the U.S. economic recovery. Corporate purchases of new fleet vehicles, machinery and data systems have created and maintained thousands of jobs for American citizens. It is unlikely the U.S. government would have achieved the same return on investment and multiplier effect on the economy.

Strengths

• The January employment report was much better than expected, with the strongest job gains since April and the lowest unemployment rate since February 2009.
• The ISM manufacturing index rose to 54.1 and the new orders component rose to a strong 57.6. JP Morgan’s Global PMI Index also continued to move higher, hitting 51.2 in January.
• U.S. auto sales rose 12 percent in January supporting the uptick seen in manufacturing data.

Weaknesses

• The Case-Shiller 20-city home price index hit the lowest level since February 2003. Prices have fallen 3.7 percent year-over-year.
• Consumer confidence fell sharply to 61.1 in January; expectations were for an increase.
• Fourth quarter productivity rose a very modest 0.7 percent.

Opportunities

• If the weekly oscillating trading pattern over the past couple of months is any indication of market direction, bonds could see a modest sell-off next week.

Threats

• Economic data has been strong and appears to be gaining momentum. This could be a threat to bond prices if the pattern continues.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

For the week, spot gold closed at $1,726.25 down $12.82 per ounce, or 0.74 percent.  Gold stocks, as measured by the NYSE Arca Gold BUGS Index, fell 1.2 percent. The U.S. Trade-Weighted Dollar Index was essentially flat with a gain of just 0.1 percent for the week.

Strengths

• The Year of the Dragon Lunar New Year holiday in China set a new record for gold buying.  Sales for the two top jewelry sellers reached about 600 million yuan ($95 million), a nearly 50 percent jump over the prior year.  With many Chinese losing money in the stock and property markets last year, gold is emerging as one of the preferred investment choices.
• The China Gold Association reported that the country’s gold production for 2011 rose 5.9 percent in 2011 to 361 tonnes.  Five years ago, China became the world’s largest producer of gold. Most analysts believe that all of this domestic production is bought by the government to add to its reserve base, which is underweight gold relative to the size of its economy and its exposure to the dollar. 
• In addition, estimates for Chinese gold imports in 2011 are roughly 490 tonnes. The public has a large appetite for gold accumulation as a means to build wealth.

Weaknesses

• A recent study by South Africa’s ruling African Nation Congress (ANC) has rejected calls for mine nationalization, but has come out in support of higher taxes and royalties.
• The policy for nationalization lost political momentum after the prime instigator, Julius Malema of the ANC Youth League, was found guilty of sowing discord among the party. 
• Talk of nationalization has kept investors wary of South Africa, with higher taxes and royalties still issues.

Opportunities

• Don Coxe, in his latest edition of Basis Points, urges gold investors to invest in gold equities at the expense of bullion ETFs as the Fed continues its policy of nonstop money at zero rates.  Likewise, David Rosenberg, of Gluskin Sheff, notes the Fed policy of currency debasement means that, in his opinion, exposure to gold and gold mining stocks in a portfolio is an absolute necessity.   
• In a recent issue of Market Musings & Data Deciphering, David Rosenberg highlighted the Fed policy of keeping interest rates low with the potential for more quantitative easing to come, coupled with the current back-door QE program in the eurozone as being very constructive for gold. 
• Rosenberg suggested investors would be more highly rewarded if they bought gold mining stocks versus gold bullion.  He also noted that, historically, gold mining equities tend to dramatically outperform bullion in the later stage of a gold bull market.

Threats

• The Fed policy of extending low interest rates is making life much more difficult for insurance companies and pension funds that manage long-term liabilities and for retirees seeking income from their investments.  Corporations are keeping high cash balances, partly due to uncertainty over future tax policy. Perhaps some of the reserves will be needed to fund pension plan deficits, which rose more than 50 percent in 2011.
• Newmont Mining noted in its recent regulatory filing with the SEC that its Hope Bay project in the far north of Canada will be subject to impairment testing.  Back in 2007 when gold prices were trading around $800, Newmont paid $1.5 billion for a 55 million ton resource that is estimated to contain 10.1 million ounces of gold. This works out to a resource grade of 5.69 grams per ton of gold. Today gold has doubled in price, but apparently there is some concern that the $900 million in estimated capital requirements to build the project may escalate beyond where the project’s returns would not be robust enough to take the risks.
• Equity issuance has been heavy recently.  Detour Gold raised about $240 million in the prior week, while NovaGold raised as much as $333 million this week, diluting current shareholders by more than 10 percent.  While the NovaGold financing represents only a small fraction of the additional $6.7 billion it will need, financing of this magnitude cumulatively takes some of the momentum out of the market.

Energy and Natural Resources Market

Strengths

• CLSA reports that final oil demand numbers from China increased by 7 percent in 2011.  While this level of growth is below the 12 percent in the prior year, December data showed a strong recovery in gasoline and natural gas demand. 
• Commodity investments are expanding at the quickest pace in six years according to Bloomberg, as signs of rising economic growth gain momentum.  The number of futures contracts on 24 commodities including oil and copper rose 9 percent last month, the most since January 2006.
• Cummins, Inc. cited on its fourth quarter conference call with shareholders that it expects a solid year of growth for its engines and industrial products in its mining and oil & gas businesses.
• Barclays reports an “unprecedented synchronized surge” in LME cancelled warrants, which stand at an average of 15 percent of total LME base metal stocks (versus a 5-year average just below 5 percent), is telling the market that inventories are going to be withdrawn on a significant scale from warehouses in the near term.

Weaknesses

• Copper stockpiles monitored by the Shanghai Futures Exchange increased to their highest level in nearly two years, which typically implies weaker regional demand for the metal.
• According to Darren Gee, CEO of Peyto Exploration & Development, Inc., many energy producers with natural gas exposure are requiring $6 per MMBtu to break even; this is compared to a current gas price of approximately $2.50.  Even among low producers in North America, many companies are just barely “keeping the lights on” without any additional cash to reinvest reserve depletion.

Opportunities

• The beginning of 2012 has proved to be a rewarding period for risk assets such as commodities.  Deutsche Bank attributes this strong performance to global central banks which continue to provide abundant liquidity to financial markets, and better real economic data in the U.S., China and the eurozone.
• The U.S. economy created 243,000 jobs in January, the greatest one-month increase since April of last year.

Threats

• While the focus has been on the potential for Middle East supply disruptions with Iran, a dispute over transit fees between Sudan and South Sudan has resulted in realized production losses of 350 thousand barrels a day at the end of January. 
• UBS Commodities strategists remain cautious despite the recent market rally due to credit contraction in deleveraging countries, slower capital flows into emerging markets and ongoing signs of credit stress in the financial markets.

February 3, 2012 The Growing Appeal of Gold	February 2, 2012 From Dogs to Darlings	February 1, 2012 What Milestone Will China Achieve Next?

Emerging Markets

Strengths

• Emerging markets had a strong week as positive global economic data is boosting expectations on economic growth. Key outperformers included Taiwan, Turkey and the Czech Republic.
• Currencies played a big role this week with many emerging market currencies rallying strongly. The South African Rand rose 2.9 percent, the Mexican Peso rose 1.9 percent and the Turkish New Lira, Indian Rupee and Colombian Peso each rose more than 1.25 percent.
• China’s January PMI was 50.5, improved from 50.3 in December and higher than the market estimate of 49.6. PMI above 50 indicates economic activities are expanding. The new order index was up 0.6 to 50.4 from December, while the new export order index was down 1.7 to 46.9, indicating China’s economy is driven by domestic demand. China’s January HSBC flash PMI improved slightly to 48.8 from 48.7 in December.
• German luxury-car maker BMW AG said Thursday that sales in mainland China rose about 30 percent in January to around 26,500 cars.
• Chinese banks may extend 9 trillion yuan ($1.43 trillion) of new loans this year as policymakers allow expansion in formal lending to replace shadow financing and enable the nation’s powerful growth engine to keep humming, Fitch Ratings Ltd. said.
• Korean CPI rose 3.4 percent in January, the slowest increase in 12 months.
• Thailand’s CPI rose 3.38 percent in January as lower food prices offset higher energy costs. The result was down from December, but in line with estimates.
• Indonesia’s CPI rose 3.65 percent in January, slowing for a fifth month and leaving the central bank room to resume interest rate cuts.

Weaknesses

• Korean exports unexpectedly dropped 6.6 percent in January, the first decline in more than two years. Weakness in Europe and the Lunar New Year holiday were blamed.
• China’s official PMI for non-manufacturing sectors fell to 52.9 in January from 56 in December, the China Federation of Logistics and Purchasing said in a statement today. The sub-index of new orders fell to 48.5 from 50.5 the previous month, slipping into contractionary territory and reflecting the effect of the government’s tightening measures on the property market, the statement noted.
• Hong Kong’s forth quarter GDP growth decelerated to 3 percent from 4.3 percent in the third quarter of 2011, but was better than the forecast of 2.5 percent. 
• Taiwan has reported the advance estimate for fourth quarter GDP to be 1.9 percent year-over-year, below market estimates of 2.8 percent and lower than the growth of 3.4 percent in the third quarter. The real GDP declined 1 percent quarter-over-quarter, technically entering recession.

Opportunities

• The left chart below shows how the people in China spend their time on media devices, indicating 47 percent of time is spent on the internet and 22 percent on mobile phones. The right chart compares online time as a percentage of total time spent on media with online ads spent as a percentage of total ads.  It is clear that there is more potential to monetize the internet in China through ad sales.

  

Threats

• China’s food prices were up in January due to holiday and winter effects.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 12/31/11:

Mastercard, Inc.: All American Equity Fund, 3.41%; Holmes Growth Fund, 2.86%; Global MegaTrends Fund, 3.74%
Corning, Inc.: 0.0%
NetApp, Inc.: 0.0%
Whirlpool Corp.: 0.0%
Marathon Petroleum Corp.: 0.0%
Genworth Financial, Inc.: 0.0%
Best Buy Co., Inc.: 0.0%
GameStop Corp.: 0.0%
RadioShack Corp.: 0.0%
Abercrombie & Fitch Co.: 0.0%
Newmont Mining Corp.: Gold and Precious Metals Fund, 2.14%
Detour Gold Corp.: 0.0%
NovaGold Resources, Inc.: 0.0%
Cummins, Inc.: All American Equity Fund, 1.07%; Holmes Growth Fund, 0.88%; Global MegaTrends Fund, 1.77%
Peyto Exploration & Development, Inc.: 0.0%
BMW AG: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
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 U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.
The S&P/Case-Shiller Index tracks changes in home prices throughout the United States by following price movements in the value of homes in 20 major metropolitan areas.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.

Press Release:
U.S. Global Investors Announces Earnings Webcast

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

My debate this week with Gordon Chang on China’s future at the Vancouver Resource Investment Conference was a stimulating, intellectual exercise. A healthy market needs a compromise between the bid and ask, and discussions between people who strongly disagree is a great way to promote critical thinking.

Critical thinking is vital to our investment process as a means to ensure that we question assumptions. One way our portfolio management team practices a critical-thinking process is through a weekly S.W.O.T. (Strengths-Weaknesses-Opportunities-Threats) analysis of key factors influencing global markets. By hammering out the positives and negatives, we can paint an accurate picture of the realities we face. The S.W.O.T. model allows us to avoid pitfalls by weighing the evidence.

Lack of critical thinking sometimes leads to bubbles, such as the one taking place in the parabolic rise in the number of articles foretelling China will experience a “hard landing.” Last fall, more than 1,000 articles questioned the possibility of a “China crash,” according to data from BCA Research. This is twice as high as the number in 2004, when fear articles reached 500. Gordon’s bearish pronouncements only added to the extreme negativity groupthink surrounding China’s economy.

Investment strategist Keith Fitz-Gerald, a long-time friend of mine, wrote an excellent article comparing today’s doomsday sentiment of China to the naysayers who forecasted the demise of the U.S. during the market bottom of March 2009.

Throughout the past century, U.S. stocks went through many secular bear markets. Keith points to the 1929-1932 period when the Dow Jones Industrial Average declined by nearly 90 percent, along with pointing out Dow’s loss of more than 52 percent from 1937 to 1942. Also, beginning in 1901, 1906, 1916 and 1973, there were four “40+ percent declines,” says Keith.

Americans have also endured two world wars, the Great Depression, presidential assassinations and the deadliest terrorist attack ever seen on U.S. soil. What’s important for investors to remember was that each significant market decline presented a “great buying opportunity” with U.S. stocks rising double-, or in some cases, triple-digits, writes Keith.

And, over the past 100 years, the Dow gained an outstanding 24,000 percent.

So despite setbacks including inflation, Tiananmen Square protests, the Asian financial crisis of 1997, and the SARS scare, over the last 30 years, China’s average annual real GDP has grown 10 percent.

With rising incomes and increasing urbanization, we believe China is pursuing the American Dream, and the government has shown great determination to build the necessary infrastructure along with a robust urban labor market. On a purchasing power parity basis, China’s share of world GDP has risen significantly, from around 3 percent in 1985 to a current world share of nearly 16 percent.

Yet, China is only in the middle of its supercycle with several stages to come. Supercycles, or what we call S-curves, are long, continuous waves of boom and bust inherent in human history. While the overall trend is up, periods of volatility are an inherent part of this supergrowth. Not every down period is a sign of demise—even a broken clock is right twice a day. It’s the wise active manager who learns to manage expectations by understanding the difference between short-term corrections and secular long-term bear markets.

While “risks certainly cannot be taken lightly,” BCA Research believes that the risk of a China crash is “exaggerated.” For example, bears often point to “shadow” banking practices to support their case.

Keith believes Beijing was “deliberately tapping on the brakes,” in 2009, when the central bank increased the reserve required ratio for commercial banks, effectively reducing the amount of money banks could loan. This resulted in a sharp decrease in the amount of credit available and significantly increased rates from 4.78 percent to 8.06 percent, according to BCA.

One negative consequence of China’s quantitative tightening was that it forced some private firms unable to gain loans from state-controlled banks to seek credit from “loan sharks at sometimes deathly high borrowing costs,” says BCA.

We sent our research analyst to his home country of China to find out how prevalent this problem was. The Shanghai-native Xian Liang joined an investigative tour led by research firm China International Capital Corporation (CICC) to the Zhejiang Province. His group had access to executives from banks, private lenders and local government agencies, many of which he found knowledgeable and shrewd.

During his research trip, he learned about an extensive survey done by Alibaba of 2,800 smaller and medium enterprises, which showed that half of the enterprises needed external financing, and the companies that currently borrow from banks—only 13 percent of Alibaba’s sample—faced pretty stringent risk management practices.

For example, one commercial bank that lends primarily to smaller companies checks the electric and water meters of the businesses to make sure they are actually using energy. They delve into the personal habits of the private entrepreneurs to gauge if the executives are creditworthy and financially sound, as it is believed that character has a lot to do with one’s willingness and ability to repay.

Overall, Xian understood the alleged systemic credit risks in the banking system to be manageable at this point. The government had been prudent to not only raise interest rates six times, but it also increased the reserve limit banks must set aside against loans.

BCA identified an additional unintended consequence of the tightening. Some banks tried to bypass tight regulatory controls so they could extend credit, leading to an “increase in off-balance-sheet activities,” according to BCA. This activity was recognized by the government, and the central bank has “increased its oversight of off-balance-sheet items.”

BCA says that in a way, “‘shadow’ banking activity can be viewed as an attempt by market participants to create more market-driven interest rates.”

In a report of Asian banks, CLSA Asia-Pacific Markets found that non-performing loans (NPL)—those assets not yet delinquent but that have fallen behind schedule—remain near a 12-year low in China, and the NPL-to-loan ratio is under 1 percent. This default rate is extremely low compared to the 1999-2002 timeframe, and it is believed that no large debt defaults are expected due to China’s ability to create liquidity.

Keith Fitz-Gerald says the government has an abundance of liquidity. It has set aside $3.2 trillion in reserves, amounting to half of the country’s entire GDP. Keith says this could potentially be spent on recapitalizing its banking sector, with “plenty of money to spare.”

Besides the reserves, China has more fiscal and monetary firepower than several emerging markets. The Economist analyzed 27 emerging markets and ranked the country’s ability to ease monetary policy, taking into consideration inflation, excess credit, real interest rates, currency movements and current-account balances. Then it created a “fiscal-flexibility index” which included government debt and the budget deficit. A score of 100 means a country has no flexibility to ease policies; a score near zero means a greater ability to “let out the throttle.”

This chart “suggests that China, Indonesia and Saudi Arabia have the greatest capacity to use monetary and fiscal policies to support growth,” compared to other listed emerging markets, says The Economist.

Many bearish articles that appeared last fall relied on generalities taken out of context. They offer anecdotes of ghost cities, empty shopping malls, robber barons, worker suicides and citizen protests as reasons the country as a whole is headed for a crash. These efforts to highlight China’s economic imperfections are akin to saying the U.S. is a poor nation because impoverished areas still exist. As analysts, it is our job to research and make a rational determination whether the facts are material or superfluous.

“China is merely going through the first uncomfortable growing pains of its adolescence,” Keith says, and he does not believe it’s the end of the world if China goes through a market correction. What he’ll be doing instead is investing.

As our team continuously weighs the evidence of China’s economy, I agree with my friend. Moments such as these offer buying opportunities for global investors.

We believe China is a buying opportunity.

I’ve covered this topic often in recent weeks. Take a moment to read my other positive observations on China:

Filling an Energy Order with Chinese Takeouts
It May Take a Dragon to Breathe Fire into Markets
The Great Urban Migration of China
Have Winds Shifted to Provide Relief to Investors?

Index Summary

• The major market indices were mixed this week. The Dow Jones Industrial Average fell 0.47 percent. The S&P 500 Stock Index increased 0.07 percent, while the Nasdaq Composite gained 1.07 percent.
   
• Barra Growth outperformed Barra Value. Barra Value finished 0.53 percent lower while Barra Growth gained 0.59 percent. The Russell 2000 closed the week with a gain of 1.81 percent.
   
• The Hang Seng Composite finished higher, gaining 1.95 percent, Taiwan was closed for the week, and the Kospi gained 0.77 percent.
   
• The 10-year Treasury bond yield closed 13 basis points lower at 1.89 percent.

Domestic Equity Market

There are several signs that things are looking up for global markets. These two charts show momentum for U.S. stocks, especially small-caps, is improving. Throughout this Alert we have included charts showing how the momentum has shifted in many areas of global markets.

The domestic stock market as measured by the S&P 500 Index was basically flat for the week, rising a very modest 0.07 percent. Cyclical sectors continue to lead the way as basic materials, technology and industrials all posted gains for the week. More defensive areas, such as consumer staples and telecom services, fell for the week.

Strengths

• Within the basic materials sector, Eastman Chemical, U.S. Steel Corp. and Freeport-McMoRan rose sharply. Eastman Chemical agreed to buy Solutia in a deal that was well received by the market because it is expected to be immediately accretive.
   
• Within the technology sector, the biggest news of the week was Apple’s blowout quarterly earnings report as iPhone and iPad sales vastly exceeded expectations.
   
• Individual stocks that performed well this week include Netflix, First Solar and J.C. Penney. All three stocks rose by at least 18 percent this week.
   

Weaknesses

• In the telecom sector, both AT&T and Verizon reported earnings that were not well received this week. Smartphone-related costs and iPhone subsidies cut into the company’s margins.
   
• The office electronics industry group was the worst performer this week as Xerox reported disappointing fourth quarter earnings and weak 2012 guidance.
   
• The electronic components group was dragged down by Corning, which fell by more than 12 percent on expectations for weak glass prices.
   

Opportunities

• Earning results have been encouraging so far and the market has responded. Next week will be another heavy week of earnings announcements.
   

Threats

• An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.
   

The Economy and Bond Market

Long-term Treasury yields fell sharply this week as once again the schizophrenic market gyrates up one week and down the next, which is what we have experienced since mid-November.

The Federal Reserve surprised the market this week with a news release that details the “central tendency” of thinking from Fed officials on the direction of federal fund rates. What surprised the market was the Fed’s statement that current economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.” That is well beyond current expectations and was a catalyst for appreciation.

Easy monetary policy on a global basis and a reduction in risk perception in Europe has allowed bonds to rally, not only here in the U.S. but also in Europe. As can be seen in the chart below, Italian 10-year bond yields have rallied significantly from more than 7 percent to below 6 percent in less than three weeks.

Strengths

• The Federal Reserve guided the market to expect continued easy monetary policy for roughly the next three years.
• Durable goods orders rose 3 percent in December as manufacturing indicators are signaling a rebound in activity. 
• In another indicator that global manufacturing is improving, eurozone composite PMI rose back into expansion territory.

Weaknesses

• Fourth quarter GDP rose 2.8 percent. While this was the best quarterly showing since the second quarter of 2010, it did trail expectations of at least 3 percent growth.
• New home sales fell 2.2 percent in December and only 302,000 new homes were sold during 2011, the worst performance since 1963.
• The Conference Board index of leading economic indicators index (LEI) rose 0.4 percent but was short of expectations.

Opportunities

• The Federal Reserve is in no hurry to raise rates and appears very comfortable with the current inflation situation. This means the Fed is likely to maintain a very easy monetary policy for some time.

Threats

• If the weekly oscillating trading pattern over the past couple of months is any indication of market direction, bonds could see a modest sell-off next week.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

For the week, spot gold closed at $1,739.07 up $72.42 per ounce, or 4.4 percent. Gold stocks, as measured by the NYSE Arca Gold BUGS Index, jumped 9.3 percent. The U.S. Trade-Weighted Dollar Index slid 1.7 percent for the week.

