Every Gold Coin Has Two Sides

Author: Frank Holmes
Date Posted: April 5, 2013 Read time: 44 min

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

Just as every coin has two sides, every data point that doesn’t meet expectations usually has an upside somewhere. For instance, although the gold price has fallen with the strengthening U.S. dollar, the yellow metal is appreciating in Japanese yen. So when negative news about the economy came out this week, along with the U.S. Labor Department reporting that the country added only 88,000 jobs in March, investors found reasons to be encouraged.

For one, the Federal Reserve is apt to maintain its stimulative easing course and keep interest rates low. With inflation above the current interest rate, a negative real interest rate increases the attractiveness of U.S. dividend-yielding stocks and gold. I believe both investments will continue to be viewed as the safe havens of the world.

The news that the U.S. is not recovering as expected may also repair some of the damage done to gold by research firm Societe Generale. Its bearish report asserted that because of expected rising interest rates, a strengthening U.S. dollar and a recovery in housing and jobs, gold’s bull run would end.

The ongoing European debt saga will likely drive gold as well. Many people, including CNBC’s Amanda Drury, have been asking me why gold did not respond on news of the seizure of bank deposits in Cyprus. Going back more than four decades, the yellow metal historically has experienced a seasonal drop this time of year, yet today’s trading behavior does not reflect the fearful conditions ideal for a gold rally.

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As a result of this perplexing situation, some highly respected gold experts have tossed around the idea that the price of gold may be manipulated. Mineweb’s Lawrie Williams writes that when the European markets open, gold and silver fall, but climb when the U.S. market opens. This is “a pattern directly contrary to that which had been seen pre-Cyprus,” suggesting that the precious metal “needs to be kept in its place more than ever lest a move into it by the big bank deposit holders really precipitates banking Armageddon.”

We’ve seen plenty of evidence that central bankers in the developed countries intend on continuing their easing policies, driving up balance sheets. Take a look at the rise in the balance sheets as a percent of GDP from the largest developed countries. The European Central Bank (ECB) tops the list, with the balance sheet approach half of its GDP.


Williams says central banks need to continue to print money to “maintain the pretence that the global economic situation is under control, which it surely is not,” says Williams.

This opinion is echoed by my friend, Ian McAvity. In his Deliberation on World Markets newsletter, he says “the orchestrated reopening of Cypriot banks creates two euros despite claims to the contrary.” Most importantly, the fact that “gold did not surge on these developments for the second most important currency teetering on the brink adds weight to the case for surreptitious central bank interventions,” says McAvity.

McAvity says “surreptitious,” CLSA’s Greed & Fear Author Christopher Wood calls it a “grandiose monetary experiment” which may be “unprecedented in recorded financial history.” He believes that there is an “outright embrace of the eroding distinction between monetary and fiscal policy” and instead of moving away from its unconventional easing policies, “the central banks are moving further and further away from the exits.”

But there is a much more important issue that has been raised because of Cyprus’ and the eurosystem’s “startling inequality of treatment,” says CLSA’s Russell Napier. He questions whether the eurosystem works in a political sense. He writes:

“If … people of the system believe that the euro’s sustenance necessitates the use of arbitrary power, resulting in unequal treatment, then they will conclude that the euro system is not worth having. The loss of democracy and the rule of law will outweigh whatever economic benefits euro membership may bring.”

An avid sports enthusiast would translate this “loss of democracy and the rule of law” to a game where the referees are making unfair calls, adding rules and changing boundaries to control the outcome.

Americans express this loss as having freedoms taken away, however, the primary difference between the U.S. and the European Union is the fact that Americans elect their officials.

British politician and leader of the U.K. Independence Party, Nigel Farage, warned about the dangers of non-elected socialist Brussels bureaucrats 18 months ago. In a video that went viral, Farage berated the council, calling the euro a failure and pointing out that unelected officials without “any democratic legitimacy” had removed elected officials in Greece and Italy from office like Agatha Christie kills off characters in her murder mysteries.

I met Farage in 2011 when I was at a CLSA conference in Hong Kong. I was pleasantly surprised that we shared professional backgrounds, as he was formerly a metals trader. I liked him when I met him and respect his courage for speaking out against the injustices.