Strengths

• The week started with a takeover announcement that Pan American Silver was going to acquire Minefinders for $1.5 billion (Canadian), representing a 36 percent premium. Then with the Federal Reserve reporting that it would be maintaining low interest rates until at least the end of 2014, interest commodity markets surged with silver, gold and copper coming back into focus. The previous week, generalist investors had opined that they saw no reason to own gold. Gold soared to $1,713 the day of the Fed’s announcement, up 3 percent. Since the start of 2012, silver has climbed 22 percent and gold has risen 11 percent. After falling last year for the first time since 2008, copper has enjoyed its best start since 1987, up 13 percent for the year.
   
• Gran Colombia Gold Corp. rose 20 percent this week upon announcing positive drill results from its Segovia Property, confirming a strike length of 3,500 meters. This is the company’s second positive news release of drill results in 2012. The latest press release announced that the company had completed a diamond drilling program consisting of 86 diamond holes as of December 5, 2011. Bonanza grades were intersected with highlights being grades of 161 grams per ton gold and greater than 100 grams per ton of silver over 0.4 meters on the Provindencia Vein and 249 grams per ton of gold with 162 grams per ton of silver on the Silencio Sur Vein, part of the Las Aves vein system.
   
• Caterpillar reported its fourth quarter and 2011 results, delivering record-breaking sales and revenues for the year, with profits of just under $5 billion, up 83 percent from the previous year. Caterpillar benefits from the rise in infrastructure spending from its sales of earth-moving equipment for mining fleets. Major Drilling Group International and Energold Drilling are two other companies that provide drilling equipment to the miners, so their stocks also have been a defensive way to benefit from the increases in exploration spending.

Weaknesses

• There were a significant amount of negative headlines this week on South Africa’s attractiveness for mining investments. In 2006, the country was ranked 37th out of 64 countries and territories. The latest South Africa Survey shows the country’s position has declined to 67th out of 79.
   
• Factors contributing to the weaker rankings for South Africa would be the uncertainty concerning the administration, interpretation, and enforcement of existing regulations. Concerns over labor regulations, employment agreements, work disruptions, the reliability of the legal system, and uncertainty over disputed land claims are also considered strong deterrents for mining investment in South Africa.
   
• In addition, the country has experienced rolling blackouts due to a shortage of electricity generation capacity.

Opportunities

• John Embry from Sprott Asset Management said that he maintains his bullish view for gold on MineWeb’s weekly gold podcast this week. Embry said, "If the economies are as damaged as I think they are, particularly in Europe, (I don't think they are as good in China or the U.S. as they are trying to crack them up to be).... I think gold and silver prices could conceivably see the biggest percentage gains this year that they've had in the entire bull market.”
   
• On Tuesday, Eric Sprott also told an investor conference that everyone should make room for the shiny metal in their portfolios. "It is way less risky to have money in gold than to have money in the bank," Sprott told the GAIM USA conference in Boca Raton. "As an individual, I would have at least 20 percent in gold," Sprott said. "As a rule of thumb, high-risk portfolios should have about 10 percent in gold."
   
• There are a number of factors contributing to silver’s outperformance of gold so far this year. From a technical standpoint, silver appears strong after the breaking above the 50-day moving average and is likely encouraging investors to jump in. Additionally, a breakdown in the gold-to-silver ratio has triggered silver buying. Retail demand for silver coins has also been very strong, particularly in the U.S. So far in January, sales of American Eagle silver coins sit at 5.3 million ounces, the strongest volume since January 2011.
   

Threats

• The Herald, a Zimbabwean newspaper, reported on Wednesday that the government will soon announce raised mining license fees, with a focus on the growing platinum and diamond sectors. Finance Minister Tendai Biti said he expects $600 million cash inflows from the diamond sector to help fund a $4 billion budget for 2012. Mining expectations are obviously very high in Zimbabwe.
   
• Mali announced a proposed revision to its mining law that the country is seeking to raise the government’s share in mining projects from 20 to 25 percent. However, the revision would also trim taxes on mining income to 25 percent from 35 percent and it is yet to be passed by parliament. Mali relies on gold for about 70 percent of export revenues and 15 percent of gross domestic product, with the country’s gold revenues surging in 2011 by more than 20 percent tracking a rise in gold prices. While this falls under the heading of countries wanting a bigger share of gold mining exposure, Mali’s decision to also lower taxes in exchange was a welcome compromise.
   
• With Barrick Gold and Newmont Mining giving unimpressive 2012 production guidance, it’s apparent these senior gold mining companies must confront the growth versus profitability dilemma. Historically, to achieve significant growth the larger companies have sacrificed capital discipline by acquiring large, low-grade gold deposits with high investment risks. As the gold price has gone higher, so have these capital costs.
  
   

Energy and Natural Resources Market

Strengths

• Industrial metals rallied strongly this week bolstered by positive economic data in the U.S., dovish language from the Federal Reserve and likely short-covering. Copper finished up almost 4 percent at $3.89 per pound, making this the third consecutive week of gains.
   
• J.P. Morgan reported that China has now surpassed Japan as the world’s largest coal importer after importing 183.2 million tons in 2011, up 10 percent on a year-over-year (yoy) basis. Comparatively, Japan’s total imports for 2011 came in at 175.2 million tons, down 5 percent (yoy). The drop in Japanese imports could partially be attributable to the earthquake and tsunami in the first half of 2011.
   
• Deutsche Bank highlighted that commodities rallied across the board after the Federal Reserve signaled that a rate hike was nowhere in sight. The Federal Reserve’s statement that conditions are likely to warrant exceptionally low levels for the funds rate “at least through late 2014” is on the surface a major difference from the “at least mid-2013” date given in the last statement.
   
• U.S. natural gas prices have also rallied off a bottom near $2.32 million British thermal units (mmbtu) to break through a technical ceiling. Traders drove a sharp move higher on Wednesday.
   
• Grain prices recovered this week on supply concerns due to dry conditions in Argentina. Corn gained 5 percent and wheat gained 6 percent this week.

Weaknesses

• Australian oil producers shuttered as much as one-quarter of the country’s output as Tropical Cyclone Iggy was forecast to strengthen.
   
• India Coal Market Watch said that India’s coal production fell 2.7 percent since April 1, 2011. The group said that output was 359.8 million tons from April to December compared with 369.8 million tons the previous year. Production was 8 percent less than the government’s target of 391.48 million tons. India’s coal production was 533 million tons in the year ended March 2011, below the government target of 573 million tons.
   
• South Africa has become significantly less attractive as a mining investment destination since 2006, the South African Institute of Race Relations (SAIRR) said this week. "Uncertainty over nationalization and mine ownership, and increasing work disruptions are affecting investors' willingness to get involved in mining ventures in South Africa," SAIRR researcher Jonathan Snyman said in a statement.

Opportunities

• Copper stockpiles at the London Metal Exchange fell for the 16th week, declining 2.3 percent to 348,750 tons. This is the lowest level since December 2012 and could be another driver for stronger copper prices as stockpiles get replenished.
   
• Barclays Capital reported that global manufacturing data and business confidence seem to suggest that industrial production and sentiment have started to stabilize. On a monthly basis the Barclays aggregate global manufacturing PMI data recorded its strongest improvement since January 2011, advancing from -0.71 in November to 0.5. Further, that improvement was widespread, spanning the U.S., U.K., Brazil, Asia and even in the Europe. In fact, Flash PMI for the eurozone moved above 50 for the first time since August 2011.
   
• Barclays cited a news report that the current size of the cattle herd in the U.S. may be the smallest since Dwight Eisenhower was President in 1958. A Bloomberg News survey said ranchers held 91.24 million head of cattle as of January 1, down 1.5 percent from a year earlier. A record drought in Texas last year and rising feed costs prompted ranchers to cull herds, even as beef exports from the U.S. surged. Cattle futures are up 15 percent since the end of June. After reaching an all-time high on an annual basis in 2011, the Livestock Marketing Information Center says retail-beef prices will keep rising through next year.
   

Threats

• GMP reported that an oil pipeline in United Arab Emirates that would strategically bypass the Strait of Hormuz to the tune of 1.5 million barrels per day could face more delays due to differences with a Chinese construction company.
   
• Gains that made natural gas the best-performing commodity this week may soon be evaporating as traders bet U.S. production cuts won’t be enough to reduce the biggest supply surplus since 2009. Resource Daily commented that futures soared as much as 20 percent from a 10-year low in New York after Chesapeake Energy Corp. and ConocoPhillips said they’ll reduce output. Energy producers are shifting spending to basins that yield more lucrative oil and gas liquids, in addition to producing natural gas. Gas has tumbled 14 percent this year as a boom in U.S. shale output pushes inventories toward record levels. Stockpiles were 21.4 percent above the five-year average last week, the most since June 19, 2009. Data from the U.S. Department of Energy shows production grew by an all-time high of 4.5 billion cubic feet a day in 2011, while demand rose 920 million cubic feet.
   

January 26, 2012 Filling an Energy Order with Chinese Takeouts	January 25, 2012 Peering Through Exxon’s Looking Glass	January 24, 2012 Talking Oil, Gold and Copper with Yahoo’s Breakout

Emerging Markets

Strengths

• Despite worldwide economic turmoil, global foreign direct investment (FDI) flows jumped by 17 percent in 2011. This number, however, widely reflects the large number of cross-border mergers and acquisitions. China was the second-largest FDI destination, receiving a record $124 billion. India’s FDI rebounded 38 percent after a big fall in 2010, but remained far behind China.
   
• Poland’s economy expanded at the quickest pace in three years during 2011, as companies boosted investment and a weakening Polish zloty buoyed exports. The country’s GDP rose 4.3 percent from the previous year, compared with a revised 3.9 percent in 2010.
   
• With a more favorable policy environment and an end in sight for the industrial destocking process, we anticipate more stable economic growth in China for February after the Chinese New Year celebrations are complete. CEBM concluded in a recent research report that historical experience shows the destocking cycle usually lasts four months and the firm thinks the end of the destocking process is likely to emerge around March.
   
• Chinese banks listed in Hong Kong are currently cheaper than during the 2008 lows. Banks are currently pricing at 5.4x 2012 price-to-earnings (P/E), 1.1x price-to-book value, and 21.63 percent return on equity, according to JP Morgan’s recent research.
   
• In China, 22 out of 31 provinces have seen their total GDP surpass Rmb 1 trillion. The Guangdong province leads all of them with Rmb 5.3 trillion. The Shandong province hasn’t reported its 2011 GDP yet, but it is probably the third largest provincial economy in China after Jiangsu province with Rmb 4.8 trillion. Shanghai’s GDP is Rmb 1.9 trillion.
   
• In 2011, nearly 20 percent of the houses in Hong Kong were bought by people from mainland China.
   
• In 2011, China became the second-largest global market for Mercedes-Benz and BMW behind the U.S. CEBM reports Mercedes-Benz posted year-over-year sales growth of 32.8 percent during the first three quarters of 2011. This is roughly 25 percent of China’s luxury car market. CAAM expects sales of luxury cars to outperform the overall sedan market in 2012.
   

Weaknesses

• Bloomberg News reports that the world’s best-performing consumer stocks have become the lowest-rated by analysts after valuations of South African retailers and food producers climbed to the most expensive levels on record. Five companies in the MSCI South Africa Consumer Staples Index, including Shoprite Holdings and Massmart Holdings, are rated the lowest among peers in 36 countries.
   
• Weekly housing sales transactions in Beijing declined 70 percent from the previous week and 83 percent from the previous year. Although the Chinese New Year was a factor, the trend will continue until the price has dropped to a level that satisfies the government. In China, housing market speculators have been squeezed out of the market in the last two years by tightening policy. Now potential buyers are waiting for a further price drop to get into the market. What the government fears is that if the tightening policy is lifted, the speculators will come back into the market.
   
• Korea reported forth quarter preliminary GDP growth at 3.4 percent on a yearly basis, lower than the estimate of 3.5 percent. On a quarterly basis, it was up 0.4 percent, weaker than the consensus forecast of 0.5 percent.
   
• Japan’s December CPI fell 0.2 percent on a yearly basis, and Japan’s core CPI fell 0.3 percent year-over-year for 2011. This shows the Japanese economy is structurally weak.
   
• Korean manufacturing confidence registered at 81 for February, improving from January’s 79 but still hovering near 30-month lows. Consumer confidence for January came in at 98, dropping 1 point from December’s reading and registering a 10-month low.
   
• Thailand’s industrial production shrank by 25.8 percent in December, contracting for a fourth month on continuing effects from the flooding.
   
• Many migrant workers may not come back to the coastal cities after the Lunar New Year since they can just find a job inland locally in China, Zhongguang Web reported in Beijing. A tight labor market will force employers to raise wages and increase their costs.
  
   

Opportunities

• HSBC Emerging Markets reports that their key forecasts see China avoiding a hard landing and growing 8.6 percent, Brazil cutting interest rates to 9 percent by midyear, the Czech Republic and Hungary being the only two emerging markets falling into recession, Turkey’s inflation remaining high and monetary policy unorthodox, India’s inflation finally easing, and Russia’s economy growing 3 percent. As emerging markets have started to show signs of an economic slowdown, policymakers have switched back to a reflating mode and we expect them to accelerate their efforts if conditions warrant a more aggressive response.
   
• Colombia expects about $10 billion in international investment in crude, mining and energy projects this year, the Mines Minster Mauricio Cardenas said this week. Colombia is South America’s third-largest oil producer.
   
• Poland “deserves a rating upgrade after all the work it has done since 1989” and because growth is bolstering investor confidence, said the CEO of Deutsche Bank’s local unit in Poland. Poland is rated A2 by Moody’s Investor Service, on par with Italy.
   

Threats

• Argentina has announced that it will extend the list of goods that require a government permit to be imported and will raise import taxes for 100 products to 35 percent from 20 percent, a leading newspaper in the country reports.
   
• On January 31, Russia will release the country’s fourth quarter GDP data. Analysts at Roubini Global Economics are forecasting that the number will show a meaningful decline from the third quarter’s 4.8 percent year-over-year increase.
   
• Two major sets of Chinese economic data that can continue to decline in the first half of 2012 are GDP growth and property investment. Before the economy touches its lowest growth rate, the market may have to adapt to a large amount of bad news in the property market, such as sales dry-up and a sharp price fall.
   

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 12/31/11:

Eastman Chemical Co.: 0.0%
U.S. Steel Corp.: 0.0%
Freeport-McMoRan Copper & Gold, Inc.: Global Resources Fund, 2.18%; Global MegaTrends Fund, 2.46%
Solutia, Inc.: 0.0%
Apple, Inc.: All American Equity Fund, 3.36%; Holmes Growth Fund, 4.47%
Netflix, Inc.: 0.0%
First Solar, Inc.: 0.0%
J.C. Penney Co., Inc.: 0.0%
AT&T, Inc.: All American Equity Fund, 1.20%
Verizon Communications, Inc.: All American Equity Fund, 1.10%
Xerox Corp.: 0.0%
Corning, Inc.: 0.0%
Pan American Silver Corp.: 0.0%
Minefinders Corp. Ltd: 0.0%
Gran Colombia Gold Corp.: Gold and Precious Metals Fund, 4.32%; World Precious Minerals Fund, 4.54%; Global Resources Fund, 1.62%; Global MegaTrends Fund, 0.26%; Global Emerging Markets Fund, 0.46%
Caterpillar, Inc.: Gold and Precious Metals Fund, 1.69%; World Precious Minerals Fund, 1.10%; All American Equity Fund, 1.38%; Holmes Growth Fund, 1.03%; Global MegaTrends Fund, 1.82%
Major Drilling Group International, Inc.: Gold and Precious Metals Fund, 0.39%
Energold Drilling Corp.: World Precious Minerals Corp., 0.40%
Barrick Gold Corp.: Gold and Precious Metals Fund, 3.84%; World Precious Minerals Fund, 0.82%
Newmont Mining Corp.: Gold and Precious Metals Fund, 2.14%
Chesapeake Energy Corp.: 0.0%
ConocoPhillips: All American Equity Fund, 1.11%
Mercedes-Benz: 0.0%
Shoprite Holdings: 0.0%
Massmart Holdings: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
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 U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The Conference Board index of leading economic indicators is an index published monthly by the Conference Board used to predict the direction of the economy's movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy.
The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.
The MSCI South Africa Consumer Staples Index is a capitalization weighted index that monitors the performance of consumer staples stocks from the country of South Africa.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Kung hei fat choy!

On Monday, I’ll be returning home to Canada to speak at the Cambridge House’s Vancouver Resource Investment Conference. This year, I’ll be part of a special debate on whether China will boom or bust with bestselling author Gordon G. Chang. The title of Chang’s book, The Coming Collapse of China, states his position quite clearly and I look forward to the intellectual challenge of convincing him otherwise.

I’ve found many people are particularly energized about predicting a hard landing for China’s economy, but I believe the country is no sinking ship. China isn’t fast-approaching an iceberg in the dark of the night like the Titanic. Beijing has long been anticipating the ice chunks and subtly adjusting the rudder around inflation without steering the economic ship too far off course.

China’s government angled its vessel away from inflation by increasing the required reserve ratio (RRR) every month for the first six months of 2011 and raising interest rates three times. Once inflation was sufficiently under control, the country began to steer in a direction of growth again.

Recent results show how positive this easing has been. In its latest research this week, BCA Research reported that despite the policy tightening of 2011, the “most recent economic data out of China has all but confirmed that the economy remained incredibly resilient.”

One significant data point is the sharp increase in money supply. After the country hit a low level of monthly money supply growth, the three-month change in M-2 money supply climbed to record levels during the final month of the year, says Greg Weldon of Weldon Financial. He says that money supply “pegged at +6.419 trillion, easily exceeding the previous record 3-month increase, seen at the peak of the global crisis, in March of 2009.&rdquo

Easing in China is expected to continue through 2012, with ISI Group anticipating a potential RRR cut after Chinese New Year celebrations in February, then possibly again in April, June and August. Also, loans “have become more readily available in recent weeks,” says ISI. This should all be bullish for commodities, such as copper, oil and gold, and also trickle down to boost share prices of natural resources equities.

Chinese Copper Inventories Increase
Base metals were the laggards among commodities last year, with copper one of the worst performers, losing 21 percent. (Download our Periodic Table of Commodities now.)

Global consumption of copper increased only 4 percent in 2011, which is lower than the 10 percent growth in 2010, but higher than the decade-average of around 3 percent, says Macquarie Research. China’s consumption of copper—which makes up 40 percent of the global demand—was a primary reason for decreased consumption, as the country was drawing down on its own supply throughout the year.

This can’t continue forever, Macquarie says, adding that “demand made on new supply direct from producers would need to rise, with positive implications for prices.” Europe’s largest copper fabricator agrees with that sentiment, indicating that it anticipated China’s copper demand would be strong in 2012, according to Barclays.

A recent rise in copper imports is likely the result of restocking China’s depleted copper inventories. As is typical for China, after the metal fell in price last fall, the world’s largest buyer of the metal advantageously scooped up copper to replenish its cupboard, says Barclays Capital. As shown below, copper inventories into China reached a record low in 2011, but have sharply reversed recently.

An increase in copper demand places pressure on the supply side, which continues to experience shortfalls in mine output versus forecasts. These are caused by a variety of factors, such as weather, labor strikes, or simply a poor grade deposit. While Macquarie says there’s a possibility the world’s two largest copper mines, the Los Bronces mine in Indonesia and Peru’s Escondida mine, could deliver year-over-year increases in production, it concludes “it is highly unlikely that miners will succeed in delivering this level of additional output in total.”

While Chinese demand growth for commodities is not expected to be as robust as it has been historically, demand is expected to pick up throughout 2012. As confidence returns, Macquarie says there should be “a slow gradient of recovery in the near term before gathering pace into the mid-year.”

Increasing Reliance on Energy Imports
China’s rapid growth and increasing reliance on other countries for key resources has made a powerful case for commodities over the past several years. These three charts from BCA Research illustrate that once the country shifted from exporting to importing a commodity, there was no looking back.

You can see in all three how dramatically the energy balance has shifted to an ever-increasing dependence on imports. In each major commodity, after China began importing, growth took off.

China became a net importer of crude oil in 1994, and today, is the second-largest oil importer in the world. BCA forecasts the country is expected to surpass the U.S. as the largest oil importer in only a few years.

To obtain more natural gas, China spent years building massive pipelines to transport the commodity from Russia and other western Asian counties, and since 2006, natural gas imports have “gone vertical,” says BCA.

Coal, which accounts for the majority of total energy consumption in China has also been imported since 2008, and since that time, imports rose substantially.

Even with these imports, energy consumption is only a fraction of developed countries. The China story is just getting started: Urbanization just surpassed the 50-percent mark, hitting what I believe to be the pivotal moment that dramatically shifts buying patterns, driving an enormous demand for housing, consumer staples and durable goods. You ain’t seen nothing yet!

Happy Chinese New Year!

This weekend, the world’s largest annual migration takes place. Millions of people in China head home to celebrate Chinese New Year and welcome in the Year of the Dragon. U.S. Global Investors’ research analyst and Shanghai native Xian Liang recently talked about the significance of the dragon in Chinese culture:

“Unlike its western counterpart portrayed as evil, the Chinese dragon is an imaginary, mythical creature. Its body parts are from nine animals, including the horns of a deer, mouth of an ox, nose of a dog, trunk of a snake, and claws of an eagle. It has auspicious power because it can make itself invisible or visible at any time. It can both fly and swim. It makes clouds and rain. Because of these magnificent things, the dragon is associated with royal powers as well.”

After bounding through a tough Year of the Rabbit, we anticipate the Year of the Dragon will breathe fire back into Chinese markets in 2012. Kung hei fat choy!

Index Summary

• The major market indices were higher this week. The Dow Jones Industrial Average rose 2.40 percent. The S&P 500 Stock Index increased 2.04 percent, while the Nasdaq Composite gained 2.80 percent.
• Barra Value outperformed Barra Growth as Barra Value finished 2.19 percent higher while Barra Growth gained 1.91 percent. The Russell 2000 closed the week with a gain of 2.67 percent.
• The Hang Seng Composite finished sharply higher, gaining 4.57 percent, Taiwan rose 0.73 percent, and the KOSPI gained 3.96 percent.
• The 10-year Treasury bond yield closed 16 basis points higher at 2.03 percent.

Domestic Equity Market

The domestic stock market as measured by the S&P 500 Index was higher this week by 2.04 percent. We have seen a global rally in January with much of this performance coming this week. When trying to decipher the underlying cause it is often helpful to look at significant government policy actions.

On December 21, 2011 the European Central Bank (ECB) implemented the first tranche of the three-year long-term refinancing operation (LTRO) of approximately $635 billion, as the ECB attempted to secure long-term funding for banks that would allow them time to work through their current difficulties without the fear of a run on the bank. Another round of funding is scheduled for February. The chart below compares the timing of the current LTRO to the Federal Reserve’s quantitative easing and TARP program in 2008. The LTRO program is a form of quantitative easing and judging by the effect on the global equity markets, it appears to be working. The chart below looks at the global equity risk premium as a proxy for equity risk aversion and as can be easily seen in the chart , the end of 2011 was a very fearful time for equity investors. If 2008 and 2009 set precedent, then 2012 is shaping up to be a good year.

Strengths

• The information technology sector was the best-performing sector this week as several bellwether technology companies reported earnings that were well received by the market.
• The semiconductor equipment group was particularly strong, increasing by more than 8 percent as strong earning results combined with increased orders or capital expenditure announcements from Intel and Taiwan Semiconductor.
• The investment bank and brokerage industry group was also strong with Goldman Sachs and Morgan Stanley both up around 10 percent for the week on the back of well received earnings reports.

Weaknesses

• The utilities sector underperformed and was the only sector to post negative performance for the week, as the market rotates away from defensive areas.
• The auto parts and equipment industry group underperformed as Johnson Controls lowered guidance on weak European production and currency effects.
• The educational services group also underperformed as talk surfaced on possible legislation that would reduce incentives for for-profit colleges to target and aggressively recruit veterans and service members.

Opportunities

• Early earning results have been encouraging so far and the market has responded, and we move into the heart of earnings season next week.

Threats

• An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.

The Economy and Bond Market

Long-term treasury yields rose sharply as once again the schizophrenic market gyrates up one week and down the next, which is what we have experienced since mid-November.

Yields rose throughout the week as we appear to be in another “risk on” mode where risky assets rise and safe assets fall.

Economic data generally met expectations this week as inflation continued to slow on a year-over-year basis and housing data was generally in line with forecasts. The big surprise of the week was initial jobless claims, which hit the lowest levels since 2008. This number is often viewed as a leading indicator, which bodes well for the economy going forward.

Strengths

• The weekly initial jobless claims are indicating the economy is picking up steam.
• Both the Producer Price Index (PPI) and Consumer Price Index (CPI) came in below expectations, giving the Fed plenty of room to maneuver if it were to decide additional stimulus is needed.
• China reported fourth quarter GDP which rose 8.9 percent and beat expectations. The Chinese hard landing many pundits were worried about has yet to materialize and government policy has already shifted to an easing bias, likely resulting in a reacceleration in the second half of 2012.

Weaknesses

• Overnight deposits with the ECB hit another record high at roughly $685 billion as banks are still unwilling to lend to each other in the overnight interbank market. This indicates significant lack of confidence in the European banking sector and is at odds with the equity performance of many European banks of late.
• Greece has yet to come to an agreement with private creditors on the level of haircut that will be taken. This remains an overhang on the financial markets.
• Industrial production rose 0.4 percent but came in shy of expectations.

Opportunities

• The Fed is expected to release its Fed funds rate forecast at the conclusion of the Wednesday Federal Open Market Committee (FOMC) meeting. This new openness is welcome but depending on the detail and how well the information is explained, will ultimately determine how the market takes this new news.

Threats

• The situation in Europe remains extremely fluid and negative news is almost expected at this point. Unfortunately it is politically driven and difficult to predict outcomes and ramifications.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

For the week, spot gold closed at $1,666.65 up $27.65 per ounce, or 1.7 percent. Gold stocks, as measured by the NYSE Arca Gold BUGS Index, fell 3.4 percent. The U.S. Trade-Weighted Dollar Index slid 1.7 percent for the week.

Strengths

• Gold continues to attract attention as it remained above its 200-day moving average this week and closed above the 50-day moving average on Friday. It had previously crossed below the 200-day moving average on December 14 of last year, and only crossed back above on January 10, giving confidence for higher gold prices to come for the year.
• Traders in India are saying that the current marriage season is being a strong driver for purchases of gold jewelry. They also have said that almost 70 percent of gold jewelry is sold during the wedding and festival season, with the country being host to approximately 10 million marriages a year. Even with current high prices, people appear to spending as much, if not more, this year.
• Romarco Minerals released drilling updates on Friday this week from their Haile Mine, to which the market reacted positively, with shares up 6.0 percent for the day. The project in South Carolina reported an intercept of 21.3 meters with a grade of 43.1 grams per ton from the Snake zone and other strong infill results. Earlier in the week Romarco reported very encouraging drill results from its regional gold exploration program in the Carolinas which was positive for the share price.

Weaknesses

• Catching the market by surprise, India’s government raised the import duty 90 percent on bullion to 2 percent on value from the previous flat rate of 300 rupees per 10 grams. The import duty on silver was also raised to 6 percent on value from 1,500 rupees per kilogram. Trading was light on new orders coming from India, with analysts forecasting that this could have a significant impact on the country’s gold appetite in the long term. As the rupee fell 18.7 percent in 2011, this may be a government reaction to marginally curtail gold buying, but historically the public has found other ways to acquire gold.
• Kinross Gold took it on the front, with shares taking a nose-dive 21 percent on Tuesday after releasing news on possible delays that would impact the Tasiast mine in West Africa and that it was conducting “a capital and project optimization process aimed at improving capital efficiency, project sequencing, and investment returns for its three main growth projects.” Furthermore, the company announced that it expects to record a goodwill charge for Tasiast in connection to the 2010 Red Back acquisition. The Tasiast mine is one of Kinross’s largest sources for future production growth.
• Senior gold mining shares fell better than 5 percent this week while the junior gold mining stocks were up about 1.5 percent. The sell off in the senior names largely reflects generalists rotating out of some of their “fear trade” positions based on some of the better than expected economic numbers. It is very positive though that the junior mining stocks are finally catching a good bid after a dismal 2011.

Opportunities

• China, which is speculated to outpace India in the next few years as the largest gold consumer, recently added more reason to this prediction. Some of the country’s leading banks offer accounts that accumulate gold, and are quickly gaining attention. One bank, the Industrial and Commercial Bank of China, launched the accounts in April 2010 and drew 2.33 million investors by the end of November, just 19 months after the launch, with 22 tons of gold held. Investors buy as little as a gram a month through the accounts, which would quickly add up. The Industrial and Commercial Bank of China has more that 200 million prospective accounts to market its gold products to.
• Eric Sprott, the well-known Canadian fund manager, recently made public his reservations on cyclical commodities, but remained bullish on gold and oil. He cited the ongoing current economic contraction as the main reason for his bearish view on iron ore, coal, steel, lead and zinc. He does, however, expect gold to hit a record above $2,000 an ounce this year, with silver not far behind, reaching an all-time high of more than $50 an ounce. Strong physical gold demand should remain intact with encouraging import numbers coming from China and Turkey late last year. He recently filed last week to launch a platinum and palladium product which would allow investors to redeem the physical metals.
• Argentinean provincial laws banning the use of cyanide in gold processes were repealed for the Rio Negro province, giving a further boost to the mining sector for the country. Pan American Silver said this week that changes to the mining legislation in this province will allow the company to advance its Calcutreu gold development project located in the province. Argentina’s mining industry is continuing to expand with a record $2.57 billion in investments last year.

Threats

• In the midst of earnings season, companies are reporting on average much higher operational costs, namely due to increases in labor, transportation and energy prices. This is a theme throughout the industry, with costs estimated to have increased 10 to 15 percent in 2011. Increases in sustaining capital have also been creeping upwards, giving advantage to the senior names due to their pre-established economies of scale.
• Following the increasing number of its African neighbors, Zambia’s government has introduced a number of policies aimed at tightening the country’s booming mining sector. Analysts view the changes in Zambia as part of a broadening shift throughout the continent toward resource nationalization.
• The Congressional Western Caucus notes on its web site under “Job Killing Policy #10” that “the EPA has also declared the mining industry their number one target for writing rules pursuant to CERCLA §108(b) (Superfund) to require financial assurance. An EPA financial assurance program will be duplicative of federal land management agency and state programs which already have extensive environmental programs and financial assurance requirements in place. Worst-case scenario bonding by the EPA will cause some existing mines to close prematurely and prevent new mines from opening by unnecessarily tying up capital that would otherwise be used to create new wealth and jobs.” Historically, states have had the authority over what could be done on private land but recently the EPA has been asserting that they have authority if air or water might come in contact with development.

Energy and Natural Resources Market

Strengths

• The Global Resources Fund performance over the last week has bested its benchmark largely through stock selection in the energy sector and specifically in the oil services and equipment area.
• Barclay’s capital highlighted that base metals have started the year with a “bang;” prices are up on average 11 percent since the start of the year making it the best-performing sector so far. Copper gained approximately 10 percent for the week.
• One of the key leading indicators of U.S. non-residential construction, the American Institute of Architects Billings Index, remained above 50 in December, representing an increase in the month.
• Consultancy Steel and Metal Market Research said this week global crude stainless steel production hit a new record high of 35.5 million tons in 2011, but the pace of growth was slower than the previous year.
• Freeport McMoRan has resumed copper concentrate shipments from its Grasberg copper-gold mine in Indonesia, which had recently only resumed work from a three-month strike ending in December. Freeport is the world’s second-largest copper mine and supplied the global market with nearly 2.5 percent of the global demand.

Weaknesses

• After another soft reading of the weekly storage withdrawal, natural gas prices tumbled further this week as warmer than normal weather curbs demand. Natural gas futures fell 12 percent this week to close at $2.35 per mmbtu.
• Total steel shipments rose just 5 percent year-over-year for their smallest increase in nearly two years. Shipments fell 14.7 percent month-over-month on a days-adjusted basis, while total steel inventories rose 3.1 percent month-over-month and 8.3 percent year-over-year.
• According to Deutsche Bank, Norsk Hydro, the world's fifth-largest primary aluminum producer with market share of nearly 4 percent, has confirmed that it will close one of the three potlines at its 180,000 tons per annum Kurri Kurri smelter in Australia in response to the price weakness of recent months. Rio Tinto and Alcoa, the world's second- and third-largest producers, have also announced plans to close some capacity.
• ArcelorMittal will extend the closure of it Sestao plant in Spain as it does not expect southern European steel demand to improve in the near future, it said. The company had announced last October that it would halt steel production at the Sestao plant in November and December. "ArcelorMittal Sestao will restart operation as soon as market conditions turn around," a spokesperson said in an e-mailed statement.

Opportunities

• Deutsche Bank highlighted that the International Energy Agency (IEA) said that China’s oil-product consumption is expected to rise 400,000 barrels per day to 9.9 million barrels per day in 2012, almost 40 percent of the increase in global consumption. According to its forecast, global crude oil consumption is expected to increase 1.1 million barrels per day to 90 million barrels per day.
• BP Plc said that China will drive the world’s growth in oil demand in the next 20 years and in 2027 will overtake the United States as the world’s top oil consumer.
• Deutsche Bank reported that Japan’s largest copper smelter suspended its Saganoseki smelter operation, with an annual capacity of 200 000 tons, due to fire damage. On top of this, Philippine’s PASAR copper smelter is also facing production problems. On the back of production disruptions, London Metal Exchange (LME) copper cancelled warrants increased significantly from New Orleans, where more free copper units exist globally.
• Freeport McMoRan reported that downstream demand in the U.S. is positive and project a tight and encouraging copper market in 2012, with the auto sector strong and signs of improvement in construction.
• U.S. service center steel inventories rose 3 percent month-over-month for December and were still 18.7 percent below average historical levels. December inventories were 52.8 percent below peak levels and 42.5 percent above trough levels. Inventory restocking likely has helped boost steel prices in recent months.

Threats

• Nigeria’s government ordered a fresh audit of its entire oil and gas sector covering the last three years. This move follows the opening of an investigation into the sector by the corruption watchdog and a separate Senate investigation into fuel subsidies - all announced this week. In response to a reduction in fuel subsidies, the country has witnessed a country-wide strike threatening the gas and oil sector.
• Crude oil is the most vulnerable to near-term supply disruption from geopolitical tensions. The sustainability of commodity supply is being challenged by rising state political interference and local self-interests that is delaying and constraining the resource development needed to meet emerging demand growth.

January 20, 2012 After 2011 Hit, Are Emerging Markets Set to Recover First?	January 19, 2012 The Great Urban Migration of China	January 17, 2012 What the Next Decade Holds for Commodities

Emerging Markets

Strengths

• China’s fourth quarter GDP growth was 8.9 percent, better than the expected 8.7 percent.
• China’s December retail sales were up 18.1 percent, better than the estimated 17.2 percent. For 2011 it was up 17.1 percent year-over-year, showing strong consumption demand.
• Disposable income for urban residents grew 14.1 percent in 2011, and 8.4 percent. In 2011, China’s urban population increased by 21 million to 690.79 million at the end of last year. For the first time in China’s history, urban population has exceeded the rural population, the National Bureau of Statistics said.
• December industrial production was up 12.8 percent, higher than the estimate os 12.3 percent. Industrial production grew 13.9 percent in 2011, better than estimated.
• HSBC China’s Flash Purchasing Manager’s Index (PMI) is 48.8 for January, higher than 48.7 in December last year. PMI below 50 indicates manufacturing activities are in contraction. The HSBC Flash PMI is a survey among small and medium sized enterprises (SME) in China, which means it reflects part of the industrial activities in China. In China, as in many other countries, SMEs are mostly disadvantaged for financing. We hope Wen Jiabao’s SME loan policies can eventually help resume their growth.
• Chinese bank lending in the first quarter may exceed the 2.26 trillion yuan from a year earlier.
• China’s central bank, PBOC, injected Rmb 183 billion into the system via reverse repos on Wednesday, and Rmb 200 billion again on Thursday while urging more lending.
• China is said to consider relaxing capital requirements for banks. The China Banking Regulatory Commission is delaying implementing the most stringent capital adequacy ratios and may lower risk weightings for loans to small businessmen and companies.
• The Chinese banks totally issued Rmb 16.5 trillion worth of wealth management products, of which listed companies spent Rmb 30.4 billion buying these bank products. This was one reason that deposit growth was slowing.
• China’s National Social Security Fund has won approval to invest Rmb 100 billion from local pensions in stocks and bonds.
• Online advertising spending in China will rise 33 percent to Rmb 63.8 billion ($10 billion) this year from last year, the South China Morning Post said citing a broker report.
• Moody’s just upgraded Indonesia’s sovereign credit to investment grade after Fitch did the same in December last year. This will reduce borrowing costs for corporations and help stabilize currency.
• The Philippines’ central bank cut its benchmark rate by 25 basis points down to 4.25 percent. It was the first rate cut since July 2009. The Philippines runs an independent monetary policy since its economy is mostly domestic. Philippines overseas remittance rose 10.6 percent year-over-year in November to $1.78 billion, the biggest increase in three months.
• Thailand’s exports dropped 2 percent on a year-over-year basis in December as factories and supply chains began to recover from the flooding. The result was much higher than expectations for a 10 percent drop and a significant improvement from November’s 12.4 percent decline.
• Malaysia’s CPI rose 3 percent year-over-year in December, slowing to a nine-month low.
• Government statistics show that Colombia’s industrial production rose 6.5 percent in November from a year earlier.
• Indonesia received its second investment-grade rating from Moody’s this week, raising the country’s sovereign credit rating to Baa3. A month prior, Fitch had upgraded Indonesia’s credit rating as well.

Weaknesses

• Taiwan’s December export order declined 0.7 percent, for the first time since mid 2009.
• Due to housing market tightening and postponement of high speed rail projects by the government, China fixed asset investment still grew 23.8 percent, lower than 2010 and providing some clue to 2012’s slower investment growth. CITIC Securities predicts housing investment will decline in the first half of this year before the government lifts its control on the real estate market.
• China’s December home prices posted their worst performance last year, with only two of the 70 cities tracked posting gains, as the government reintegrated its plans to maintain housing curbs. In fact, sales transactions dropped sharply, between 15 to 20 percent on average, but the price drop was still very mild.
• China’s foreign direct investment declined 12.7 percent in December after a 9.8 percent drop in November on a year-over-year basis, a further reason for moderate money supply growth.

Opportunities

• The fiscal deposit decrease since September, particularly in December of last year, indicated that the Chinese central government had started fiscal expansion to fine-tune the economy. Evidence such as improved PMI and industrial production in December proved the government has changed its policy focus to supporting growth from economic adjustment (tightening).

• Barclay’s Capital reported that China may allow its local pension funds to be invested in its stock market in the first quarter of this year, according to the China Securities Journal. The report said that a province in southern China was approved to transfer 100 billion Yuan of local pension funds to the National Council for Social Security Fund (NCSSF) for operation. In view of the NCSSF's assets structure, about 30 percent to 40 percent of such capital will be invested in the stock market.
• A BCA credit cycle lead indicator is giving a positive signal for European equities and risk assets in the first half of 2012. Shaded areas in the chart below denote periods of anticipated market weakness, while clear bars forecast market strength based on an upturn in the global credit conditions six months previously. With the second 3-year LTRO tranche due in February, the ECB’s balance sheet is expected to expand by 1 trillion euro, amount almost identical to the U.S. Fed’s balance sheet expansion of $1.4 trillion in 2008/09.

Threats

• Two major sets of economic data that can continue to decline are GDP growth and property investment in the first half. Before the economy touches its lowest growth rate, hopefully by the middle of the year, the market may have to adapt to a lot of bad news in the property market, such as a sales contraction and sharp price fall.
• A number of upcoming important economic data will be released next week, including Turkey’s monetary policy decision, Poland’s 2011 GDP data, and Russia will report December industrial production.
• The World Bank warned on Tuesday that developing countries should brace for a growth slowdown stemming partly from Europe’s debt woes. Furthermore, the bank also warned that political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects. The World Bank cut its outlook for global growth in 2012 to 2.5 percent and 3.1 percent in 2013, down from 3.6 percent for both years.
   

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 12/31/11:

Intel Corp.: All American Equity Fund 2.07%, Holmes Growth Fund 2.34%
Taiwan Semiconductor Manufacturing Company, Ltd.: 0.0%
Goldman Sachs Group, Inc.: 0.0%
Morgan Stanley: 0.0%
Johnson Controls, Inc.: 0.0%
Romarco Minerals Inc.: World Precious Minerals Fund 1.81%
Kinross Gold Corp.: Gold and Precious Metals Fund 1.72%, World Precious Minerals Fund, 1.48%
Pan American Silver Corp.: 0.0%
Barclays PLC: 0.0%
Freeport-McMoRan Copper and Gold, Inc.: Global Resources Fund 2.18%, Global MegaTrends Fund 2.46%
Deutsche Bank: 0.0%
Norsk Hydro ASA: 0.0%
ArcelorMittal SA: 0.0%
Deutsche Bank: 0.0%
BP PLC: 0.0%
CITIC Securities Company Ltd.: 0.0%
Industrial and Commercial Bank of China Ltd.: China Region Fund 2.93%, Global Emerging Markets Fund 1.05%
Rio Tinto Group: 0.0%
Alcoa Inc.: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
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 U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Producer Price Index (PPI) measures prices received by producers at the first commercial sale. The index measures goods at three stages of production: finished, intermediate and crude.
The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.
The London Metals Exchange Index (LMEX) is an index on the six designated LME primary metals contracts denominated in US dollars. Weightings of the six metals are derived from global production volume and trade liquidity averaged over the preceding five-year period. The index value is calculated as the sum of the prices for the three qualifying months multiplies by the corresponding weights, multiplied by a constant.

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

What a decade! A rapidly urbanizing global population driven by tremendous growth in emerging markets has sent commodities on quite a run over the past 10 years. If you annualize the returns since 2002, you find that all 14 commodities are in positive territory.

A precious metal was the best performer but it’s probably not the one you were thinking of. With an impressive 20 percent annualized return, silver is king of the commodity space over the past decade with gold (19 percent annualized) and copper (18 percent annualized) following closely behind.

Notably, all commodities except natural gas outperformed the S&P 500 Index 10-year annualized return of 2.92 percent.

Last year did not seem reflective of the decade-long clamor for commodities. In 2011, only four commodities we track increased: gold (10 percent), oil (8 percent), coal (nearly 6 percent), and corn (nearly 3 percent). The remaining listed on our popular Periodic Table of Commodity Returns fell, with losses ranging from nearly 10 percent for silver to 32 percent for natural gas.

Download a pdf of the commodity table here

I think this chart is a “must-have” for investors and advisors because you can visually see how commodities have fluctuated from year to year. Take natural gas, for example, which posted outstanding increases in 2002 and 2005, but has been a cellar-dweller for the last four years as a result of overabundant supply and softening demand. The industry is also still trying to digest breakthrough technology that opened the door to vast shale deposits at a much lower cost.