Gold investors, keep in mind that gold coins and gold jewelry are not “get-rich-quick” schemes. As I talked about in my interview with CNBC, gold is like car insurance. No one wants a car accident, but just because one hasn’t happened, doesn’t mean you drop your policy.

In a Low Yielding Environment, Seek Dividends
I often say that money goes where it is treated best, and Russell Napier’s following comment rings true today: “Perhaps nothing changes human behavior more profoundly than the arbitrary and unfair acts of authority.” The factors that will be driving markets in this low yielding environment and governments’ questionable policies is for investors to find investment that offer a return OF their money, not return ON their money.

And the tranquil oasis of choice will likely be large, dividend-paying U.S. companies, many of which pay higher yields than the 10-year Treasury.

Take a look under the hood of the S&P 500 Index to see how important dividends, along with buybacks, have become to the overall index. This chart, created by Professor Aswath Damodaran of the “Musings on Markets” blog and republished by Business Insider, graphs the powerful twin engines of dividends and buybacks as a percent the S&P 500.

During the early years of the new century, both dividends and buybacks made up less than 2 percent of the overall index level. During 2004 through 2007, they began making up a larger part of the index, climbing to a 12-year high in 2007.  That was the same year the S&P 500 hit an intraday record high of 1,576.

Now, over the previous four years, these figures have been increasing once again. Companies have been buying back their stock at record levels. In 2009, buybacks only made up 1.39 percent of the index level; by 2012, buybacks grew to comprise more than 3 percent.

To a lesser extent, dividends have increasingly made up more of the index level, increasing from 1.97 percent in 2009 to 2.19 percent last year.


Companies have become focused on the return-on-capital model, such as revenues-per-share and earnings-per-share, which may reflect the way CEO compensation has changed over the past two decades.

Previously, executives primarily received option grants, which incentivize them to focus on the short-term stock price.

However, as you can see below, while the percentage of CEOs receiving options has been declining slightly, the percentage of CEOs receiving restricted stock grants has jumped considerably. This means that the executives’ interests are more in line with shareholders’ and are incentivized to think about total return and dividend payments.


In today’s investment environment with low yields, savvy investors will continue to look for safe havens and better yielding alternatives, with the fortunate recipients being gold and dividend-paying stocks. Keep calm and invest on!

Share Holder Report

Index Summary

  • The major market indices moved lower this week.  The Dow Jones Industrial Average fell 0.09 percent. The S&P 500 Stock Index dropped 1.01 percent, while the Nasdaq Composite Index fell 1.95 percent. The Russell 2000 small capitalization index declined 2.97 percent this week.
  • The Hang Seng Composite fell 3.07 percent; Taiwan rose 0.96 percent while the KOSPI fell 3.33 percent.
  • The 10-year Treasury bond yield fell 14 basis points this week, to 1.71 percent.

Domestic Equity Market

The S&P 500 took a breather this week after a strong start to the year, falling about one percent this week. Domestic and dividend focused areas outperformed again with telecom and utilities leading the way. 

Domestic Equity Market - U.S. Global Investors
click to enlarge


  • Dividend paying stocks continue to attract fund flows as every constituent in the telecom sector was up this week. AT&T was a leader rising by 3.6 percent. 
  • The dividend/domestic theme also followed through in the S&P 500 utilities sector as investors continue to favor dividend payers with U.S. centric revenue exposure.
  • Best Buy Inc. jumped nearly 15 percent and was the best performer in the S&P 500 this week as the company announced a store-in-a-store concept with Samsung. The deal was viewed as a positive for both companies.


  • The technology sector was the worst performer with somewhat broad based weakness. F5 Networks, Advanced Micro Devices, Teradata Corp. and Hewlett-Packard were among the worst performers.
  • The materials sector didn’t fare much better as every stock in the sector was down for the week on concerns of a slowing macro environment. U.S. Steel, Sealed Air Corp. and Owens-Illinois were among the worst performers.
  • F5 Networks Inc. was the worst performer in the S&P 500 this week declining 17.8 percent. The company reported preliminary quarterly results showing slowing North American sales. Indicated revenue and profits were well below analysts estimates.