On the other hand, oil finished in the top half of the commodity basket six out of the past 10 years. No stranger to volatile price swings, oil possesses much more attractive fundamentals as we continually see restricted supply coupled with rising demand.

After 11 consecutive years of gains, some are questioning whether gold can keep its winning streak alive in 2012. One of those skeptics is CNBC’s “Street Signs” co-host Brian Sullivan. In an appearance on Thursday, I explained how I believe the Fear Trade and Love Trade will continue to fortify gold prices at historically high levels.

Watch the interview

I explained that one of the reasons the Fear Trade will persist in purchasing gold is the ever-rising government debt across numerous developed countries. During our Outlook 2012 webcast, John Mauldin kidded that the Mayans were not astrologers predicting the end of the world, but economists predicting the end of Europe. Whereas John believes the U.S. has wiggle room to decide on how to deal with deficits and debt, Europe and Japan are running out of time.

The situation is quite somber when you consider how much debt Europe, Japan and the U.S. owes this year alone, says global macro research provider Greg Weldon. In his preview of 2012, Weldon says that the maturing principal and interest on U.S. Treasury debt due this year totals just under $3 trillion. Austria, Belgium, France, Germany, Italy, Portugal and Spain together face nearly $2 trillion in principal and interest payments. Japan is the leader in the clubhouse, owing just over $3 trillion in 2012. With the combined debt for these developed countries totaling nearly $8 trillion, the interest payments alone dwarf the total GDP of many countries in the world.

This week, Germany sold a five-year government note for less than 1 percent, the lowest interest rate on record. Bids for the low-yielding debt were three times more than the amount sold, even as the consumer price index stands at more than 2 percent year-over-year. This means that investors have so few acceptable safe havens they are willing to accept negative real rates of return.

This is good news for gold as a safe haven alternative against depreciating currencies such as the euro, the yen and the U.S. dollar.

The overwhelming debt burden in developed countries translates to an expected slowdown in imports from the emerging world. However, the grandest of those countries, China, likely won’t be affected as much as some people assume. This is “the biggest misconception” about the country’s economy, says CLSA’s Andy Rothman. Exports only play a supporting role for the Chinese economy. The world’s second-largest economy is actually largely driven by domestic consumption from a population more than 1 billion strong with more padding in their wallets.

Andy says 10 years of tremendous income growth and little household debt, make China the “world’s best consumption story, for everything from instant noodles to luxury cars” in 2012.

According to December Chinese trade figures, month-over-month and year-over-year imports of aluminum and copper increased significantly. This may be a result of China restocking ahead of Chinese New Year, but M2 money supply growth rapidly rose in recent months, a sign the government is attempting to reaccelerate the economy. Also, the urban labor market has been robust over the past two years, with an annual change just below 5 percent—a record high over the past 15 years.

Along with rising urban employment, income growth has been tremendous as well. CLSA says that last year was “the eleventh consecutive year of 7 percent-plus real urban income growth,” with disposable incomes rising 152 percent over the past decade.

Investors shouldn’t expect China’s growth to be as robust as it’s been, as the country’s fixed asset investment growth drops below the 25 percent year-over-year pace of the last nine years, says CLSA. China’s 12th Five-Year Plan has less infrastructure spending compared to the 11th five-year plan. Transport and rail spending is also expected to drop, with only water and environmental protection spending growth rising.

As shown in the BCA chart above, GDP growth has declined below 10 percent, but the growth is currently not the lowest we’ve seen in recent years. CLSA believes that China will prevent GDP growth from slipping below 8.5 percent for the full year, as “Beijing has the fiscal resources and political will to quickly implement a much larger stimulus.”

Judging by the record number of articles mentioning a hard landing in China in late 2011, investor sentiment has swung from euphoria to excessive pessimism, according to BCA Research. Last fall, more than 1,000 articles discussed the risk of a “China Crash.”

As I’ve mentioned before, contrarians view extremely bearish sentiment as a potential attractive entry point. BCA believes the pessimism has been priced in, as technical indicators as well as valuations for domestic and investable markets appear “deeply depressed.”

What will happen over the next 10 years? I believe the supercycle of growth across emerging markets will continue with rising urbanization and income rates. This bodes well for commodities, especially copper, coal, oil and gold, and we’ll continue to focus on companies that will benefit the most from these much-needed resources.

Index Summary

• The major market indices were higher this week. The Dow Jones Industrial Average rose 0.50 percent. The S&P 500 Stock Index increased 0.88 percent, while the Nasdaq Composite gained 1.36 percent.
• Barra Value outperformed Barra Growth as Barra Value finished 1.49 percent higher while Barra Growth gained 0.37 percent. The Russell 2000 closed the week with a gain of 1.93 percent.
• The Hang Seng Composite finished sharply higher, gaining 3.84 percent, Taiwan rose 0.86 percent, and the Kospi gained 1.77 percent.
• The 10-year Treasury bond yield closed 9 basis points lower at 1.87 percent.

Domestic Equity Market

The S&P 500 Index was higher this week by 0.88 percent. For the second week in a row, the best-performing sector was basic materials which rose 3.93 percent. Energy was the worst-performer, down 1.24 percent. Within the basic materials sector, top performers included Eastman Chemical, Freeport-McMoRan Copper and Gold, and CF Industries. The worst performers in energy included Cabot Oil & Gas, QEP Resources and EQT Corp.

Strengths

• Diversified metals and mining, led by Freeport-McMoRan, was the best-performing group for the week, up 7.9 percent. Improving sentiment surrounding China’s economic prospects drove copper up 6.3 percent this week.
• The auto parts and equipment group outperformed by gaining 7.5 percent. The group was led by Borgwarner, which issued better than expected earnings guidance for 2012.
• The homebuilding group also outperformed rising 7.5 percent. The group was led by Lennar, which reported a 20 percent increase in new orders.

Weaknesses

• The tire and rubber industry group (Goodyear Tire) was the worst-performing group, down 10.9 percent. Goodyear Tire noted recent weakness in volume trends globally.
• The home entertainment software group lost 8.4 percent on weakness in Electronic Arts. The stock dropped on reports that U.S. video game sales dropped 21 percent in December.
• The coal group fell 5.5 percent as sharply lower natural gas prices put pressure on thermal coal pricing. Consol Energy declined 11 percent.

Opportunities

• U.S. economic data remains surprisingly strong and increases the odds that economic momentum can be maintained.

Threats

• An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.

The Economy and Bond Market

Long-term Treasuries rallied this week, sending yields lower as the schizophrenic market continues to gyrate up one week and down the next. This is what we’ve experienced since mid-November.

Most of the gain in Treasuries came on Friday as Standard & Poor’s (S&P) downgraded several European countries including France, Italy and Austria. The U.S. dollar and Treasuries rallied on this news, while stocks sold off.

Economic data was mixed but one outlier was the consumer credit report from the Federal Reserve, which grew by more than $20 billion in December. The 9.9 percent annualized increase is the fastest growth since November 2001. Consumer confidence and retail sales have improved over the course of the quarter but it appears a sharp reversal in consumer credit may dampen the outlook going forward.

Strengths

• The University of Michigan Confidence Index and the IBD/TIPP Economic Optimism Index both registered strong increases in January.
• The three month rate in China’s M2 money supply index has accelerated very sharply and is an indication that the government is addressing the concerns of an economic hard landing. China’s bank loans rose 14 percent in December and reinforce the idea that policymakers are taking action.
• Italian 10-year bond yields fell sharply this week as bond auctions in Europe were met with strong investor demand.

Weaknesses

• Overnight deposits with the European Central Bank (ECB) hit another record high at $591 billion as banks are still unwilling to lend to each other in the overnight interbank market. This indicates significant lack of confidence in the European banking sector.
• Weekly jobless claims rose back near the 400,000 level and are at the highest level in six weeks.
• Consumer credit surged $20 billion this week as consumers levered back up in November.

Opportunities

• Inflation data will be released next week and should confirm the declining trend in inflation. We also have housing starts and building permits which will hopefully confirm some of the recent positive data points in housing.

Threats

• The situation in Europe remains extremely fluid and negative news is almost expected at this point. Unfortunately, decisions are politically driven and it is difficult to predict outcomes and ramifications.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

Strengths

• Gold, which had been trading below the 200-day moving average, crossed above on Tuesday with momentum players joining the markets. For the week, gold closed just above the 200-day moving average at $1,639.30 an ounce. Palladium also had a strong move, up almost 3 percent for the week on warnings of power supply curtailments in South Africa which could effect mine production.
• China’s Ministry of Industry and Information Technology reports that China produced 32.61 tons of gold in November, a 2.7 percent increase from the previous month. Total output for the first 11 months of 2011 rose 4.85 percent. More importantly, the latest trade data shows China imported 102 tons of gold from Hong Kong in November, the most ever. In addition, gold coin sales in the U.S. surged to 85,500 ounces sold during the first 12 days of January, according to the U.S. Mint. At this pace of sales, January could be the highest level of gold coin purchases since December 2009.
• In the midst of earnings season, a number of companies reported very positive results. Yamana Gold forecasted a 13 percent increase in gold equivalent production for 2012 after producing a total of 1.1 million ounces in 2011. Goldcorp also forecasted a 70 percent increase to 4.2 million ounces of gold production in five years and 2012 gold production guidance of 2.6 millions ounces. This comes after the company met 2011 gold production guidance at 2.5 million ounces. Freeport McMoRan reported that workers who returned to their Grasberg mine in Indonesia continued to ramp up production. The strike had gone on for three months, tightening copper production. The stock was up nearly 8 percent for the week on this positive news.

Weaknesses

• With earnings being reported for a number of companies, investors took short-term profits where they could on Friday. This led gold and the NYSE Arca Gold Miners Index (GDM) down 0.68 and almost 1.3 percent, respectively, for the day. Although the gold rally was dented, it was not reversed. Senior gold equities were hit the hardest on Friday, down 1.14 percent for the day, while juniors were only down 0.21 percent. On a country-specific basis, South African gold stocks were hit the most as currency and electricity restrictions weighed on their performance. Junior gold exploration and development stocks outperformed senior gold equities on the whole for the week, with added strength seen in the senior silver names.
• Momentum in the gold market stalled on Friday with a bit of profit taking from short-term players. The Shanghai Gold Exchange also announced it would temporarily raise margin requirements on gold and silver ahead of the week-long Lunar New Year holiday.
• Hecla Mining's Lucky Friday mining project has turned out to be not-so-lucky. The company announced this week that it would be shutting down a silver shaft on the project due to maintenance and a safety review following a rock burst in late December. This mine accounts for 25 percent of its silver production. Accordingly, the company reduced its 2012 silver guidance by 2.5 million ounces to 7 million ounces. Hecla was down over 20 percent on the news.

Opportunities

• Asian demand for gold seems to be picking up again. While the Indian rupee has slightly strengthened, prices have remained stable, laying the groundwork for improved Indian demand for the metal. With the Chinese New Year holiday just around the corner on January 23, news reports show gold imports through Hong Kong are at record levels and the Chinese government is successfully managing its economy by taming inflation. This is reassurance that gold demand will continue to rise from the country.
• While central banks have been net purchasers of gold since 2009, pension and insurance funds only hold 0.3 percent of their assets in gold and mining shares. A commentary on Mineweb.com made the point that with continuing losses and growing pension deficits, these funds may be forced to hold gold because it is the only asset class negatively correlated to financial assets such as stocks and bonds. With over $200 trillion of global financial assets, this would represent a massive shift from the $2 trillion in gold bullion privately held today.
• Argentina is expecting the mining sector to continue to expand over the next six months as two Canadian miners, Pan American Silver and Goldcorp, plan to start construction on sizeable projects. Although it still lags behind regional heavyweights such as Chile and Peru, Argentina’s mining industry has been experiencing rapid growth since 2003.
   

Threats

• Research analysts expect gold mining to be socially challenged in 2012 as industry participants will need to demonstrate that the existing formal mining models in the host country, rather than the informal/illegal type of mining, are working and contributing to the country. A significant shortage of skilled labor and a necessity for companies to show that their activities are socially responsible and positively contributing to the local communities will also prevail.
• Members of the London Metal Exchange (LME) are pushing the LME to retract a new user trading fee that would boost the exchange’s revenues and encourage potential bidders. Brokers are concerned that it would hurt their way of doing business. Traditionally, the LME has kept trading fees low. Mineweb.com reported that industry sources say members were not consulted on the levy and some are rallying their peers to try and persuade the LME board to head off the move scheduled to take effect in March.
• Poland’s controversial mining tax has been approved by the committee that prepares government legislation and now only requires final clearance from the government and parliament. This new mining tax would be helping to raise 1.8 billion Polish zlotys for state coffers this year. KPGM Polska Miedz SA, the country’s most profitable company and sole copper producer, is now considering returning to the debt markets for the first time since 2003 should the government approve this new mining tax. The company will need to pay 1.8 billion zloty in new taxes this year.

Energy and Natural Resources Market

Strengths

• Desjardins highlighted that Chinese December base metal import data is showing that unwrought copper imports reached 508.9 thousand metric tons, up 12.6 percent month-over-month and 47.7 percent year-over-year. Iron ore imports of 64.1 million metric tons were down 0.2 percent month-over-month while up 10.3 percent year-over-year.
• The latest SteelBenchmarker assessment by World Steel Dynamics shows a continuation of the upward trend in U.S. steel prices. The U.S. hot-rolled coil (HRC) assessment topped $800 per ton for the first time since July and scrap prices hit $466 per ton of shredded material, the highest level since August 2008.
• Reuters noted that OPEC’s crude oil production was more than 30 million barrels per day in December 2011, the highest volume since October 2008.
• Preliminary shipping data shows that Brazilian shipments were up 5.6 percent year-over-year. Shipments to China exceeded the 200 million tons per annum mark for the first time last year and iron ore exports reached an all-time high run rate in December.

Weaknesses

• The Global Resources Fund (PSPFX) underperformed its benchmark by a small amount over the last week due to being underweight large capitalization basic materials stocks and being overweight U.S. exploration and production stocks with natural gas exposure.
• Natural gas fell 14 percent this week to $2.64 per British thermal unit (Btu), a decade low. Supply growth in North America from rapid oil and gas shale basin development has created a glut of natural gas that will require a combination of increased industrial and power generation demand as well as a reduction in natural gas well drilling to balance the market.
• Deutsche Bank reported that the dry bulk index has fallen sharply in the beginning of 2012 while iron ore prices remain relatively supported. Deutsch Bank believes the decline in shipping rates is a function of slowing demand from Chinese steel production ahead of its New Year and lower shipments from Australia and northern Brazil due to rainy weather. China steel production has declined for six consecutive months. Deutsche Bank expects spot iron ore and freight rates to face ongoing headwinds in the first and second quarters of 2012. However, an end to the rains and an improvement in global growth during the second half of 2012 could lead to subsequent strength.
• China’s import growth fell to a two-year low in December, underscoring a slowdown in the fastest-growing major economy that deepens risks for the global outlook.
• The Central Dispatch Department of the Fuel and Energy Complex said that Russia’s crude oil exports fell by 3.9 percent year-over-year to 212 million tons in 2011.

Opportunities

• BCA research showed that equity multiples now discount a severe global growth slowdown at a time when mining stocks still offer leverage to the bullish China income convergence story. The unfolding recession in Europe and property slowdown in China have crushed mining share prices.
• Macquarie reports that Vale has now declared force majeure on certain iron ore deliveries, accounting for around 20 percent of January output. They emphasized that this now serves to indicate that the seaborne iron ore market will become fundamentally tighter during the quarter, requiring both destocking in China and a reincentivization of Chinese domestic output through higher prices.
• Deutsche Bank noted that oil production in the state of North Dakota climbed 42 percent (year-over-year) in November to 510,000 barrels per day. Success in developing tight oil plays across the country has created a realistic prospect that U.S. net oil imports as much as a percentage of total usage could fall significantly further. The figure has already fallen from 65 percent in 2005 to 47 percent in 2011.
• The U.S. Energy Information Administration (EIA) released its first Short Term Energy Outlook for 2012, in which the agency revised global oil demand downward by 140,000 barrels per day in 2012. This brings the EIA’s annual growth rate in-line with Barclays’ forecast at 1.27 million barrels per day. However, the key feature of the report was the large downgrade to non-OPEC supply for both 2011 and 2012. Non-OPEC supply growth for 2011 was reduced by a massive 310,000 barrels per day to just 90,000 barrels per day.

Threats

• Italy faces a “significant chance” of a downgrade by Fitch Ratings, which is reviewing all European sovereigns and will make a decision by the end of the month.
• Workers in Nigeria began a national strike, threatening to shut ports and disrupt oil production and exports. Workers are striking in reaction to the government’s decision to lift fuel subsidies, more than doubling gasoline prices. The strike makes Nigeria the third OPEC nation with an ongoing supply threat.
• Vale, the world’s largest iron ore exporter, reported that it had to halt some iron ore shipments from Brazil due to heavy rainfall that has killed dozens of people. Due to the rains that have affected its operations in Brazil, the miner estimates it will lose approximately 2 million tons of iron ore shipments, almost 1 percent of its annual output.

January 13, 2012 Pocket of Strength: Bright Economic Lights of Texas	January 12, 2012 Anticipating the Golden Cross	January 10, 2012 Gold’s Unique Agility

Emerging Markets

Strengths

• The People’s Bank of China (PBOC) 2011 financial statistics show that M2 growth rebounded significantly to 13.6 percent year-over-year at the end of December. With seasonal adjustments, this represents a 26.8 percent month-over-month increase on an annualized basis. Many attribute the monetary expansion to fiscal expansion measures taken by the Chinese government. In an early December Investor Alert, we discussed that we were at the beginning of a monetary easing cycle in China as the government tries to fine-tune the economy.
• The amount of new loans in China during December was Rmb 640.5 billion, higher than the estimated Rmb 575 billion.
• After targeting Rmb 7.5 trillion in 2011, China may set its 2012 new bank loan target at Rmb 8 trillion. Money supply growth is expected to be 14 percent and CPI at 4 percent, the Oriental Morning Post reported. The government may ease lending to infrastructure projects and local government financing vehicles (LGFV) this year.
• China’s online gaming revenue rose 32.4 percent (year-over-year) to Rmb 2.85 billion in 2011, while the mobile game market’s revenue rose 86.8 percent year-over-year to Rmb 1.7 billion, Xinhua News reported.
• After sinking 28 percent in value during 2011, China’s domestic stock markets (as measured by the CSI300 Index) have started 2012 by posting a 6.5 percent gain after the first five days of trading. The increase is driven by monetary easing policy and market participations by domestic institutions. After Premier Wen Jiabao called for boosting confidence in the domestic stock market, the China Securities Regulatory Commission (CSRC) will pursue reforms in IPO pricing mechanisms to prevent excessive high pricing, will encourage improving corporate dividend payouts, and will try to increase the proportion of corporate bonds financing.
• China’s December CPI dropped to 4.1 percent, a 15-month low, after peaking in July. This drop will provide room for China to increase money supply. China’s December PPI dropped 1 percent from November, indicating core input prices are declining faster than the market expectation.
• Korea’s December PPI rose 4.3 percent from the previous year but was down 5.1 percent from the previous month. The Bank of Korea maintained its benchmark interest rate at 3.25 percent for the seventh straight month, a widely-expected move.
• The China Auto Association announced that December 2011 passenger car sales were up 4.6 percent. The market had expected no gain due to a high base effect in December 2010 when the stimulus plan came to expire. The Association also forecast 2012 passenger car sales to grow 7 percent after growing 5.19 percent in 2011.
• Macau gaming names gained in the week after reporting 850 million a day (Macanese pataca) in gaming revenues for the first eight days of the year. This is similar to last year’s Golden Week in October.
• China’s National Energy Administration plans to double solar capacity this year and add four times the capacity by 2015. Solar stocks globally jumped on the news this week.
• Russia’s inflation dropped lower than post-Soviet lows, falling to 6.1 percent on a year-over-year basis. December’s inflation number is significantly lower than the 2010 average annual figure of 8.8 percent. However, Roubini Global Economics is forecasting inflationary pressures to reemerge in the latter part of 2012.

Weaknesses

• China’s December exports were up 13.4 percent while imports were up 11.8 percent. Imports were lower than the market consensus, indicating slower export/import growth and increased pressure for China to further ease money supply.
• Continued weakness in electronics shipments drove Philippine exports to drop 19.4 percent year-over-year in November, the seventh-straight month of declines. Consensus estimates were for a 10 percent drop. Nevertheless, Philippine exports are a small share of the country’s GDP. The 2012 Philippine economy will be driven by domestic consumption, infrastructure investments and overseas remittance.
• Malaysia’s industrial production gained 1.8 percent year-over-year in November, the slowest pace in four months, as mining contracted and manufacturing eased.
• China’s foreign-exchange reserves dropped for the first time in more than a decade as foreign investment moderated. The holdings fell to $3.1 trillion on December 30 from $3.2 trillion on September 30, data released on the People’s Bank of China shows.
• China’s power use growth may slow to 8.5 percent this year, Xinhua reported, citing the deputy director of China’s State Electricity Regulatory Commission. Electricity consumption slowed to 11.7 percent last year from 14.5 percent in 2010.
• Signs that Chinese lenders will postpone losses on trillions of yuan loans made to local governments may undermine investor confidence in the banking sector, Standard & Poor’s said on Thursday. This local government loan issue can never be fully understood or go away by the like-minded institutions and speculators. We believe it is a huge issue but resolvable given time and time is always on the side of the Chinese government.

Opportunities

• Russian producer TNK-BP’s PetroMonagas venture with Petroleos de Venezuela SA plans to boost output of heavy oil by 20 percent to 145,000 barrels a day in 2013.
• Weibo, a Chinese microblogging service run by Sina, has seen its user base reach more than 50 percent of the country’s entire Internet population of 500 million people, according to J.P. Morgan. As a leader in microblogs, Sina Weibo possesses unique opportunities to monetize the phenomena. Proliferation of tablets and smartphones should also give additional push to the microblogging trend.

Threats

• With China in a monetary easing cycle and the U.S. experiencing a slow but steady recovery, the European sovereign debt issue is the single biggest question for the market. Therefore, it is still advisable to not be surprised by short-term market volatility.
• BCA Research published a piece this week highlighting themes among the emerging market space. Among them, a U.S. dollar breakout coupled with emerging market currency weakness was mentioned. Unlike in 2008, the problems are now in Europe and developing countries, while U.S. growth is set to outperform other regions. BCA believes this only reinforces the case for a strong U.S. dollar as global capital favors U.S. assets, while emerging market currencies remain more volatile than they have been in the recent past.
   

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 12/31/2011:
Goldcorp: Gold and Precious Metals Fund 2.27%, World Precious Minerals Fund 1.01%
Randgold Resources Ltd.: Gold and Precious Metals Fund 5.23%, World Precious Minerals Fund 4.90%, Global Resources Fund 1.69%
Franco-Nevada Corp.: Gold and Precious Metals Fund 4.99%, World Precious Minerals Fund 1.80%, Global Resources Fund 0.04%
Eastman Chemical: 0.00%
Freeport-McMoRan Copper and Gold, Inc.: Global Resources Fund 2.18%, Global MegaTrends Fund 2.46%
CF Industries Holdings, Inc.: Global Resources Fund 2.17%, All American Equity Fund 1.33%, Holmes Growth Fund 1.24%, Global MegaTrends Fund 1.46%
Cabot Oil & Gas: 0.00%
QEP Resources: 0.00%
EQT Corp.: Global Resources Fund 2.32%
Borgwarner, Inc.: 0.00%
Lennar: 0.00%
Goodyear Tire: 0.00%
Electronic Arts: 0.00%
Consol Energy: 0.00%
Yamana Gold: Gold and Precious Metals Fund 3.76%, World Precious Minerals Fund 2.68%
Hecla Mining: 0.00%
Pan American Silver: 0.00%
KPGM Polska Miedz SA: Eastern European Fund 0.86%
Deutsche Bank: 0.00%
Vale: 0.00%
TNK-BP: 0.00%
Petroleos de Venezuela SA: 0.00%
Sina Corp.: China Region Fund 2.73%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
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 U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The Investor's Business Daily (IBD) TechnoMetrica Institute of Policy and Politics (TIPP) Economic Optimism Index measures the mood of consumers in regard to economic conditions. The reading is derived from a monthly survey where 900 nationwide adults evaluate their "six-month economic outlook," "personal financial outlook," and their "confidence in federal economic policies." Index readings above 50 indicate optimism; below 50 indicates pessimism. When consumers are optimistic they tend to purchase more goods and services, which stimulates the economy.
The NYSE Arca Gold Miners Index (GDM) 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 CSI 300 is a capitalization-weighted stock market index designed to replicate the performance of 300 A-share stocks traded in the Shanghai and Shenzhen stock exchanges.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Producer Price Index (PPI) measures prices received by producers at the first commercial sale. The index measures goods at three stages of production: finished, intermediate and crude.

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Wind currents between the ocean and atmosphere affect climates around the world; likewise, government policy shifts and economic data have a similar ripple effect on markets.

During our Outlook 2012 webcast yesterday, our listeners heard a very passionate John Mauldin assess the debt situation in Europe, Japan and the U.S. and the need for immediate policy change. If you listened in, you may have wondered what economics and politics have to do with investments.

That’s a valid thought, as many investors hear predictions of which way the market will go or what stocks will outperform. As I often remind my readers, it’s not about political parties, it’s about the policies. And history says that government policy shifts can have a tremendous affect on the economy and the markets. While no one can predict the future, you can use probability in your favor.

For example, Chinese stocks have historically moved with money supply. In the webcast, Analyst Xian Liang showed the chart below plotting the year-over-year money supply in China against domestic B-shares (represented by the MSCI China Index) since the end of 2000.

The Chinese government is known for acting decisively in making policy changes to steer its economy in the right direction. In 2009, the growth in money supply was at an 11-year high of 30 percent after the government lowered the required reserve ratio (RRR) for major banks. Adjusting the reserve requirement is important inflation-fighting tool in China’s monetary policy. The lower the reserve requirement, the more money banks are able to lend out.

Throughout 2011, due to concerns about inflation, China had been raising the reserve requirement for banks and interest rates. This action reduced money supply to the low we see in the chart. This December, China shifted its stance as slow growth became a risk and inflation slowed. This action should increase money supply, and encourage markets, going forward.

China also recently announced an earlier-than-expected windfall profit tax cut for its oil companies. This special oil income levy raises the level at which a barrel of oil is taxed, going from $40 to $55. This $15 difference essentially translates to a substantial tax break for oil companies and extra money in their coffers.

Research firm Jefferies expected the tax adjustment, but thought that it would happen at the end of 2012. With this tax cut, it appears the government acknowledges the need for Chinese upstream oil companies to increase their cash flow so that they can increase domestic production, says Jefferies.

This tax cut was closely followed by analysts, and was seen as a “big positive” for China’s oil companies, specifically CNOOC, PetroChina and Sinopec, says Citigroup Global Markets. The market promptly responded positively, with each stock rising on the news.

Another economic measure that has a ripple effect on global markets is the Purchasing Managers’ Index (PMI), an indicator of manufacturing strength. We follow this index closely, as it is considered a leading indicator, meaning the markets react over the following three months after the PMI data is released.

As of December 31, the JP Morgan Global Manufacturing Purchasing Managers’ Index (PMI) crossed above the three-month moving average. Going back to the inception of the index in 1998, there have been 20 occurrences when the one-month number crosses above the three-month. When this has happened, it’s signaled higher prices for many commodities, especially oil, copper, and to less of a degree, materials and energy.

For copper, historically, 90 percent of the time, the price was positive over the next three months, with a median return of 10 percent over the following three months.

During the same three months, 85 percent of the time, West Texas Intermediate oil has also gone up. Its median three-month change has been an increase of 11 percent.

Materials and energy were also positively affected, with modest results: When the PMI crosses above the three-month average, 70 percent of the time, the S&P 500 Materials Index rose, with a median return of about 3 percent. The S&P 500 Energy Index had a median three-month return of about 5 percent, with an 80 percent chance of the three-month change being positive.

We believe the winds are shifting to bring needed relief to global investors. We’ve seen improving economic data from the U.S. lately, and this positive news from the world’s largest economy, along with an improving China—the world’s most populated country—offsets the negativity in Europe.

What’s the probability of the U.S. market heading higher in the year of a presidential election? Register today for our webcast next Tuesday to hear from Jeffrey Hirsch of the Stock Trader’s Almanac, the annual resource that countless money managers, traders and investors have come to rely on. We’ll discuss Jeffrey’s nearly 50 years of market research, along with the many other historical indicators such as the January Barometer and the Santa Claus Rally. Sign up now.

Index Summary

• The major market indices were higher this week. The Dow Jones Industrial Average rose 1.17 percent. The S&P 500 Stock Index increased 1.61 percent, while the Nasdaq Composite gained 2.65 percent.
   
• Barra Value outperformed Barra Growth as Barra Value finished 2.04 percent higher while Barra Growth gained 1.25 percent. The Russell 2000 closed the week with a gain of 1.19 percent.
   
• The Hang Seng Composite finished higher by 0.25 percent, Taiwan rose 0.68 percent, and the KOSPI gained 0.95 percent.
   
• The 10-year Treasury bond yield closed 8 basis points higher at 1.96 percent.

Domestic Equity Market

The domestic stock market as measured by the S&P 500 Index was higher this week by 1.67 percent. The best-performing sector for the week was materials which rose 3.82 percent. Telecom services was the worst-performer, down 2.73 percent.

Something that may have flown under the radar of many investors is the recent outperformance of the regional banks. The large money center banks tend to get all the attention in the media and most of that attention has been negative. Yet over the past few months regional banks have outperformed and this is one more positive confirming factor that the economy may be in better shape than many investors currently believe.

Strengths

• Fertilizer and agricultural chemicals was the best-performing group for the week, up 8.9 percent, led by Monsanto. Monsanto reported earnings this week and beat estimates on strong demand for genetically modified seed corn.
   
• The building products group outperformed by gaining 8.8 percent, led by the group’s single member, Masco Corp. November construction spending rose 1.2 percent and there is renewed hope that housing is finally turning the corner.
   
• The auto manufacturing group outperformed, led by the group’s single member, Ford. Ford rose 8.8 percent on strong industry-wide December auto sales. Ford’s sales rose 10 percent.
   

Weaknesses

• The wireless services industry group was the worst-performing group, down 6.7 percent as MetroPCS Communications fell 7.6 percent. The stock fell on disappointing fourth quarter subscriber growth.
   
• The home entertainment software group lost 4.4 percent on weakness in Electronic Arts. The stock dropped on concerns its new massive multi-player online game “Star Wars: The Old Republic” was not sustaining its early momentum.
   
• The general merchandise group fell 3.8 percent as Family Dollar declined 7 percent. Family Dollar reported earnings that essentially met expectations but concerns around narrowing gross margins drove the stock lower.
   

Opportunities

• U.S. economic data remains surprisingly strong and increases the odds that economic momentum can be maintained.
   

Threats

• An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.
   

The Economy and Bond Market

Long-term treasuries sold off this week sending yields higher as; once again, the schizophrenic market gyrates up one week, down the next, for over a month.

The sell off in treasuries this week could best be attributed to better than expected economic data. While there remains concern surrounding the ultimate outcome of the current European financial crisis, the market was able to put that anxiety to the side this week. The chart below depicts the JP Morgan Global PMI index which hooked up in December and is back into expansion territory. This is an interesting development as sentiment remains sour but the economic data is giving reason for optimism.

Strengths

• The unemployment rate fell to 8.5 percent as nonfarm payrolls expanded by 200,000 in December.
   
• The ISM manufacturing index increased more than expected and posted a solid gain in December. One particularly encouraging sign is the new orders sub-component hit the highest level since April.
   
• Factory orders in November rose 1.8 percent and is another factor confirming the strength in the manufacturing sector.
   

Weaknesses

• Overnight deposits with the European Central Bank hit a record high as banks are still unwilling to lend to each other in the overnight interbank market. This indicates significant lack of confidence in the European banking sector.
   
• The euro fell to the lowest level in more than a year as investors concerns build regarding the ultimate outcome in Europe.
   
• France plans on increasing its value-added tax (VAT) in the next few months even as a rate increase just took effect January 1.

Opportunities

• After surprisingly good economic news recently, next week’s December retail sales data will be the key economic data point to watch for continued confirmation.

Threats

• The situation in Europe remains extremely fluid and negative news is almost expected at this point, unfortunately it is politically driven and difficult to predict outcomes and ramifications.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

For the week, spot gold closed at $1,617.95 up $54.25 per ounce, or 3.5 percent. Gold stocks, as measured by the NYSE Arca Golds BUGS Index, gained 3.7 percent. The U.S. Trade-Weighted Dollar Index rose 1.4 percent for the week.

Strengths

• Junior tiered mining stocks outpaced the senior peers by almost a two-to-one margin this week, demonstrating excellent relative strength in the first week of trading. Much of this can be attributed to the end of tax-loss selling. Seasonally, the January Effect seems to be on a good start.
   
• Rio Alto came out with its much anticipated updated resource statement for its La Arena project in Peru. Rio Alto added 434,000 ounces of gold in contained metal to oxide resources in some 25,000 meters of new drilling; bringing measured and indicated resources at La Arena up 41 percent to 1.5 million ounces of gold at a grade of 0.46 grams per ton. The market reacted positively to these results, up 14 percent for the week.
   
• The U.S. Department of Labor’s Mine Safety and Health Administration reported its second lowest number of mining deaths in a century for the past year.

Weaknesses

• India’s gold imports tumbled to 35 tonnes in December, from the 75 tonnes recorded a year earlier. The country’s imports for November also fell 75 percent from the same period a year ago, with only 20 tonnes imported recorded. Higher prices, a week rupee, and increasing inflation for the country are all drivers of the decrease in sales and imports.
   
• Rye Patch Gold slid 22 percent for the week largely on drilling results from its Garden Gate Pass Project that was a technical success in intersecting the right host rocks, which are on trend with Barrick Gold’s Red Hill/Goldrush discovery announced earlier in the year, but these holes only carried anomalous gold.
   
• Peru’s overall gold production slid 12.22 percent for the month of November, and cumulatively from January to November 2011, fell 1.17 percent. Silver and copper production also fell 6.45 percent and 1.72 percent cumulatively from January to November 2011.  

Opportunities

• Peru’s government, which has been making a considerable effort to curb anti-mining protests that are threatening the mining industry in the country, said that companies now must set up an environmental conservation fund as part of future contracts. The fund will be used should any damage be done to natural surroundings in protest-related events. The Cabinet Chief, Oscar Valdes, said that they will also create an office in charge of settling social conflicts related to mining and other industries. After Peru’s new president ran for office on somewhat of an anti-mining platform, he has to come to terms with the fact that mining is the county’s biggest source of revenue and wealth cannot be created without jobs.
   
• According to Frost & Sullivan, the world’s second-largest gold jewelry market, China, may boost gold consumption by 35 percent in 2012, on rising income and continuing urbanization. Factors such as demographics and proliferation of wealth will be driving the increased demand.
   
• Gold retailers in India have now taken a new incentivized approach to selling gold, luring in buyers with the promise of an iPad and allowing citizens to buy gold using their credit and debit cards. "Earlier we used to give 10 percent discount, or silver idols or free pendants. We have now moved to smaller electronic items to bring in more footfalls,' said Saumesh Gargi, a gold retailer in Mumbai's teeming Zaveri Bazaar. An iPad was given to the highest gold jewelry transaction through credit or debit every hour at a retail shop in Mumbai during the festive season.
   

Threats

• The Environmental Protection Agency released its Toxic Release Inventory (TRI), reporting the United States’ metals mining as the largest contributor of toxic chemicals released into the environment of 2010. Contrary to this, the National Mining Association maintains that nearly 85 to 90 percent of the substances reported by mining operations for the TRI inventory occur naturally in the local rock and soil.
   
• Readers should be aware that it is only after the rock containing these naturally occurring elements is loaded into a truck and moved that the reclassification of the rock to toxic material is triggered. The latest TRI report showed that 3.93 billion pounds of toxic chemicals were released into the environment, a 16 percent increase from 2009. Ironically, if one considered all the soil and sediment that is moved by rivers and streams each year for which the EPA regulates these waterways, then the EPA itself would likely be the largest polluter of toxic materials in the U.S.
   
• HSBC and Barclays cut their 2012 gold price forecasts by more than $100 per ounce, but still uphold their bullish view on the precious metal. The change in forecasts came after gold posted a gain of 10 percent last year, and although it maintained its 11th consecutive year of gains, it was the smallest annual gain in three years. James Steel, HSBC’s chief commodity analyst, cut his 2012 forecast to $1850 per ounce from $2025, attributing the euro weakness, liquidation related to equity losses and a slump in physical demand from emerging markets. Mr. Steel, however, did keep his 2012 silver forecast unchanged at $34 an ounce.
   

Energy and Natural Resources Market

Strengths

• First Quantum Minerals Ltd. resolved a long-running dispute with Eurasian Natural Resources Corporation Pls (ENRC) for $1.2 billion over mines in the Democratic Republic of the Congo (DRC). The controversial dispute over ownership of the Kolwezi project will be settled with ENRC paying $750 million plus a deferred consideration of $500 million as part of the settlement with First Quantum, the former owner of the project until its license was revoked by the DRC in 2009.
   
• Crude oil futures (WTI) moved higher by nearly 3 percent this week to close at $101.56 per barrel as geopolitical tensions surrounding Iran continued to escalate.
   
• Barclay’s highlighted that China raw coal production in November rose 4.4 percent year-over-year to reach 321 million tonnes while total output in the first 11 months of the year rose 11.6 percent to 3.46 billion tonnes.

Weaknesses

• Weekly data released by the U.S. Department of Energy indicates that 4-week trailing total demand for oil and oil products is down 7.2 percent year-over-year and gasoline demand is down 4.9 percent year-over-year.
   
• Alcoa Inc., the biggest U.S. aluminum producer, will close 12 percent of its global smelting capacity after the price of the lightweight metal slumped amid a global surplus.
   
• Indonesia, the world’s largest exporter of power-station coal, cut the benchmark price for sales in January by 3 percent to the lowest in 13 months. The Directorate General of Coal and Minerals at the ministry said on its website today in Jakarta that the cost of coal with a gross energy value of 6,322 kilo calories per kilogram was set at $109.29 a ton on free-on-board basis at vessel compared with $112.67 a ton in December.

Opportunities

• This week on the front page of the Financial Times, it was reported that a cut in Saudi posted prices to Asia is seen as a signal that Asian buyers are looking for new sources to reduce their dependence on Iran as U.S. pressure builds over sanctions. However, RBC Capital highlighted that Saudi looks to be the most willing to offer incentives, as International Oil Daily reports that the United Arab Emirates has increased February prices, albeit only by a nominal 2 cents per barrel.
   
• The Chairman of the China Iron and Steel Association said this week that China's total apparent crude steel consumption is expected to rise about 4 percent to 700 million tonnes this year.
   
• Tudor Pickering reported that preliminary estimates show global oil production rebounded significantly quarter-over-quarter following third quarter maintenance. Biggest estimated additions quarter-over-quarter are Libya with 418,000, United Kingdom with 111,000, and Brazil with 109,000 barrels per day.
   
• BofA Merrill Lynch global investment strategist raised energy and gold commodities to overweight in its tactical asset allocation model for the first quarter of 2012. In their view, energy is well supported by easy monetary policy and the risk of a spike due to geopolitical events. Their model continues to overweight gold due to high risk of a sovereign default in Europe and low/negative real interest rates around the globe.

Threats

• A potential short-term rise in pricing for Colombian coal may force European buyers to seek other sources. Heavy rains have led to a two week delay in coal transport from the mine site to the ports for Colombia’s two largest producers – Drummond & Prodeco. The rains have also resulted in reduced coal production at the mines for the two companies.
   
• Deutsche Bank highlighted that India’s gold imports, the largest consumer, is expected to drop by 48 percent in the first quarter as a decline in the currency boosts prices and high interest rates cool investment demand, according to the Bombay Bullion Association.
   
• Zhu Jimin, head of Shougang Group, one of China’s biggest steelmakers, addressed members at CISA's annual meeting, saying that prospects for the steel sector remained gloomy, with the entire sector facing falling profits in 2012. "Enterprises are facing increasing operating risks, under pressure from a variety of factors such as rising costs, falling demand and difficult and expensive financing," he said. Zhu said a series of policies introduced last year to control the real estate sector had reduced demand for steel, and if the policies were not adjusted the situation could worsen in 2012. Slowing growth in domestic manufacturing, railway, shipbuilding and auto sectors could also take its toll, he added.
   
• Resource Daily reported that Nigerian unions are calling for indefinite strike action on January 9 to shut down both the up and down stream oil sector. The strike is in reaction to the recent government decision to remove fuel subsidies which has seen gasoline prices double. In 2010 Nigerian production accounted for 13 percent of Shell volumes and 12 percent for Total, 10 percent for Eni and 2 percent for Statoil.

January 6, 2012 Chart of the Week--Banning Iranian Oil Imports	January 5, 2012 Burgers or Barrels--What's Your Power Play?	January 3, 2012 Case for Sustained $100 Oil

Emerging Markets

Strengths

• China’s December official PMI rose 1.3 percent to 50.3 from November’s 49. PMI above 50 indicates the manufacturing activities are at expansion. The better than expected PMI may indicate China is in a soft landing. China’s December non-manufacturing PMI also went up from 49.7 in November to 56.
   
• Central Huijin recently bought bank stocks to support the weak market.
   
• Debts issued by mainland companies increased by 52 percent to RMB 2.58tn in 2011
   
• Philippines headline inflation dropped to 4.2 percent year-over-year in December, better than expected. On Bangko Sentral’s own expectations, the inflation outlook for 2012 is benign, paving the way for monetary easing. On separate news, Indonesia’s December inflation rate also came down to 3.79 percent, better than expectation.
   
• The People’s Bank of China will not issue short-term bills before the Chinese New Year, indicating a required reserve ratio (RRR) cut after the holiday.
   
• The two-day National Commercial Work Conference will be closed today. The market expects some positive policy for home appliances, such as the trade-in policy implemented in 2009 to stimulate the economy.
   
• Hong Kong’s November retail sales rose 23.5 percent, higher than estimated 21.6 percent.
   
• China’s benchmark money-market rate declined the most since February of last year as Premier Wen Jiabo vowed to adjust policy to safeguard growth, spurring speculation lenders’ RRR will be cut.
   
• China Petroluem & Chemical Corp., Asia’s biggest refiner, said the Ministry of Finance increased the threshold for the nation’s oil windfall tax to $55 per barrel from $40 effective Nov. 1, 2011.
   
• Indonesia plans to spend $196 billion on infrastructure development during 2012-2025. Construction materials and engineering companies will benefit.
   
• The China Bank Regulatory Commission may delay the implementation of stricter rules for commercial lenders to the second half of this year and most likely to July, China Daily reports. The Chinese banking regulator had earlier announced tougher rules for lenders’ capital adequacy ratios which were to have taken effect at the beginning of this year, according to the report.
   