  • The market continues to be resilient regardless of the news out of Europe and the market is climbing that proverbial wall of worry.
  • Global central banks are literally pulling out all the stops in an attempt to ignite economic growth.


  • A market consolidation wouldn’t be a surprise after a strong start to the year.   

Case for tax free funds NEARX

The Economy and Bond Market

Treasury yields fell sharply this week on weak economic data and massive quantitative easing (QE) program out of Japan. The Bank of Japan intends to double money in circulation over the next two years in an attempt to battle deflation. U.S. nonfarm payrolls for March came in much weaker than expected, growing a modest 88,000 vs. expectations of 246,000. As can be seen in the chart below, 10 year treasury yields fell to their lowest levels this year.

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  • Japan announced a massive monetary stimulus program, buying $79 billion of bonds per month. That is roughly equal to what the Fed is doing here in the U.S. except Japan’s economy is one third the size.
  • The European Central Bank (ECB) left interest rates unchanged at this week’s meeting but left the door open for additional cuts if needed.
  • Auto sales in the U.S. continued to be strong in March, running at a 15.22 million vehicle annualized pace.


  • The ISM manufacturing index unexpectedly fell to 51.3 in March. The orders subcomponent was especially weak and cause for some concern.
  • Global economic data points indicate a weakening trend. Russian manufacturing slowed, South Korean exports were weak and Indian manufacturing activity also weakened.
  • The eurozone’s unemployment remains elevated at 12 percent.


  • The Fed continues to remain committed to an extremely accommodative policy.
  • Key global central bankers, such as the ECB, Bank of England and the Bank of Japan, are still in easing mode. The Bank of Japan, in particular appears, willing to implement additional monetary policy easing in the near future.


  • Inflation in some corners of the globe is getting the attention of policy makers and may be an early indicator for the rest of the world.
  • Trade and/or currency wars cannot be ruled out which may cause unintended consequences and volatility in the financial markets.

Explore our 4-Star Gold & Precious Metals Fund

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

Gold Market

For the week, spot gold closed at $1,581.82, down $15.67 per ounce from the Thursday Good Friday close, or 0.98 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 7.39 percent. The U.S. Trade-Weighted Dollar Index lost 0.60 percent for the week.


  • Non-Farm Payrolls released today showed an 88,000 increase for the month of March; the lowest in nine months and lower than the most pessimistic forecast in a Bloomberg survey. The report vindicates Fed Chairman Ben Bernanke’s cautious outlook on labor market improvement and gives more reason for the FOMC to press on with the monthly$85 billion level of monetary easing.
  • In previous guidance the Fed stated the current easing cycle would not be halted any time before the unemployment rate reaches the 6.5 percent mark. Despite Friday’s announcement of an 0.1 percent decrease in the unemployment rate to 7.6 percent, the truth behind the numbers shows the labor force participation rate has fallen to the lowest level since 1979, this according to the Labor Department. Such low levels of labor force participation will add difficulty to reaching the Fed’s 6.5 percent unemployment goal as a greater number of job openings attract more people to join the labor force.
  • Christopher Wood of CLSA reiterated his bullish position on gold and gold equities by reaffirming his weightings for US dollar denominated pension funds. He advocates for a 45 percent weighting in bullion, for which he currently has a minimum price target of $3,360 per ounce, and a 20 percent allocation to gold mining stocks. His main argument is that a long term dollar-debasement is inevitable with the growing resort to quantitative easing. He appears undisturbed by the current weakness in bullion as he asserts gold is insurance, not a short term trade.


  • It was a rather tumultuous week in the gold markets.  SoGen published a report titled “The end of the gold era”; which further explored what it would take to generate a crash in the gold price.  The report studied gold from the point of view that gold is a commodity.  This is not true, as the financial market prices gold futures with a contango not in backwardation as true commodities are priced.  In other words, the market is telling your gold is a financial asset the same as money.  An analysis using the wrong framework on how the market actually values an asset is unlikely to reach the right conclusions.
  • Despite gold only falling less than 1 percent for the week the gold stocks fell close to 8 percent on average.  With the first quarter just over, the window for hedge fund clients to turn in redemption notices to fund managers just opened and it is likely that this may have been a driver of such sloppy price action when there was little headline news.
  • Allied Nevada was one of the worst performing names in the senior tiered gold space, losing 24.36 percent for the week.  Allied Nevada recently fired their CEO, but that does not change the issue of working with low grade ores, low recoveries, capital needs, and access to facilities that would be needed in the refine their refractory ores in the future.