• Macau’s December gaming revenue grew 25 percent to MOP 23.6 bn, translating to 43 percent for 2011. In spite of a high growth rate, it had been coming down over the year, and the market was disappointed.
   
• Goldman Sachs sees a turnaround for China stocks by late first quarter, early second quarter.
   
• Chile’s economy grew 4 percent in November 2011 from November 2010, driven by gains in the retail and communications industries, offsetting declines in mining.

Weaknesses

• China's top four state banks extended new loans of RMB 210b in December, lower than expected. They also failed to meet their annual new loan target last year, Caixin Online reported.
   
• Property land sales in China decelerated, and December home prices dropped for the fourth month, Soufun (a housing website in China) says. The Chinese cities of Guangzhou and Nanjing may follow Shanghai and Chongqing in starting property taxes, Shanghai Securities News reports today. In fact in its recent article, People’s Daily, an official newspaper, had suggested property taxes structured to prevent housing market speculation is a way for the government to get out of the current housing tightening policies.
   
• By December 31, all Tier 1 cities and many Tier 2 cities have announced that they would continue to implement the Home Purchase Restrictions (HPRs) in 2012. Nevertheless, after interviewing housing officials, analysts in China believe HPRs may be lifted in the next several months when new house starts slow to a negative growth rate.
   
• China is considering imposing stand-alone carbon tax, separate from the environmental carbon dioxide tax, on materials companies, Economic Information Daily reported. Some analysts have thereafter checked with government officials and were told no such tax is currently considered.
   
• The Chinese premier Wen Jiabo said on his tour meeting corporate CEOs this week that the first quarter will be difficult for the economy. This might have been priced in by the market since it is clearly not new news.
   
• China had increased usage taxes for large vehicles; mid-range car sales will benefit. This may not deter those who can afford luxury cars.
   
• Fitch cut Hungary’s long-term foreign and local currency rating by one level after similar moves by Standard & Poor’s and Moody’s, saying there remained doubts whether the government will submit to conditions for aid from the International Monetary Fund and the European Union.
   
• Turkey’s December inflation spiked into double digits on lira depreciation, registering at 10.45 percent year-over-year, up from 9.5 percent in November. Additional to the inflationary effect, higher costs for food and tobacco contributed to the increase, which brought the 2011 average inflation to 6.47 percent. Roubini Global Economics noted that the central bank may continue to look past rising inflation, believing that its new variable interest rate policy may be enough and will tighten monetary conditions.
   
• The National Statistics Agency said that Brazil’s industrial production contracted the most since 2009, as it dropped 2.5 percent in November from a year earlier. The President and the Central Bank President are using stimulus measures including interest rate cuts, tax reductions and looser bank lending requirements to try to shore up growth.
   

Opportunities: China's Windfall tax reform is significant for the oil companies.

• After China raised its crude windfall tax threshold from $40 to $55, the earning per share improved from 10 percent for CNOOC to 16 percent for PetroChina, estimated by CITI Group, please refer the chart below.

• Roubini Global Economics highlighted that despite hostile policies towards investors, capital investments have been the fastest-growing segment in the Argentinean economy. Approximately 20 percent expansion rates have been driven from construction and the imports of capital goods.
   
• As we highlighted in our November-end Investor Alert, with likely sources of funding not being sufficient to cover the size of the European bailout fund, the European Central Bank had no choice but to follow in the footsteps of the U.S. Federal Reserve and expand its balance sheet. The BCA chart below shows deposits held by European banks at the ECB have skyrocketed, in a way reminiscent of what occurred after the Troubled Asset Relief Program (TARP) and the Fed’s QE1.
   

Threats

• The brokerage firms are now downgrading corporate earnings due to slower GDP growth in China, and therefore, the stock market will probably continue its volatility in the near term unless China cuts RRR aggressively and implements fiscal stimulus policies in the first quarter.
   
• Recent days have seen very heavy rainfall in Brazil’s Minas Gerais state, the heart of the iron ore mining industry. While this has not yet fed through into major weakness in shipping data, it does promote the likelihood that the first half of 2012 Brazilian iron ore exports will follow the historical pattern of falling approximately 10 percent sequentially during the first calendar quarter.
   

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 12/30/11:
China Petroleum & Chemical Corp.: Emerging Markets Fund, 1.26%
The Goldman Sachs Group, Inc.: 0.0%
PetroChina Co. Ltd.: China Region Fund, 2.02%; Emerging Markets Fund, 1.34%
First Quantum Minerals Ltd.: Global Resources Fund, 2.09%
Eurasian Natural Resources Corporation plc: 0.0%
Barclays PLC: 0.0%
Alcoa Inc.: 0.0%
Tudor, Pickering, Holt & Co. Securities, Inc.: 0.0%
Bank of America Merrill Lynch: 0.0%
Drummond Company, Inc.: 0.0%
Prodeco SA: 0.0%
Deutsche Bank AG: 0.0%
Shougang Corp.: 0.0%
Statoil ASA: 0.0%
China Petroleum & Chemical Corporation Ltd.: Emerging Markets Fund, 1.26%
China National Offshore Oil Corp.: 0.0%
Citigroup Inc.: 0.0%
Monsanto Co.: Global Resources Fund, 2.21%
Masco Corp.: 0.0%
Ford Motor Co.: 0.0%
MetroPCS Communications, Inc.: 0.0%
Electronic Arts, Inc.: 0.0%
Family Dollar: 0.0%
Rio Alto Mining Ltd.: World Precious Minerals Fund, 0.34%
Rye Patch Gold Corp.: World Precious Minerals Fund, 0.88%
Barrick Gold Corp.: Gold and Precious Metals Fund, 3.84%; World Precious Minerals Fund, 0.82%
HSBC Holdings plc: 0.0%
Enersis SA: 0.0%
Royal Dutch Shell plc: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
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 U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The MSCI China Free Index is a capitalization weighted index that monitors the performance of stocks from the country of China.
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.
The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.
CLSA China PMI is based upon monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies in China and measures China’s manufacturing activity.

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

In 2011, oil was one of the top performing commodities among those we track, with Brent rising more than 13 percent. Geopolitical risk and unexpected non-OPEC supply losses caused oil to rise significantly in early 2011. By October, we saw the black gold sink to a low of $96 per barrel before rising to its current level of nearly $108 a barrel.

This year’s unrest demonstrated how major oil-producing regions can significantly affect oil prices. As I’ve previously stated, according to PIRA, the Middle East accounts for over 70 percent of OPEC oil production and, along with North Africa, more than 95 percent of the cartel’s capacity growth.

A disruption of the supply chain can also influence oil prices. One of the largest chokepoints along the global oil supply chain is the Strait of Hormuz, which roughly 90 percent of all Persian Gulf oil tankers—some 18 million barrels per day—pass through, according to Barclays. With Iran controlling the entire northern border of the strait, there is a significant chance for disruptions should the country fall into conflict or war.

The story will likely continue into the new year, as “sanctions against Iran, including a possible European Union oil embargo, and fear of an Israeli attack on Iran’s nuclear facilities led 2011 to close on a bullish note” for oil, said PIRA Energy Group in its new report today. Additionally, there’s new political uncertainty in Iraq that may keep oil elevated.

The chart below sums it up: With more than 40 percent of the world’s oil controlled under autocratic rule, oil supply in democratic nations likely depends on the state of autocratic nations.

Read The Many Factors Fueling a Return to $100 Oil

China Rises to Top of Energy Pyramid
Another significant development in 2011 was that China surpassed the U.S. to become the world’s largest energy consumer. BP’s Statistical Review of World Energy report calculated that China’s energy consumption rate grew 11 percent over the previous year, with the country consuming 20 percent of global energy.

Read China is World’s Largest Energy Consumer

While coal accounts for a significant portion of China’s total energy use, the country’s need for oil should continue to rise. Its rising income levels, the government’s social housing plan, and an aggressive transportation effort to link 700 million people across more than 250 cities should continue to drive this growth. Bank of America-Merrill Lynch agrees, suggesting that “China’s oil dependency will rise as U.S. imports fall.”  In the chart below, it’s projected that China’s imports of crude oil and petroleum products will surpass the U.S. in 2014. BofA-ML thinks that on a volume basis, China oil imports “will grow quite rapidly on the back of rapid per capita income growth.”

China’s demand is what makes today’s oil situation different from the end of 2007. At that time, a lack of supply increased oil prices even though the U.S. was in a recession. What’s different is that “China is likely to re-accelerate” in 2012, according to Goldman Sachs.

China, along with other emerging markets, and the European Central Bank are in the early stages of a global easing cycle, primarily by cutting interest rates to spur growth. Also, the Federal Reserve should remain stimulative. These government actions set the stage for sustained, or perhaps higher, demand for oil. As stated earlier, geopolitical threats remain on the horizon, and could also be a positive catalyst for oil.

As always, our team will closely follow these events, as well as the monetary and fiscal policies, to find global investment opportunities in 2012.

We wish you and your family a very happy and prosperous new year!

John Derrick contributed to this commentary.

Index Summary

• The major market indices were lower this week. The Dow Jones Industrial Average lost 0.62 percent. The S&P 500 Stock Index decreased 0.61 percent, while the Nasdaq Composite was lower by 0.52 percent.
• Barra Growth outperformed Barra Value as Barra Value finished 0.87 percent lower while Barra Growth lost 0.40 percent. The Russell 2000 closed the week with a loss of 0.94 percent.
• The Hang Seng Composite finished lower by 1.25 percent, Taiwan fell 0.54 percent, and the Korean KOSPI declined 2.22 percent.
• The 10-year Treasury bond yield closed 15 basis points lower at 1.88 percent.

Domestic Equity Market

The domestic stock market as measured by the S&P 500 Index was lower this week by 0.61 percent. Two sectors of the index increased and eight decreased. The best-performing sector for the week was telecommunication services which gained 0.72 percent. Other top-three sectors were utilities and consumer staples. Financials was the worst performer, down 1.30 percent. Other bottom-three performers were materials and industrials.

Within the telecom services sector the best-performing stock was MetroPCS Communications, up 6.24 percent. Other top-three performers were Sprint Nextel. and AT&T.

Strengths

• Health care facilities was the best-performing group for the week, up 3 percent, led by the group’s single member Tenet Healthcare. The Centers for Medicare & Medicaid Services (CMS) announced that it was going to delay the Recovery Audit Prepayment Review demonstration that was scheduled to begin on January 1, 2012.
• The building products group outperformed by gaining 3 percent, led by the group’s single member, Masco. November pending home sales rose 7.3 percent from October compared to the consensus expectation of a 1.5 percent rise.
• The homebuilding group outperformed, rising 2 percent, also spurred by the November pending home sales report. Also, as reported on Friday of the prior week, sales of new U.S. homes rose in November to a seven-month high. All three members of the group (Pulte, D.R. Horton, and Lennar) increased.
• The casinos & gaming group gained 2 percent, led by group member International Game Technology, with Wynn Resorts also gaining. The U.S. Department of Justice eased its stance toward online gambling restrictions.

Weaknesses

• The household appliances group was the worst-performing group, led down 7 percent by its single member, Whirlpool Corp.  The appliances manufacturer sold off after Sears reported that it will close up to 120 stores and that holiday same-store-sales were down 5.2 percent year-over-year. Whirlpool appliances are sold in Sears’ stores.

• The diversified metals & mining group lost 4 percent on weakness in Freeport- McMoRan Copper & Gold Inc. The firm settled a strike at its large Grasberg mine. The labor contract was extended for two years with a 24 percent base wage hike in year 1 followed by a 13 percent base wage increase in year 2.

• The office electronics group fell 4 percent as its single member Xerox declined.

Opportunities

• There may be an opportunity for gain in merger & acquisition (M&A) transactions in 2012.  Corporate liquidity is high, thereby providing the means to pursue acquisitions.

Threats

• A mid-cycle slowdown in the domestic economy would be negative for stocks.
• An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.

The Economy and Bond Market

Long-term treasuries rallied this week sending yields lower as the schizophrenic market gyrates up one week and down the next, which is what we have experienced in December.

The rally in treasuries this week could be attributed to continued concerns surrounding the European banking system and European banks’ continued reliance on the European Central Bank (ECB) for funding, even after the three-year lending program the ECB initiated last week made for a nervous market. This induced a “risk on” trade this week. The opposite is occurring in Europe as the chart below shows 10-year Italian bond yields back above 7 percent and near the highs of the recent crisis, indicating investors remain uncomfortable with European sovereign debt.

Strengths

• The Consumer Confidence Index hit an 8-month high even as there remain many global worries.
• The ISM Chicago manufacturing index remained in solid expansion territory in December and bodes well for next week’s national ISM release.
• Pending home sales rose 7.3 percent in November amid signs that the housing market may finally be coming back to life.

Weaknesses

• Negative economic data out of Japan this week included November household spending falling 3.2 percent and November industrial production sliding 2.6 percent.
• Fiscal austerity accelerated in Spain this week as the government cut $11.5 billion to reduce a budget deficit.
• Greek retail sales in October fell 8.1 percent as the country deals with its debt crisis.

Opportunities

• Economic news picks up next week after a holiday lull as the ISM Manufacturing index and unemployment are both reported next week.

Threats

• The situation in Europe remains extremely fluid and negative news is almost expected at this point; unfortunately it is politically driven and difficult to predict outcomes and ramifications.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

For the week, spot gold closed at $1,563.70 down $42.65 per ounce, or 2.7 percent.  Gold stocks, as measured by the NYSE Arca Golds BUGS Index, fell 2.4 percent. The U.S. Trade-Weighted Dollar Index rose 0.4 percent for the week.

Strengths

• With the end of tax loss selling on December 23 for Canadians, the pressure to lock in losses for the year was abated and there were some significant rebounds over the last five trading days of the year.  Gran Colombia Gold surged 16 percent while both Romarco Minerals and San Gold gained 6 percent.
• Although we have been seeing some profit-taking towards year-end, gold has advanced 10 percent, heading for the eleventh straight annual gain. Gold returns are largely uncorrelated with the market and this has boosted its demand as an alternative investment for portfolio diversification amid slumping equities.  Gold’s high for the year was a record $1,923.70, reached on September 6. 
• Holdings in exchange-traded products backed by physical bullion are increasing for the first time in three weeks, rising 0.3 percent this week after falling in the previous two weeks 1.5 percent.  Buyers are coming back as the market looks oversold at current levels. 

Weaknesses

• The United States Mint reported this week that sales of the U.S. gold and silver bullion coins slowed in the fourth quarter as precious metal prices fell from their highs, signaling that investor interest in physical metal purchases may be waning.
• Generally, news flow in the gold space was negative for the week.  Seasonally slow jewelry demand in India (the world’s largest gold buying nation) and a ban from the People’s Bank of China (PBOC) on all non-official gold trading exchanges in the world’s number two gold consuming company, all contributed to weaker sentiment.  The Bombay Bullion Association said on Tuesday that December’s imports of gold bullion to India will likely stand 50 percent below December 2010 levels.  The PBOC ordered the closure of all gold trading platforms and services outside the Shanghai Gold Exchange and Shanghai Futures Exchange. 
• Due to surging gold prices in rupee terms, to lift sales, Indian jewelers have reduced the gold content to make up for the loss.  A steep jump in the price of gold in the first half of the year impacted demand for gold, while the volatility over the remaining months ensured that gold traders and jewelry retailers destocked.  Jewelers in some cases were replacing the weight of gold with diamonds to keep investors’ interest. 

Opportunities

• The Head of Research at China’s Central Bank was quoted saying that the country should buy gold as the only safe place for risk-averse investors when other assets are losing value.  Zhang Jianhua, the head of the research department at PBOC, wrote in the Financial News that, “the Chinese government needs to further optimize China’s foreign exchange asset portfolio and to seek relatively low entry points to buy gold assets.”
• We would expect there to be renewed interest in picking up many of the beaten down gold stocks with the start of the New Year as the sell off was exacerbated by tax loss selling in both the U.S. and Canada in the fourth quarter.  Seasonally, the January Effect is in play and gold prices typically see seasonal strength up until the April/May window.
• Securities and Exchange Commission data shows John Paulson, Paul Touradji and Eric Mindich, all hedge fund managers, sold bullion this year.  While there have been reports of high profile investors cutting their gold exposure it cannot be conceded that this conclusively ends the run in gold bullion.  Certainly some of the bullion selling reflected investor redemption requests, and fund manager preference to sell bullion instead of stocks, which on a relative basis have underperformed.  Turmoil in Europe has also been a factor in pushing the euro lower to the benefit of the dollar and detriment of gold.  Keep the economic fundamentals in mind as the debt and unemployment problems are far from being solved and the politicians will be more likely to stimulate growth and print money to extinguish debt as they seek to get reelected in 2012. 

Threats

• Zimbabwe announced that it is considering setting up a ban on raw platinum exports, in an effort to force miners to set up refineries in the country.  Zimbabwe has the second-largest known platinum reserves in the world. 
• Peru’s government may declare a state of emergency in the northern Andes should protests resume against Newmont’s Minas Conga gold project valued at $4.8billion.  It has been speculated that those protesting against the project have planned a march in the highland region for January 2-3.  The government has said it will take legal action against the protest leader, Gregorio Santos, for barring all industrial activity in the area around Newmont’s project. 
• Beginning January 20, 2012, workers of Freeport McMoRan’s Grasberg mine, who have been on strike since September 15, will gradually return to work.  More than 8,000 workers went on strike demanding higher wages, and the union has agreed to a 37 percent pay rise over the next two years. Copper prices may see some slackness in the near term.

Energy and Natural Resources Market

Strengths

• The Global Resources Fund beat its benchmark this week primarily due to stock selection across various industries.  Also, the fund was aided by better relative performance of junior exploration stocks versus senior resources stocks.  
• Oil climbed 8.7 percent this year, set for a third annual gain, on speculation that escalating tension in the Middle East may disrupt supplies as a recovery in the U.S. economy bolters demand. (Bloomberg)
• First Quantum’s workers at their Mauritania mine ended a week-long strike after receiving water and electricity allowances and yearly bonuses.  Water and electricity allowances are now the equivalent of $171 and $257, while annual bonuses will be as much as six months’ salary. 
• Macquarie noted that iron ore is having a slight rally into year end, boosted by interest from Chinese traders ahead of an expected steel production push into Chinese New Year. The Steel Index 62%Fe reference price CFR China is now $138.4 per ton, over 5 percent above its mid-December lows. The annual average 2011 spot iron ore price is set to come in around $168 per ton for 62 percent material, up 14 percent from 2010’s record.

Weaknesses

• Copper finished down 3 cents per pound for the week to close the year at $3.43 per pound (COMEX).  Copper fell $1 per pound down 23 percent from its starting point of $4.45 per pound last year.  
• The LMEX index of six industrial metals contracted 23 percent this year, led by declines in tin, nickel and zinc.  Spot silver is 9.3 percent lower in 2011, set for its first annual decline in three years.  Palladium is poised to fall 21 percent, and platinum has lost 22 percent. 
• Natural gas futures dropped below $3 per British thermal units for the first time in more than two years as mild weather and rising production contribute to a growing U.S. stockpile surplus.
• Bloomberg reported that Brazil’s oil regulator fined Chevron for the third time for not properly managing an offshore oil field that leaked last month.  The Agencia Nacional do Petroleo said on its website today that Chevron didn’t comply with the development plan for the Frade oil field off the coast of Brazil.  The amount of the fine has yet to be finalized, but the first two fines may be as much as the equivalent of $26 million. 

Opportunities

• Bloomberg reported that Goldman Sachs said in a December 1 report that the world is likely to avoid a recession and maintained its overweight allocation to commodities, predicting a 15 percent return in the next 12 months.
• Chinese coal stocks at IPPs continue to drop in terms of days of use according to data from China Coal Resource.  A Vietnam state-owned coal exporter, Vinacomin, has said it will also cut its coal exports from the following year to 13.3 million tons from 16.8 million tons this year, as domestic demand increases. This just points to an opportunity for coal imports into China to pick up.
• The Baker Hughes U.S. rig count, a key indicator of activity in the oil and gas sector, hit a 27-year seasonal high last week. At 2008 rigs, this is up 17.5 percent year-over-year and indicates ongoing strong demand from the U.S. energy sector for high performance commodity materials.

Threats

• Bloomberg highlighted that the weakest growth in demand in at least a decade for shipments of iron ore, the second-biggest commodity cargo after crude oil, means rates for the largest vessels will plunge to the lowest level since 2002.  It has been estimated that capsizes, each hauling about 160,000 metric tons of ore, will earn an average of $15,000 a day next year, about a 4 percent decrease than in 2011, implying losses for ship owners and investors in their companies.
• Hitachi Construction Machinery said Chinese demand for excavators will decline in the fist half of 2012 as monetary tightening slows construction projects. The sales downturn in China will continue after the Lunar New Year next month, CEO Michijiro Kikawa said, adding that he had expected Chinese demand to come back sooner. Kikawa expects industry-wide sales of excavators in China to decrease by 30 percent in the year to March 31, compared with a forecast of a 20 percent decline two months ago. China will probably see no growth until June or July, Kikawa said.

December 30, 2011 Is the Gold Super Cycle Still Intact?	December 29, 2011 Hirsch's Weather Vane for Markets	December 28, 2011 Reader Favorites: Top 10 Commentaries of 2011

Emerging Markets

Strengths

• According to China Daily, China will invest RMB 200 billion for rural road construction. In fact, the populous rural area across the country needs huge infrastructure and home improvement to improve the quality of life and efficiency of the rural economy for the 600 million people, though many will continue to urbanize. In spite of tremendous accomplishments in the rural economy and living standards, the farming population lives in very third-world conditions, which means growth opportunities for China.
• The Chinese government reiterated this week that high speed rail (HSR) remains China’s transportation priority. China just released its investigation report on the Wenzhou HSR accident on July 23, which many regard as positive since it clearly revealed the irregularities behind the tragedy.
• With all the doomsayers predicting China’s immediate collapse, the November data showed some pretty good growth. Real estate floor space under construction was up 27.9 percent year to date on a year-over-year basis, and new starts rose 9.1 percent; power generation rose 8.5 percent; new coal production grew by 4.4 percent year-over-year, and coal imports reached a record monthly high up 59.5 percent, while exports were down 34.9 percent. November’s iron ore imports went up by 11.9 percent, but implied domestic production fell to 270 million tons per year. November’s refined copper production rose by 6 percent and consumption increased by 21.6 percent.
• In 2011, China surpassed Germany to become the second-largest luxury car buyer, with the U.S. still being at the number one position. China bought an estimated 94,000 luxury cars in 2011, up 39 percent from the previous year. Luxury cars are only 5 percent of the total car market in China, compared to 23 percent in the U.S. and 18 percent in Germany. This is why luxury car makers believe China has more room to grow. Eighty-one percent of the luxury cars are European brands.
• China’s National Development and Reform Commission (NDRC) announced this week China will first reform the natural gas price mechanism in Guangdong and Guangxi provinces. The reform will consider “market return,” in which PetroChina will reduce its loss by an estimated RMB 4 billion a year, according to China International Trust and Investment Corporation Securities (CITICS). PetroChina will benefit more once natural gas is priced by the market.
• After this week, China starts the Year of Dragon which is favored for babies to be born, because the dragon is a symbol of power and authority, and perhaps good luck as well. We saw the stock price of baby products makers relatively outperform the market in Hong Kong. We believe those stocks showed “growth at a reasonable price” (GARP) characteristics in an unappreciating market this year. 
• China’s Ministry of Commerce predicts secondhand car transactions will be more than 10 million units by 2015. It will also license secondhand car dealerships. As existing cars grow old, dealerships with post-sales services can benefit from such new business.
• The People’s Bank of China (PBOC) stopped issuing three-month bills this week, but instead injected net RMB 90 billion into to the system. The market interprets the act as an indicator that the central bank will cut the reserve requirement ratio (RRR) over the weekend.
• China’s Ministry of Housing and Urban-Rural Development mentioned in a recent interview that social housing new starts will be 7 million units in 2012, with total investment to support 18 million units of social housing construction. This will be positive for construction machinery and construction materials.
• Foreign direct investment to Indonesia surged this year to $9.1 billion as of September, up 41 percent year-over-year. In 2011, Indonesia’s GDP is expected to grow 6.5 percent, while inflation dropped to 4.15 percent in November from 7.02 percent when the year started.
• Macau’s gaming revenue from tables for the first 26 days in December was at MOP 19.2 billion. If adjusting this for the full month and adding back slots, gaming revenue is likely to be about MOP 23.8 billion, up 26 percent year-over-year, higher than brokers’ estimate.
• The world’s biggest major-currency decline is actually benefiting South Africa’s largest companies, as export earnings in dollars rise and commodity producers from AngloGold Ashanti to Sasol Ltd. beat peers in the stock market. Bloomberg data shows that the South African rand is the world’s third-worst performing currency year-to-date, ahead of only the Argentine peso and Indian rupee. 
• Roubini Global Economics revised its Colombia outlook, after third-quarter GDP growth was stronger than expected and will carry over onto following quarters.  Colombia surprised markets with a 7.7 percent year-over-year expansion for the third quarter of this year, the highest growth recorded since the fourth quarter in 2006, being mainly driven by a stronger-than-expected consumer sector expanding at 7.3 percent year-over-year and strong fixed capital formation accelerating to 20.14 percent from 14.7 percent in second quarter. 
• With the Argentinean government’s push to tighten foreign-exchange controls, peso forwards are posting their biggest monthly rally in almost three years as this promotes traders to pare bets the currency will tumble. 
• The National Statistics Institute said in a report this week that Chile’s industrial output rose 2 percent in November from last year. 
• As international oil prices decline, the Department of Energy of South Africa will lower the price of gasoline by 0.5 percent. 

Weaknesses

• China’s December PMI is 48.7, slightly higher than 47.7 in November composed by HSBC and Markit. PMI below 50 indicates the economic activities are in contraction. The December number shows the economy is predicted to be sluggish for the second month after November. Many in the market forecast official PMI will be 49, again a contraction mode but not crashing slowdown.
• For the first 11 months, Chinese corporate profits increased 24.4 percent on a year-over-year basis, compared to a 28.2 percent increase in the same period last year. In November alone, corporate profits were up 17.7 percent, 0.9 percent lower than in October this year, according to the National Bureau of Statistics. The market is in the process of digesting a slower GDP and corporate profit growth in China this year and next year.
• Property sales and price changes in China are watched tensely by bulls and bears alike in the market. Year to date, sales volume fell 13 percent on average on a year-over-year basis, according to China International Capital Corp (CICC).   The average price at the end of November for the first time reduced 0.53 percent on a year-over-year basis, but dropped 5.8 percent from the high level in May this year.  On a week-over-week basis, the average price across the country dropped 6 percent. You can see property price drop accelerated in the second half of the year. The trend will likely continue into next year until the Chinese government feels it is enough, at a point predicted to last several months into 2012 with 15 percent price reduction similar to what happened in 2008. Even by then, the market doesn’t expect the government to change its heart completely, other than some cautious policy lifting. 
• Hong Kong exports rose 2 percent year-over-year in November, missing expectation for a 3.9 percent gain.
• Korea’s consumer confidence fell to a three-month low of 99 in December on political concerns after Kim Jong Il’s passing. On the corporate front, Korean manufacturing confidence dropped to 79 for January from 83 the previous month. In separate news, Hong Kong home prices fell to the lowest level in 37 months, Centaline Property Agency Ltd. said in a statement today. The Centa-City Leading Index dropped 0.1 percent from a week earlier to 96.68 in the week ended December 25. 
• For the first three weeks of December, China’s passenger vehicle sales were 725,800 units, falling 3 percent year-over-year, but increasing 7 percent month-over-month after working days adjusted. The slowdown mainly comes from high base in last year and destocking of auto dealers. Some believe December passenger vehicle sales may still grow 5 percent.

Opportunities

• The chart below shows increasing demand for cement in Indonesia as the country builds its infrastructure. In a recent visit to Jakarta, we learned there is vast demand for roads, railways, ports, airports, and power plants, but they cannot be built due to difficulties in obtaining lands owned by private citizens. The recently passed land bill has the power to buy lands, and the process is final if a price is endorsed by district court or Supreme Court if necessary. The land bill is very positive for the economy, not just construction materials such as cement.

• The HSBC Russia Manufacturing PMI survey for December indicates that Russian manufacturing business sentiment improved, albeit at a slower rate. The seasonally adjusted headline index fell from November’s eight-month peak of 52.6 to 51.6 in December, resuming its divergence from the pre-crisis (2002-2007) business activity average level of 52.7.

Threats

• With slowing infrastructure investment and manufacturing activities, and possibly not-so-fast consumer consumption growth, China’s GDP growth may soon come down to near 8 percent (with consensus 8.3 percent). Many fear the housing market will collapse, though it is a big bet against the Chinese government.
• Argentina, South America’s second-biggest economy, published its 2012 monetary program this week, aiming to expand the M2 money supply by 26.4 percent.  This year, it had targeted 28 percent monetary growth.  The news that the Argentinean central bank plans to keep injecting cash into the economy at the current pace is a move that may further increase inflation, which is already among the fastest in the world.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Past performance does not guarantee future results.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 9/30/11:
First Quantum Minerals Ltd.: 0.0%
Chevron Corp.: 0.0%
Goldman Sachs Group, Inc.: 0.0%
Vinacomin-Halem Coal JSC: 0.0%
Baker Hughes, Inc.: Global Resources Fund, 2.75%
Hitachi Construction Machinery Co Ltd.: 0.0%
PetroChina Company Ltd.: China Region Fund, 1.74%; Global Emerging Markets Fund, 1.20%
AngloGold Ashanti Ltd.: Gold and Precious Metals Fund, 2.74%; World Precious Minerals Fund, 0.66%
Sasol Ltd.: 0.0%
China International Capital Corp.: 0.0%
Centaline Property Agency Ltd.: 0.0%
BP p.l.c.: 0.0%
Bank of America Merrill Lynch: 0.0%
MetroPCS Communications, Inc.: 0.0%
Sprint Nextel Corp.: 0.0%
AT&T Corp.: All American Equity Fund, 1.23%
Tenet Healthcare Corp.: 0.0%
Centers for Medicare & Medicaid Services: 0.0%
Masco Corp.: 0.0%
PulteGroup Inc.: 0.0%
D.R. Horton, Inc.: 0.0%
Lennar Corp.: 0.0%
International Game Technology: 0.0%
Wynn Resorts Ltd.: 0.0%
Whirlpool Corp.: 0.0%
Sears Holdings Corp.: 0.0%
Freeport-McMoRan Copper & Gold Inc.: Global Resources Fund: 1.94%
Bank of Korea: 0.0%
Xerox Corp.: 0.0%
Gran Colombia Gold Corp.: Gold and Precious Metals Fund, 3.92%; World Precious Minerals Fund, 4.16%; Global Resources Fund, 1.58%
Romarco Minerals Inc.: World Precious Minerals Fund, 1.73%
San Gold Corp.: Gold and Precious Metals Fund, 0.67%; World Precious Minerals Fund, 0.59%
Newmont Mining Corp.: Gold and Precious Metals Fund, 1.02%; Global Resources Fund, 1.82%
Barclays PLC: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
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 U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy.
M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.
The " Centa-City Leading Index " is a weekly index based on the current preliminary contract prices in Centaline Property Agency Limited transactions that monitors the up-to-date property price variations.
The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
CLSA China PMI is based upon monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies in China and measures China’s manufacturing activity.
The COMEX is a commodity exchange in New York City formed by the merger of four past exchanges. The exchange trades futures in sugar, coffee, petroleum, metals and financial instruments.
The London Metals Exchange Index (LMEX) is an index on the six designated LME primary metals contracts denominated in US dollars. Weightings of the six metals are derived from global production volume and trade liquidity averaged over the preceding five-year period. The index value is calculated as the sum of the prices for the three qualifying months multiplies by the corresponding weights, multiplied by a constant.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

As we head into the holiday season after a challenging year, I am reminded that the most important gifts are love, friendship and goodwill. Alexander Green from InvestmentU shared that sentiment in his newsletter last week highlighting the wonderful story of how Charles Dickens overcame adversity to reshape the way many look at Christmas. Read Alex’s piece here.

This week I thought we’d take a moment to reflect on the eventful year it’s been for gold, natural resources and emerging markets by highlighting this year’s most popular commentaries and entries from my Frank Talk blog.

So here’s a list of what mattered most to readers in 2011.

1) BRIC Self Sufficiency Index – February 10

Sometimes a chart can tell the whole story. This interesting chart from Bank of America-Merrill Lynch showing the supply/demand fundamentals of several key industrial metals and basic materials attracted the most attention on my blog this year.

The dotted line in the chart represents a key tipping point. The resources to the left of the line are those the BRIC countries must obtain outside of their own borders to meet domestic demand. The BRICs produce an excess amount of the two metals to the right of the line and export the remaining amount to other countries.

These materials are the necessary elements needed for emerging nations to take the next steps in their development. You can see that the BRICs must rely on imports in order to meet demand for metallurgical coal, copper concentrate, thermal coal, iron ore, refined copper and uranium—implying higher prices for several years to come.

Click here to read full article

Curiosity about China and the insightful words of Martin Jacques, author of When China Rules the World, led this post to the #2 spot.

Jacques says China is going to change the world in two fundamental respects. First, never before in the modern era has the largest economy in the world been that of a developing country. Second, for the first time in the modern era, the dominant country in the world will not be from the West.

Click here to watch Jacques’ full speech

3) Which Gold Miners Have Largest Upside – October 13

For much of the year, a prominent story in the gold sector was the performance gap between gold miners and climbing prices of the yellow metal (see #6), leading us to ask our readers which miners had the largest upside? My investment case for exploration and development miners, or juniors, was the subset’s near-record low price-to-NAV level.

Click here to read full article

4) Is Gold About to Have Its Status Upgraded? – June 17

With the global banking system set to approve the Basel III banking provisions, I explored the possible ramifications if the Basel Committee on Banking Supervision (BCBS) decided to upgrade gold to a Tier 1 asset.

Click here to read full article

5) Don’t Fear a Pullback in Prices – April 25

The last week of April we received our first glimpse of the volatility that would grip markets and investors throughout 2011. After S&P warned of a downgrade to U.S. debt, gold and oil rocketed higher. I cautioned you to be aware of the inevitable snapback that comes with these types of moves but said investors could use these pullbacks as an opportunity to “back up the truck.”

Sure enough, gold prices pulled back before beginning their climb toward $1,900 an ounce. However, it proved to be the high for oil prices, which fell below $80 a barrel in early October and currently sit just below $100 per barrel.

Click here to read full article

6) Will Gold Equity Investors Strike Gold? – June 20

As I referenced before, the story of the year for gold investors has been the underperformance of gold mining stocks compared with bullion. However, this wasn’t the case for all of 2011. The NYSE Arca Gold BUGS Index (HUI) had outperformed gold bullion through April, but the relative performance quickly reversed and the HUI trailed bullion by nearly 30 percent by mid-August.

This isn’t the first time gold bullion and gold equity prices have diverged. Gold equities underperformed gold bullion in 2000 and 2008 during times of extreme market negativity and uncertainty. These previous instances have been merely temporary setbacks and markets generally reverted back to their long-term trends.

Click here to read full article

7) How to Find Opportunities from Blood, Debt & Fears – September 6

This piece from September is one of my favorites of the year because it pops the notion the gold is in a bubble. Despite gold’s dramatic bull run over the last 10 years, the yellow metal is only twice as high as its 1980 price. In comparison to other economic yardsticks since 1980, this is miniscule. Ian McAvity, editor of Deliberations on World Markets, says that federal debt, the S&P 500 Index and even GDP has grown much faster than gold over that same timeframe.

The gross U.S. federal debt of $14.3 trillion is 17 times its 1980 level. In 1980, the S&P 500 was at 105; today, it trades around 1,100. A gold price of $1,808 seems paltry as it is only 2.5 times the 1980 high of $738.

McAvity extrapolates the relative growth rate of the yellow metal, indicating that if gold doubled from its current high, it “would nearly ‘catch up’ to GDP, while it might take a quadruple to match the S&P, or even a six-fold gain from here to catch the growth of debt.” Multiplying the largest of these figures by the current price of gold means prices could theoretically go to $10,800. By these standards, gold is hardly a bubble.

Click here to read full article

8) The 2011 Gold Season is Just Around the Corner – August 1

The gold season kicked off a month earlier this year as shenanigans on Capitol Hill and cultural buying pushed gold prices up a staggering 12 percent during the month of August.

September has traditionally been the beginning of the gift-giving season for gold. This is the time of year when gold jewelers are the busiest. The season for gold began with the Muslim holy month of Ramadan in August. Then came Diwali, known as “the festival of lights” in India, and we’re in the midst of Christmas here in the U.S.. Next will come Chinese New Year.

Click here to read full article

When word got out the deposed dictator had a large pot of gold, many wondered whether that gold would be used to finance Gaddafi’s troops in a civil war. Our director of research John Derrick spoke with then CNBC host Erin Burnett about the unlikelihood of that happening.

Click to watch the interview

10) The Bedrock of the Gold Bull Rally – April 4

Naysayers started calling gold a bubble back when prices hit $250 an ounce and though gold’s bull market has tossed and flung the bubble callers around for almost a decade now, their voices have only gotten increasingly louder as prices broke through $1,000, $1,200, $1,500 and even hit $1,900 an ounce.

In this extensive piece, we dove into gold’s relatively small role in global asset allocation. In 1968, gold represented nearly 5 percent of financial assets. In 1980, the level had fallen below 3 percent. That figure had shrunk to less than 1 percent by 1990 and has remained there since. Eric Sprott wrote that “it is surprising to note how trivial gold ownership is when compared to the size of global financial assets.”

Click here to read full article

Don’t Forget About the Interactive Ways We Help You Explore the World

Some of our most popular pieces this year haven’t been commentaries at all. From slideshows, to interactive maps, to videos, to games and quizzes, we’ve rewarded your curiosity to learn and explore in dozens of ways.

Slideshows

Each year, bigger, taller and more technologically advanced projects dot the skylines, country sides and coast lines of cities across the globe. Cities around the world take turns owning the title for the tallest skyscraper, the longest bridge or the deepest mine. Covering nearly every continent of the world, explore our current list of the grandest of all things infrastructure in the world.

Click here to browse the slideshow

Coal, hydroelectric and oil are increasingly in high demand to meet the world’s growing appetite for power. In fact, global energy consumption grew 5.6 percent in 2010, the highest rate since 1973. In addition, rising emerging markets are changing the landscape of global energy. Tour our list of ten reasons why global energy will never be the same.

Click here to browse the slideshow

Interactive

Where Does the Gold Come From? Gold-producing countries are found on nearly all continents, and represent the gamut of economies from developed super-powers to small, emerging market countries. With gold’s spectacular rise in price and related demand, it’s worth your time to know a little bit about where all the gold comes from.

Click to explore the map

As long as there have been people, there’s been an attraction to gold. From pharaohs to hedge funds, gold has been an important tool of building and protecting wealth. This interactive gold timeline carries you through gold's enduring path as a universal symbol of wealth.

Click to travel through gold’s ancient history

Games/Quizzes

Paper money was first used by the Chinese during the Tang Dynasty in 806 AD–500 years before Europe began printing money in the 17th century. It would be another 100 years before America started circulating a national paper currency. And few Americans were more involved in the national paper money history than Benjamin Franklin, who wrote about, designed and printed paper money prior to the national currency. His face on the $100 bill today is our reminder of his contributions as a printer, scientist, scholar, writer and politician.

Click here to test your knowledge of global currencies

You know it’s shiny, it’s rare and it’s the standard against which all good things are measured. But how much do you really know about gold? Take the 2.0 edition of our interactive quiz to test your knowledge of gold history, geography and politics. We’ve also dug up some obscure trivia just to make it a little bit more challenging.

Click here to test your gold knowledge

Happy Holidays

I’d like to thank all of our content partners that help thousands of additional investors take advantage of our weekly insights. Most importantly, I want to thank you for tuning in each week. Our investment team works diligently each week to illuminate the most important drivers of different markets around the world and we hope the information has helped guide you during this year's tumultuous market.

I’m sure many of you have family members, friends and colleagues that are searching for answers to today’s puzzling markets. Please be sure to share these free weekly alerts with them, or they can sign up here.

In his story on Charles Dickens, Alex Green says the author's "goal was not just to entertain but enlighten." We at U.S. Global couldn't agree more. One of the greatest gifts you can give is the gift of knowledge and it’s free.

Happy Holidays!

Index Summary

• The major market indices were higher this week. The Dow Jones Industrial Average rose 3.60 percent. The S&P 500 Stock Index increased 3.74 percent, while the Nasdaq Composite was higher by 2.48 percent.
   
• Barra Growth underperformed Barra Value as Barra Value finished 4.32 percent higher while Barra Growth gained 3.26 percent. The Russell 2000 closed the week with a gain of 3.59 percent.
   
• The Hang Seng Composite finished higher by 1.93 percent, Taiwan rose 4.80 percent, and the KOSPI gained 1.48 percent.
   
• The 10-year Treasury bond yield closed 18 basis points higher at 2.03 percent.

Domestic Equity Market

The domestic stock market as measured by the S&P 500 Index was higher this week by 3.74 percent. All ten sectors of the index increased. The best-performing sector for the week was energy, which gained 5.44 percent. Other top-three sectors were financials and industrials. Technology was the worst performer, up 2.01 percent. Other bottom-three performers were consumer staples and consumer discretion.

Within the energy sector the best-performing stock was Nabors Industries, up 8.96 percent. Other top-five performers were Baker Hughes, Murphy Oil, Marathon Oil, and Tesoro.

Strengths

• The healthcare facilities group was the best-performing group for the week, up 13 percent, led by the group’s single member, Tenet Healthcare. This increase may be an example of a low-priced stock with a relatively high beta (1.20) reacting to a stock market rally this week.
   
• Three groups related to home sales and home construction outperformed this week. The building products group, the household appliances group, and the home furnishings group rose 11 percent, 10 percent, and 9 percent, respectively. Sales of existing homes in the U.S. rose in November to a 10-month high. Housing starts in the U.S. reached a 19-month high in November. Sales of new U.S. homes rose in November to a seven-month high.
   
• The education services group gained 9 percent. This week the U.S. Department of Education announced the appointment of Georgia Yuan as Deputy Under Secretary, replacing James Kvaal who transitioned to President Obama’s reelection team earlier this year. A major brokerage firm report stated its belief that this appointment will help the Education Department to increasingly shift to an approach that is based on outcome metrics rather than on ideology.

Weaknesses

• The home furnishings retail group was the week’s worst-performer, down 6 percent, led by its single member, Bed Bath & Beyond. The retailer sold off after reporting third-quarter earnings above the consensus and revenue slightly below the consensus. The earnings figure was aided by a lower tax rate. Same-store-sales were below consensus for the quarter, and sales comparisons become more difficult in the current quarter.
   
• The systems software group underperformed, down 4 percent, led down by Oracle which reported fiscal second quarter earnings and revenue below the consensus estimates.
   
• The airlines group lost 1 percent, led by its single member, Southwest Airlines. This week, the Federal Aviation Administration (FAA) released new rules on pilot fatigue. The rules, which take effect in two years, reduce the hours that pilots can work and give them longer rest breaks. The new rules will likely result in higher costs for the airline industry.