  • ISI reported this week that the Bank of Japan’s balance sheet surged more than $140 billion in just eight days. To put the number into perspective, let us remind you that Bernanke is currently injecting $85 billion per month into the system. Furthermore, Japan being a smaller economy, the $140 billion expansion in Japan would be the equivalent of more than $420 billion in the US, in just eight days! The news from Japan continued when Bank of Japan Governor Haruhiko Kuroda committed to a two year monetary expansion plan set to achieve a 2 percent inflation target and end the 15 years of deflation. To achieve his purpose, the Bank of Japan will purchase longer duration government bonds at a rate of ¥5.2 trillion per month, or about $53.3 billion at the time of writing.
  • When Fed Chairman Ben Bernanke steps down in January of 2014 you can expect the market to become very volatile; after all it has happened in several occasions, most notoriously in 1987 when the market toppled 35 percent as Greenspan took over Volcker. As of today, Janet Yellen is widely expected to take Bernanke’s seat for her dovish and supporting stance that will likely see a continuation of the Fed’s unconventional asset purchase strategy. Both Yellen’s dovishness and the transition uncertainty bode well for gold in 2014.
  • Ian McAvity noted on his Deliberations publication this week that the current backdrop of money printing and asset bubble deflation risk would make him panic if he were not invested in gold and related stocks at the moment. The way he paints it is that regardless of what you think, with gold and the S&P both trading just above 1550, the downside risk in the S&P is far greater than the downside risk for gold.


  • President Obama’s Federal Budget proposal includes the replacement of traditional CPI measurements by “chained-CPI” measurements going forward. Proponents argue that a chained-CPI is more likely to account for product substitution and give a more realistic picture of inflation’s impact on consumption, while detractors believe it does not account for services that rise faster than inflation and which offer no substitutes, like healthcare.
  • On average, chained-CPI would be 25 to 30 basis points lower than the CPI measures in place today. The move would help reduce the government obligations on many fronts that are inflation linked, such as TIPS and social security payments.  However, it would make inflation look more benign and detract that the need to own gold as a protection against inflation.
  • Economic data is indicating we have a sudden loss of momentum in the economy.   The recent Absolute Return Letter from Absolute Partners shows a chart of total net government liabilities including off-balance sheet items relative to GDP.  The US measures out at 541 percent; only second to France at 549 percent but worse than Spain and Italy on these measures; sure nothing like what is happening in Europe could affect the US, right?  Well Cyprus was swept under the rug; the next potential banking crisis may be Slovenia which just had their five major banks downgraded by Fitch.

Explore our 4-Star Gold & Precious Metals Fund

Energy and Natural Resources Market

Copper vx. S&P 500 Index
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  • The price of natural gas gained nearly three percent this week to $4.14 following a positive Goldman Sachs report that highlighted tighter supply and demand fundamentals after colder than normal temperatures last month. 
  • According to OPEC, China is expected to overtake the U.S. as the world’s top crude importer by 2014.  China’s crude oil imports may surpass 6 million barrels a day by the end of this year.


  • Oil refiners in Europe will shut 10 percent of their plants this decade as fuel demand falls to a 19-year low. Of the region’s 104 facilities, 10 will shut permanently by 2020 from France to Italy to the Czech Republic, a Bloomberg survey of six European refinery executives showed. Oil consumption is headed for a fifth year of declines to the lowest level since 1994, the International Energy Agency estimates. Two-thirds of European refineries lost money in 2011, according to Essar Energy Plc, owner of the U.K.’s second-largest plant.