Opportunities

• There may be an opportunity for gain in merger & acquisition (M&A) transactions in 2012. Corporate liquidity is high, thereby providing the means to pursue acquisitions.

Threats

• A mid-cycle slowdown in the domestic economy would be negative for stocks.
• An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.

The Economy and Bond Market

Long-term Treasury yields ended the week sharply higher reversing last week’s rally and leaving us almost exactly where we were two weeks ago.

The sell-off in Treasuries this week could be attributed to a three-year lending program from the European Central Bank (ECB) which helps European banks secure long-term funding and is also potentially a form of quantitative easing. This induced a “risk off” trade this week as stocks rallied and bonds sold off. Economic news was also generally supportive as the Leading Indicators (LEI) chart shows below. Leading indicators have remained relatively stable and the absolute level implies economic growth in the next six months.  

Strengths

• The ECB’s three-year loan program that kicked off this week reduces some of the tail risk of a significantly bad outcome for European financials.
   
• For the second week in a row, initial jobless claims fell to the lowest level since May 2008.
   
• Housing starts rose 9.3 percent in November which was much better than expected as multi-family home starts hit a three-year high.

Weaknesses

• After revisions, third quarter GDP rose a modest 1.8 percent and was revised down from the initial 2.5 percent that was originally reported in late October.
   
• Personal income and spending experienced disappointing growth, both rising just 0.1 percent in November.
   
• Economic weakness has been showing up around the world with various disappointments in Japan, India and Brazil.

Opportunities

• Economic news is expected to be relatively light next week. With the recent week-to-week volatility, the market could rally on a modest sentiment change.

Threats

• The situation in Europe remains extremely fluid and negative news is almost expected at this point. Unfortunately, the situation is politically driven, making it difficult to predict outcomes and ramifications.

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

For the week, spot gold closed at $1,606.35 up $7.40 per ounce, or 0.5 percent. Gold stocks, as measured by the NYSE Arca Gold BUGS Index, rose 0.5 percent. The U.S. Trade-Weighted Dollar Index fell 0.3 percent for the week.

Strengths

• An Organization of American States Human Rights Commission withdrew its demand for the Guatemalan government to close Goldcorp’s Marlin Mine. This demand was made back in June 2010. Originally, it was claimed that a study by the Physicians for Human Rights had found samples collected from locals living around the mine having “higher levels of potentially toxic heavy metals in their urine and blood than a sample of residents who lives farther from the mine.” Recently, the Presidential Commission on Human Rights, which was on behalf of the Guatemalan government, determined that “no proof exists that there is any situation presenting serious or imminent harm to persons in the area as a result of the operations at the Marline mine.”
   
• Torex Gold signed critical land use agreements governing surface rights over its Morelos project in Mexico. In order for the three-million ounce deposit project to move to production, Torex will next have to relocate two villages and sign long-term land leases. The company stated Friday that it has made significant progress with this, and that it has signed long-term leases with the Rio Balsas Ejido, a group of communal land owners and individuals accounting for 1,083 hectares of land. CEO Fred Stanford had said this amounted to “63% of the land required to put the Morelos gold deposits into commercial production.”
   
• It was announced late Sunday that the rumor of Eldorado Gold acquiring European Goldfields was true. Eldorado Gold will acquire European Goldfields for a friendly C$2.5 billion cash-and-share plan, offering 0.85 Eldorado shares and C$0.0001 in cash for each European Goldfields share. Combined, annual gold production will be increased to 650,000 ounces per year, with the expectation of growing to 1.5 million ounces by 2015 through mine expansions and projects in the pipeline. The shares for European Goldfields were initially down close to 14 percent on the news but finished the week only off by around 4 percent.
   

Weaknesses

• After the Peruvian prime minister, Oscar Valdes, excluded environmental activists from mediation talks, a new round of talks hoping to end the dispute over Newmont Mining’s Conga mine in Peru appeared to break down. It was speculated that Valdes’ promotion to PM a week ago would lead to less willingness to use dialogue to solve hundreds of environmental disputes nationwide, and a crack down on protestors. Gregorio Santos, governor of the region of Cajamarca, had said referring to the breakdown in talks that, “what happened is that Valdes wouldn't tolerate more participation. He doesn't want to listen to anybody.” After the meeting Valdes said, “What happened is unfortunate, we've asked for more time to talk.”
   
• Always pay your taxes. Coeur d’Alene learned that lesson the hard way last week when Rye Patch Gold capitalized on non-payment and assumed ownership of Coeur d’Alene claims. Sixth Judicial District Court Judge Michael Montero issued a preliminary restraining order which allows Rye Patch Gold to continue exploring some claims around the Coeur Rochester silver mine in Nevada, but prohibited Rye Patch Gold to access a number of claims next or near to the mine. The judge did not invalidate Rye Patch’s newly held claims and the stock jumped 18 percent for the day.
   
• David Wessel of the Wall Street Journal recently penned an article where he noted the supply of super safe assets, bonds for which there is almost no risk of default, has fallen to $12 trillion from about $22 trillion in the past four years. Emerging markets seeking foreign exchange reserves of “safe assets” have risen to nearly $7 trillion from $4 trillion in the same period. Surprisingly, it is cheaper to buy default protection in the swap market for companies like Exxon or Wal-Mart than it is for U.S. government debt or Swiss debt, respectively. While negative for governments deeply in debt, this has been a positive for gold, as it has been a relatively stable monetary asset for 5,000 years, and has been a viable monetary asset in net accumulation for a number of emerging market banks. 

Opportunities

• Mineweb published a story last weekend highlighting Jeff Nichols’ recent address to the China Gold and Precious Metals Summit in Shanghai, with twelve bullish factors driving gold to $2,000 and higher, despite the recent setback. A couple of the points we would highlight from Jeff’s comments are the legitimization of gold as an investment class and rising investor participation. As gold’s investment returns are not highly correlated with the market it helps create a well-diversified portfolio which has attracted the entry of new, large-scale, professional investors – including pensions, endowments, insurance companies, and sovereign-wealth funds. The "stickiness" of much of the recent private sector and central bank gold demand is shrinking the available "free float" in the world gold market which means that less metal will be available to gold-hungry buyers, except at increasingly higher prices. Indeed, many of today's new investors have no intention of ever selling, even at much higher prices. And lastly, Jeff notes the fact that world gold-mine production, although growing, will not keep pace with the expected growth in global gold demand. Even a rash of new mine discoveries would take five to 10 years, or more, to contribute significantly to supply.
   
• The Gold Report interviewed Michael Gray of Macquarie this week and touched upon the junior precious metals explorers’ underperformance against the gold price this year. Analysts at Macquarie believe that there is “a strong investor appetite for high-grade, high-margin situations with relatively near-term production associated with low capital costs and short permitting timelines.” Furthermore, the juniors’ underperformance leaves room for a “strong mergers and acquisitions (M&A) thesis” with valuations at levels similar to 2008. Companies that Mr. Gray outlined as being consistent with this thesis include Extorre Gold Mines, Mirasol Resources, and Eastmain Resources.
   
• David Christensen, ASA CEO, spoke this week about the recent rise in gold mining dividend payments, saying, "It is funny to hear you talk about the rising dividends as a new trend...There used to be a rule of thumb that we wouldn't look at a mining company or gold mining precious metals producer unless the dividend yield was in excess of 10%." Recently, the number of mining companies paying a dividend and/or increasing the payout has been increasing significantly. This trend, in fact, brings the gold miners to a full cycle, where dividends were popular around 20 years ago. Presently, with many gold producers’ balance sheets having significant free cash flow, dividends are making a return.  

Threats

• President Hugo Chavez said that Venezuela would be willing to transfer 10 percent of the country’s gold reserves, representing $1.8 billion, to Banco del Sur, a regional development bank the nation supports. There are concerns over whether gold could be used as a source of funding for social programs much like oil has been used in that country.
   
• The European Central Bank provided €489 billion in below-market interest rate loans to more than 500 banks across the eurozone this week. The intent is that the banks would take this cheap money and buy the debt of their respective governments. Ironically, the banks have been in the process of selling their sovereign debt exposure because the threat of markdowns on such holdings meant they would need to recapitalize with greater equity issuance. So, the Europeans have kicked the can down the road again, but they are effectively printing money and engaging in a backdoor quantitative easing.
   
• Recession risk and the slowing Chinese economy are a threat to gold. GDP contractions along with 20 percent plus unemployment in some regions typically have been a headwind to gold prices. The Chinese equity market is currently testing the March 2009 lows and this has likely tested Chinese investors’ confidence, too, although imports of gold into the country have accelerated this year.

Energy and Natural Resources Market

Strengths

• A weak dollar and a new lending program from the European Central Bank helped drive prices for commodities and commodities-related stocks higher this week. West Texas Intermediate (WTI) Crude oil finished the week near $100 per barrel, up about 7 percent. Copper closed near $3.46 per pound, up 4 percent for the week.
   
• A record level of deals in the coal industry this year has slashed the number of potential takeout targets in Australia, the world’s largest coal-exporting country. Rising demand in China and India has pushed mergers and acquisitions globally to a record high total of $34.5 billion in deals this year. This compares to $30.3 billion in deals last year. Overall, 192 companies have been acquired. Australian deals reached an all-time high this month with the $5.1 billion Whitehaven–Aston deal and the $2.1 billion Gloucester Coal–Yanzhou Coal deal.
   
• China’s oil refiners boosted daily processing to a record 9.25 million barrels a day in November and increased net diesel imports to the highest level this year in October in order to alleviate a local shortage partially caused by seasonal maintenance.
   
• The latest Chinese import data shows a major jump in refined copper imports. Despite ongoing concern about a slowing Chinese economy, Macquarie Research highlighted that net imports of refined copper will be 700,000-750,000 tons higher in the second half of 2011 compared to the first six months of the year. Additionally, it was reported this week that refined-copper imports by China, the world’s largest user, climbed to the highest level since June 2009 as lower prices in London prompted an arbitrage trade.

Weaknesses

• Barclays recently analyzed commodity price performance for 2011. It noted that at the end of 2010, only seven out of 48 commodities showed negative price performance. This year, however, only 11 show a positive price performance. In addition, this year’s best performer, which is feeder cattle up 18 percent, is showing a dismal performance compared to last year when cotton led the way with a 93 percent increase. Only seven commodities have posted double-digit price gains for the year, while 37 did in 2010. Barclays said, “This year’s Christmas tree looks like it has been ravaged by the storm of European sovereign debt.”
   
• Data published by Worldsteel this week showed a 4 percent month-over-month decline in global steel production during November. Global production now totals 1,405 million tons on an annualized basis, marking the fifth-consecutive month below 1,500 million tons annualized.
   
• Bloomberg News reported that speculators have reduced bets on commodities to a 31-month low on concern that global economic growth is slowing. Commodity Futures Trading Commission (CFTC) data shows that money managers cut net-long positions across 18 U.S. futures and options by 9.6 percent during the week ended December 13.
   

Opportunities

• After growing almost 24 percent in 2011, Komatsu, the world's second-largest mining equipment maker, expects growth of at least 10 percent next year. President of the Mining Equipment Division, Kazuhiko Iwata, said that demand for equipment in Indonesia, Australia and Chile remains strong despite turbulence in financial markets and a slowing global economy. With mined ore grade degradation set to be a persistent theme in the coming years, analysts at Macquarie see the mining equipment industry as the main beneficiaries.
   
• It is reported that in its first-ever report about thermal coal, the International Energy Agency (IEA) paints a fairly rosy outlook for the next five years. The report forecast strong demand for thermal coal from China and India until 2016. The IEA said that consumption would continue to expand over the next several years despite calls from environmentalists to cut reliance on this carbon-intensive fuel as a primary energy source. The IEA projects average thermal coal demand to grow by 600,000 tons per day over the next five years. This is a remarkable pace but is actually slower than the growth experienced from 2000 to 2010 when demand growth averaged 720,000 tons per day, according to Nomura Securities.
   
• Reuters reported that Monsanto won approval to sell a genetically engineered variety of drought-resistant corn in the United States, raising hopes for increased production of the grain. The U.S. Department of Agriculture approved the use of the modified corn after reviewing environmental and risk assessments, public comments, and research data from the seed giant. The company has been developing the product for years in collaboration with German chemical firm BASF. 

Threats

• Rising costs to develop natural resources projects remain a common theme many companies are grappling with. For instance, Anglo American announced a 15 percent increase in the capital cost of its Minas-Rio iron ore project in Brazil. This is in addition to more than $5 billion the company had previously projected. The company said the increase in cost is due to general inflation in the mining industry coupled with the need to manage construction of the project around newly discovered caves of special scientific interest. Also, CAP, Chile’s largest steel producer and iron ore miner, has said that the cost of developing its Cerro Negro Norte project has increased nearly 40 percent to $800 million. The increase has pushed the anticipated start-up of the 4 million tons-per-year mine to fourth quarter of 2013 instead of the first quarter.
   
• Metal demand in China may grow at a slower pace in 2012 and prices may be lower than this year, Wang Huajun, deputy secretary-general of the China Nonferrous Metals Industry Association said at a forum in Shanghai. “It is unlikely to see metals demand to grow at more than 10 percent next year, given the macroeconomic environment,” Wang said. Refined copper demand may increase 6 percent, while primary aluminum consumption may grow 8 percent, he said. Lead and zinc consumption may rise by 7 percent and 5 percent, respectively, Wang said.

December 23, 2011 How Do Markets Perform During Election Years?	December 22, 2011 Chart of the Week - Struggling Copper Supply	December 21, 2011 Calculating the Impact of the Keystone Pipeline

Emerging Markets

Strengths

• China and Thailand have signed a Chinese yuan (Rmb)/Thai baht(THB) currency swap agreement worth $11 billion to facilitate non-U.S. dollar trade settlements between the two countries. China also provided a $400 million loan to Thailand to aide reconstruction in areas that were devastated by floods earlier this year. Thailand hopes to see its trading activity with China increase at an annual rate of 20 percent. Thailand is also looking to attract similar growth in the amount of Chinese tourists visiting the country.
   
• China’s Ministry of Railway disclosed a nearly $80 billion investment budget for 2012. This is less than the $111 billion amount budgeted for 2011, but is believed to be at a sustainable level. Investment activity slowed well below the forecasted amount following the deadly Wenzhou accident earlier this year. The Ministry was recently allowed to raise around $32 billion in order to help spark investment interest.
   
• China has approved 9 Hong Kong companies to use their Rmb funds raised within the city to invest in the domestic Chinese securities market under the new Renminbi Qualified Foreign Institutional Investor (Rmb QFII) rules. This flow of capital should help the Mainland Chinese market expand beyond its borders.
   
• Premier Wen Jiabao said in a statement posted on the central government’s website that the Chinese government will keep the country’s export policies, such as tax rebates, “basically stable” next year as the government will mainly use fiscal spending to support “structural tax cuts” and improve the lives of citizens.
   
• We believe Chinese monetary policy is a precursor to change in the market cycle so we’re monitoring any shift in monetary policy. Headline news coming from China over the past few months has indicated the government is focused on policies to maintain a stable level of growth. This means a mild fiscal and monetary stimulus mode. However, this can quickly change if the government feels conditions have worsened.
   
• Malaysia’s CPI for November was in-line with expectations at 3.3 percent on a year-over-year basis. This is slightly lower than the October figure and is similar to a general downtrend in CPI we’ve seen across Asia.
   
• Taiwan’s unemployment rate was 4.32 percent in November, slightly above the country’s 4.30 percent reading in October. In a separate development, Taiwan’s Financial Supervisory Commission said it will let Chinese banks buy stakes in local lenders and financial holding companies beginning January 2.
   
• The KOSPI, South Korea’s stock market index, sold off 3.43 percent on Monday after the passing of Kim Jong-Il was announced. However, the market recovered quickly when investors believed the situation is stable and will not affect the fundamentals of the South Korean economy.
   
• The state-run statistics agency said that Colombia’s industrial production rose 5 percent in October compared to production from a year earlier. This beat analysts’ estimates of a 4.3 percent increase. RGE believes that third quarter GDP in Colombia is likely to register the highest growth since early 2008, backed by strong domestic demand momentum.
   
• While corporate profits declined as percentage of GDP as a result of Putin’s drive to roll back Russian oligarchs’ grip on the Russian economy, wages have grown and spurred consumer demand for big ticket items.
   

Weaknesses

• Month-over-month new home prices dropped in 49 Chinese cities during November, more than half of the 70-largest cities monitored by the government. However, on a year-over-year basis, 61 cities have experienced 5 percent price increases. This weakness could be the reason the Chinese government is reluctant to lift the housing control measures. Sales prices for new homes in Beijing and Shanghai are up 1.3 percent and 2.4 percent, respectively.
   
• It’s currently tough times in the Philippines. The Typhoon Washi has killed 650 people and an additional 800 are missing. In addition, the country’s budget deficit increased by more than 3 percent in November to $504 million as government agencies boosted spending.
   
• Taiwan’s industrial production declined for the first time since 2009 during the month of November, contracting 3.55 percent.
   
• Slumping output for pharmaceuticals and electronics led Singapore’s industrial production to decline nearly 10 percent in November. Singapore’s CPI rose 5.7 percent on a year-over-year basis, slightly above October’s CPI at 5.4 percent.
   
• Brazil posted a record $6.8 billion current account deficit in November as slower global growth narrowed the trade surplus. In October, the account deficit came in at $3.1 billion.
   
• S&P cut Hungary's credit rating to junk on Wednesday this week, in anticipation of the outcome as preliminary talks on Hungary's new financial assistance program were said to have been breaking down. With market pressures and 4.7 billion euros in external debt coming due in 2012, the country depends on an IMF safety net to avert a full-blown balance of payments crisis during the eurozone crisis.

Opportunities

• Indonesians’ Growing Wealth Increased Mutual Fund Assets
• Rising wealth in Indonesia has fueled a dramatic increase in assets for the country’s domestic mutual funds over the last six years. The inflows into domestic funds from this wealth effect will increase the liquidity of the Jakarta stock market and likely be good for stock prices.

• Peru's chief banking regulator is working with lenders to bring down annual interest rates on loans that run as high as 120 percent by promoting competition and best practices, saying that the cap is the “last resort.” Bloomberg reported the Superintendent of Banks, Insurance and Private Pension Funds had said that the regulation aims to help banks assess the risk of lending to clients, enabling them to charge less for loans.
   
• For the first time in a decade, South Africa has turned to Russia for wheat imports, as the price of the grain from the world's third largest wheat exporter undercuts Argentina, which has been the biggest source of South African imports for four of the last seven years. Additionally, South Africa has also turned to other former Soviet countries such as Lithuania for its supplies as well, searching for best prices.
   
• LATAM, Latin America's biggest airline, was approved, merging two major Latin American airlines together, valued at $14.5 billion and representing 6 percent of global air transport.
   

Threats

• China and nearly all emerging economies are experiencing a downtrend in the pace of growth. We agree with the majority of economists that believe growth will continue to slow into 2012 before touching bottom sometime in the second quarter. In the meantime, the market will likely oscillate on the developments of the eurozone crisis and Chinese policy adjustments without any regard to company fundamentals.
   
• The Hungarian central bank raised policy rates by 50 basis points to 7 percent this week, in an attempt to strengthen the currency after the breakdown of IMF loan talks. The pro-cyclical policy of the central bank amid global slowdown is likely to have a negative impact on growth.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Past performance does not guarantee future results. It is not possible to invest in an index.

These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 9/30/11:
Nabors Industries Ltd: 0.0%
Baker Hughes, Inc.: Global Resources Fund, 2.75%
Murphy Oil Corp.: 0.0%
Marathon Oil Corp.: Global Resources Fund, 2.93%
Tesoro Corp.: 0.0%
Tenet Healthcare Corp.: 0.0%
Bed Bath & Beyond, Inc.: 0.0%
Oracle Corp.: 0.0%
Southwest Airlines Co.: 0.0%
Goldcorp, Inc.: Gold and Precious Metals Fund, 2.58%; World Precious Minerals Fund, 1.97%; Global Resources Fund, 1.60%
Torex Gold Resources, Inc.: Global Resources Fund, 0.25%
Eldorado Gold Corp.: Gold and Precious Metals Fund, 0.77%; World Precious Minerals Fund, 0.69%; Eastern European Fund, 0.47%; Global Emerging Markets Fund, 1.04%
European Goldfields Ltd: 0.0%
Newmont Mining Corp.: Gold and Precious Metals Fund, 1.02%; Global Resources Fund, 1.82%
Coeur d’Alene Mines Corp.: Gold and Precious Metals Fund, 2.28%; World Precious Minerals Fund, 1.55%
Rye Patch Gold Corp.: World Precious Minerals Fund, 0.27%
Exxon Mobil Corp.: 0.0%
Wal-Mart Stores, Inc.: 0.0%
Extorre Gold Mines Ltd: World Precious Minerals Fund, 1.20%
Mirasol Resources Ltd: World Precious Minerals Fund, 1.37%
Eastmain Resources, Inc.: World Precious Minerals Fund, 0.15%
Whitehaven Coal Ltd: 0.0%
Aston Resources Ltd: 0.0%
Gloucester Coal Ltd: 0.0%
Yanzhou Coal Mining Co. Ltd: China Region Fund, 1.61%
Komatsu Ltd: 0.0%
Monsanto Co.: 0.0%
BASF: 0.0%
Anglo American plc: 0.0%
CAP SA: 0.0%
LATAM Airlines Group: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
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The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
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The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
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 U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The Conference Board index of leading economic indicators is an index published monthly by the Conference Board used to predict the direction of the economy's movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy.
The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.