  • The U.S. petrochemicals industry is set to make a spectacular comeback after suffering from low demand and high feedstock costs for most of the previous decade. As per GlobalData, in the middle of the last decade, the discovery of shale gas changed the dynamics of the U.S. petrochemicals industry by leading to the revival of the natural gas industry which improved the ethane supply and created high profit margins at the end of 2011 and 2012.
  • China, the world’s number two corn importer, may need to raise corn imports to a record 7 million tonnes this year due to heavy snow this winter that damaged the grain and made it less suitable as animal feed, according to China Daily. The projected import figure is close to the Chinese government’s import quota of 7.2 million tonnes for corn.
  • Plans to build a new industry to export liquefied natural gas (LNG) off Canada’s West Coast have become a lot more complicated. Discontent among Asian buyers about high LNG prices has evolved into a standoff between Asian consumers and North American producers that could make it more difficult to get new projects off the ground. The pricing disagreement represents a new hurdle for the five LNG projects planned for British Columbia, which are facing high costs and construction challenges, and have been banking on the so-called "Asian premium" to make their economics work. Japan is paying about US$17 per million British thermal units for its LNG imports, but it is well aware of the shale gas revolution under way in the Western hemisphere and is pushing for prices that are reflective of the cost of supply,  plus liquefaction and transportation costs, Mr. Maeda said. The supply cost is around US$6 to US$7 in North America, while the market price is around US$3 to US$4 because of ample supplies from shale discoveries.


  • The Chile port strike is set to continue as no accord reached with the union, Bloomberg reports. The strike, which began at Angamos March 16 and spread to other northern and central Chilean ports, is preventing about 9,000 metric tons per day of refined copper from being shipped, or about 60 percent of the country’s 16,000-ton total, Mining Minister Hernan De Solminihac told reporters in Santiago. The port strike is also restricting imports of materials such as sulfuric acid used by mines and may lead to the halting of some operations, he said.
  • Gold is likely to be in a bear market by early 2014 as the world economy returns to "normality," Thomson Reuters GFMS, the research group, said today at the launch of the 2013 edition of its annual gold survey. However, despite the present price weakness, it is premature to say it is there yet, they argued, predicting this year "one last flourish" that will see the gold price rise as high as $1,850 an ounce and average $1,730 an ounce, a nominal record (with a low of $1,530 an ounce). The rationale? A forecast surge in investment demand of 20 percent year-over-year, driven by easy money, sluggish economic growth, rising inflation and the possibility of shocks to the economic system. Otherwise demand is forecast to decline, with jewelry fabrication hit by the high price and sluggish economy, industrial demand suffering from substitution by cheaper alternatives and central bank purchases easing from 2012’s 48-year high. More supportive, however, will be weak supply, with only a modest increase in mine output and scrap supply.

Frank Talk Insight for Investors

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A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

China Region Fund – USCOX  •  Emerging Europe Fund – EUROX
Global Emerging Markets Fund – GEMFX

Emerging Markets


  • Macau generated record gaming revenue in March, up 25 percent year-over-year or 16 percent month-over-month.
  • China’s major cities released their interpretations or implementations of the State Council’s “New Five-Point Property Measures.” On home price and home purchase restrictions, policies remained largely neutral, except for Beijing and Shanghai which are biased toward the tightening side. On the 20 percent capital gains tax, the policies mostly just simply repeated the exact wording of the State Council’s notice. The market had positively reacted to the announcements by the local governments.
  • China March new loans may be RMB1 trillion based on an estimate that new lending by the four biggest banks was about RMB331 billion, Shanghai Securities News reports. Also in anther news by the Economic Information Daily, investments for China’s railways, roads, ports and airports may be almost RMB4 trillion for the three years through 2015.
  • China PMI came in at 50.9, up from 50.1 in February, but lower than consensus 51.2, showing the expansionary Chinese economic activities.  China’s March non-manufacturing PMI rose to 55.6 from 54.5 in February.
  • Hong Kong February retail sales value was up 22.7 percent year-over-year versus the consensus of 15.7 percent.
  • Bank of Thailand (BOT), the central bank, kept the policy rate on hold at 2.75 percent this week. BOT expects the Thai economy to moderate toward a normal trend, while the pace of fiscal stimulus is expected to rise gradually in second half of 2013, in line with the start of government spending on infrastructure projects. Thailand just reported February CPI that was 2.69 percent versus the consensus of 3 percent, and 3.23 percent in the previous month.
  • The Korean government announced its property stimulus measures, which include capital gains tax reductions, tax and loan benefits for first-time home buyers, and a reduction in public housing supply.
  • Mexico’s Finance Ministry submitted to Congress the so-called Pre-General Criteria of Economic Policy, which marks the first step of the reforms proposed by President Pena Nieto. The restructuring in the energy, telecommunications, and financial sectors will be carried together with a tax reform, which Pena Nieto assures will attract greater foreign direct investment, enhance productivity, and accelerate economic development.


  • China reported 16 cases of H7N9 (bird flu) with 6 dead. Officials said there are no human contagions found at the moment, but no vaccines are discovered either. Should the epidemic spread, it will negatively impact the social life and the economic activities.
  • China’s home prices rose 1.06 percent in March or 3.9 percent year-over-year to Rmb9, 998 a square meter ($146.6 a square feet), Soufun Holdings Ltd said. Sharp price increases invite tightening government housing policy.
  • Korean peninsula tensions are at the highest level in recent years with North Korea threatening to retaliate using nuclear bombs on U.S. military bases and its alliances in North East Asia. 
  • Indonesia’s exports contracted 4.5 percent in February, and the oil trade deficit stayed wide at $2.3 billion. The trade deficit widened to $327 million from $75 million in January, which indicates economic imbalance between consumption and manufacturing at the moment.
  • Brazilian equities continue to underperform their BRIC and South American peers as companies post the longest streak of earnings misses in six years. For the fourth quarter of 2012 over 65 percent of the members of the Bovespa Index trailed analysts’ earnings estimates. The most recent quarter’s information is the fifth straight period in which more than 50 percent of the companies in the benchmark fell short of expectations.


China Government Manufacturing PMI
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  • As shown in the graph above, China March PMI was 50.9, which indicates a weak expansionary economy. With news report that China had found 16 cases of H7N9 (bird flu) and 6 people had died, the probability of tightening the economy by monetary and fiscal policies is extremely low.
  • Brazil’s President Dilma Rousseff issued a decree on Thursday that will eliminate payroll taxes in the construction and transportation industries in favor of a 1 to 2 percent tax on gross revenue. In the previous months, similar measures were adopted across multiple sectors to incentivize economic growth and business hiring ahead of presidential elections in 2014.
  • While positioning in consumer segments in emerging markets is an increasingly crowded trade that is beginning to stretch valuations, frontier markets generally look a lot more attractive. Higher dividend yields than in emerging markets offer better protection against inflation. Frontier markets also offer superior exposure to the developing world consumer than emerging markets in general, because of market composition, according to HSBC.


  • Reported bird flu in China, if breaking out like the SARS in early 2003, can threaten the overall economic activities, especially tourism, entertainment, retail, and air and land transportation.
  • The Colombian Finance Minister has voiced his discontent with commercial and personal lending rates in the country. After the central bank cut benchmark interest rates by 100 basis points so far in 2013, commercial banks have only decreased lending rates by approximately 50 basis points signaling issues in the monetary transmission mechanism. Banco de la Republica has stated its March cut would be the last in the current cycle, leading to speculation that commercial banks, not the central bank, now hold the key to bringing the economy closer to full potential.
  • Amid concerns about ballooning G7 public debt, emerging market economies, still smarting from their own mistakes of previous regimes, have been much more disciplined and actually managed to keep debt-to-GDP levels largely stable since the outbreak of the credit crisis in 2007-08.

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The Dow Then and Now--Are we better off today compared to 6 years ago? See the slideshow ->

Leaders and Laggards

The tables show the weekly, monthly and quarterly performance statistics of major equity and commodity market benchmarks of our family of funds.

Weekly Performance
Index Close Weekly
DJIA 14,565.25 -13.29 -0.09%
S&P 500 1,553.28 -15.91 -1.01%
S&P Energy 571.16 -12.82 -2.20%
S&P Basic Materials 241.55 -5.97 -2.41%
Nasdaq 3,203.86 -63.66 -1.95%
Russell 2000 923.28 -28.26 -2.97%
Hang Seng Composite Index 2,979.73 -94.42 -3.07%
Korean KOSPI Index 1,927.23 -66.29 -3.33%
S&P/TSX Canadian Gold Index 236.19 -18.64 -7.31%
XAU 126.13 -9.63 -7.09%
Gold Futures 1,580.70 -15.00 -0.94%
Oil Futures 92.99 -4.24 -4.36%
Natural Gas Futures 4.14 +0.12 +2.98%
10-Yr Treasury Bond 1.71 -0.14 -7.35%

Monthly Performance
Index Close Monthly
DJIA 14,565.25 +269.01 +1.88%
S&P 500 1,553.28 +11.82 +0.77%
S&P Energy 571.16 -4.00 -0.70%
S&P Basic Materials 241.55 -4.87 -1.98%
Nasdaq 3,203.86 -18.51 -0.57%
Russell 2000 923.28 -6.68 -0.72%
Hang Seng Composite Index 2,979.73 -332.01 -14.83%
Korean KOSPI Index 1,927.23 -93.51 -4.63%
S&P/TSX Canadian Gold Index 236.19 -19.05 -7.46%
XAU 126.13 -8.16 -6.08%
Gold Futures 1,580.70 +3.90 +0.25%
Oil Futures 92.99 +2.56 +2.83%
Natural Gas Futures 4.14 +0.67 +19.42%
10-Yr Treasury Bond 1.71 -0.22 -11.56%

Quarterly Performance
Index Close Quarterly
DJIA 14,565.25 +1,130.04 +8.41%
S&P 500 1,553.28 +86.81 +5.92%
S&P Energy 571.16 +20.60 +3.74%
S&P Basic Materials 241.55 -2.84 -1.16%
Nasdaq 3,203.86 +102.20 +3.30%
Russell 2000 923.28 +44.13 +5.02%
Hang Seng Composite Index 2,979.73 -241.15 -7.49%
Korean KOSPI Index 1,927.23 -84.71 -4.21%
S&P/TSX Canadian Gold Index 236.19 -58.36 -19.81%
XAU 126.13 -36.40 -22.40%
Gold Futures 1,580.70 -72.10 -4.36%
Oil Futures 92.99 -0.10 -0.11%
Natural Gas Futures 4.14 +0.86 +26.07%
10-Yr Treasury Bond 1.71 -0.19 -9.79%

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 Emerging Europe 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.

The commentary references the investment theory of an investment as insurance against a separate market event that could negatively affect performance of an investment. The reference does not guarantee performance or a safeguard from loss of principal by investing in that asset.

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 12/31/12:

SouFun Holdings Ltd.: 0.0%
AT&T, Inc.: 0.0%
Best Buy Co., Inc.: All American Equity Fund, 0.50%
Samsung Electronics Co. Ltd.: China Region Fund, 1.18%
F5 Networks, Inc.: 0.0%
Advanced Micro Devices, Inc.: 0.0%
Teradata Corp.: 0.0%
Hewlitt-Packard Co.: American Equity Fund, 1.10%
The United States Steel Corp.: 0.0%
Sealed Air Corp.: 0.0%
Owens-Illinois Inc.: 0.0%
Essar Energy plc: 0.0%
Allied Nevada Gold Corp.: Gold and Precious Metals Fund, 0.96%

*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 Bloomberg Gold Bear/Bull Sentiment Indicator charts the percent of respondents in a weekly Bloomberg News survey of traders, investors, and analysts predicting gold prices will rise the following week. The number of participants in the survey, which is completed every Friday, may vary.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The S&P/TSX Global Gold Index is an international benchmark tracking the world’s leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies.
The 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.
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 ISM Nonmanufacturing index based on surveys of more than 400 non-manufacturing firms’ purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non-Manufacturing Index tracks economic data, like the ISM Non-Manufacturing Business Activity Index. A composite diffusion index is created based on the data from these surveys that monitors economic conditions of the nation.
The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global 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.