Share this page with your friends:

Print

Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

Another Positive Year Ahead for Gold, Says the World Gold Council
January 24, 2018

Another Positive Year Ahead for Gold, Says the World Gold Council

In a year when the S&P 500 hit all-time highs, gold also held strong, finishing 2017 up 13.5 percent, according to the World Gold Council. Gold’s annual gain was the largest since 2010, outperforming all major asset classes other than stocks. Contributing to this gain was a weaker U.S. dollar, stock indices hitting new highs and geopolitical instability, all of which fueled uncertainty. Investors continued to add gold to their portfolios to manage risk exposure, with gold-backed ETFs seeing $8.2 billion of inflows last year.

gold outperformed major asset classes in 2017
click to enlarge

The World Gold Council (WGC) recently released its annual outlook on the yellow metal identifying four key market trends it believes will support positive gold performance in 2018, and we agree. Below I summarize the report for you and add some of my own thoughts on gold’s trajectory.

Key Trends Influencing Gold in 2018

1. A year of synchronized global economic growth
Economies are on the rise with global growth increasing in 2017 and on track to continue the trend this year. China and India, two of the world’s largest consumers of gold, will see their economies and incomes grow due to the implementation of new economic policies. WGC research shows that as incomes rise, the demand for gold jewelry and gold-containing technology tends to rise as well. Investment and consumer demand for the yellow metal results in a lower correlation to other mainstream financial assets, such as stocks, making it an effective portfolio diversifier.

there's a positive relationship between gold demand and wealth
click to enlarge

2. Shrinking balance sheets and rising interest rates
Expectations are for the Federal Reserve to raise interest rates three times this year and shrink its balance sheet by allowing $50 billion in Treasuries and mortgage-backed securities to mature each month. Over the past decade, central banks pumped trillions into the global economy and cut interest rates, allowing asset values to break records and market volatility to reach record lows.

With these banks reining in expansionary policies in 2018 and hiking rates as global debt increases, market volatility may go up again, making gold a more attractive asset. According to WGC research, when real rates are between zero and 4 percent, gold’s returns are positive and its volatility and correlation with other mainstream financial assets are below long-run averages.

3. Frothy asset prices
As the WGC points out, not only did asset prices hit multi-year highs around the world in 2017, but the S&P is still sitting at an all-time high. This rosy environment saw investors seeking out additional risks, hoping for additional returns. A continued search for yield has “fueled rampant asset price growth elsewhere,” the report explains. This includes exposure to lower quality companies in the credit markets as well as investments in China.

Although the bull market could very well continue throughout 2018, some analysts and investors alike are understandably cautious about just how much risk exposure to continue taking on. That’s where gold comes in. As you can see in the chart below, the price of the yellow metal tends to increase during periods of systemic risk. Should global financial markets correct, investors could benefit from having an exposure to gold in their portfolio. Historically, gold has reduced losses during periods of distress or instability in the markets.

the gold price tends to increase in periods of systematic risk
click to enlarge

4. Greater market transparency, efficiency, and access
Financial markets have become more transparent and efficient over the past decade, with new products broadening access for all kinds of investors. Last year the London Bullion Market Association launched a trade-data reporting initiative and the London Metal Exchange launched a suite of exchange-traded contracts intending to improve price transparency, according to the WGC.

In fact, momentum is building in India to develop a national spot exchange to make the market less complicated and fragmented. In addition, more progress in gold investing might be seen in Russia this year with the current 18 percent VAT on gold bars possibly being lifted. More easily accessible gold-backed investment vehicles should lead to more gold investors and transactions worldwide.

Now Could Be a Good Time to Add Gold to Your Portfolio

World Gold Council’s Chief Market Strategist, John Reade, said in his 2018 outlook for gold that, “Over the long run, income growth has been the most important driver of gold demand. And we believe the outlook here is encouraging.”

We couldn’t agree more. Gold has historically helped to improve portfolio risk-adjusted returns. It is a mainstream asset as liquid as other financial securities and its correlation to major asset classes has been low in both expansionary and recessionary periods, as the WGC points out.

I’ve always advocated a 10 percent weighting in gold in a portfolio - with 5 percent in bullion or jewelry and 5 percent in gold stocks or well managed gold mutual funds and ETFs. If you’re interested to learn more about gold, I encourage you to sign up for my blog, Frank Talk. Happy Investing!

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The Standard & Poor's 500 Index, often abbreviated as the S&P 500, or just the S&P, is an American stock market index based on the market capitalizations of 500large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.

The Bloomberg Dollar Spot Index (BBDXY) tracks the performance of a basket of 10 leading global currencies versus the U.S. Dollar.

The Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Indexes. The index was originally launched in 1998 as the Dow Jones-AIG Commodity Index (DJ-AIGCI) and renamed to Dow Jones-UBS Commodity Index (DJ-UBSCI) in 2009, when UBS acquired the index from AIG.

The Bloomberg Barclays US Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury.

The Bloomberg WTI Crude Oil Subindex is a single commodity subindex of the Bloomberg CI composed of futures contracts on crude oil. It reflects the return of underlying commodity futures price movements only and is quoted in USD.

The MSCI EAFE (Europe, Australia and Far East) Index measures the performance of the leading stocks in 21 developed countries outside North America.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

Share “Another Positive Year Ahead for Gold, Says the World Gold Council”

Move Over, Tesla! China Holds the Keys to Electric Vehicles
November 28, 2017

Woman holding electric car keys

Earlier this month, I shared with you a quote from Arnoud Balhuizen, chief commercial officer of BHP Billiton, the largest mining company in the world. In a September interview with Reuters, Balhuizen called 2017 the “revolution year [for electric vehicles], and copper is the metal of the future.”

Balhuizen’s assessment couldn’t be more accurate, and the implications for investors is too compelling to ignore.

In the third quarter, global sales of electric vehicles (EVs) soared 63 percent compared to the same period last year, 23 percent compared to the second quarter. A total of 287,000 units were reportedly sold in the September quarter, leading Bloomberg New Energy Finance to project total annual sales to exceed 1 million units for the first time.

As the world’s largest auto market, China was responsible for about half of the sales as the crackdown on polluting industries has propelled renewable alternatives from power generation to consumer products.

60 Million Electric Cars by 2040?

This is only the beginning. The chart below, highlighted by Katusa Research and originally provided by Bloomberg New Energy Finance, takes a look at annual global EV sales forecasts through the year 2040. As you can see, China, the U.S. and Germany will push the adoption of EVs forward, with the rest of the world following closely behind. Many analysts believe that by 2040, the global EV market could exceed 60 million vehicles sold per year.

Projected annual global electric vehicle sales
click to enlarge

Chinese automakers are moving fast to meet the demand. Volvo Cars, owned outright by Hangzhou, China-based Geely Auto, has already stated it will cease production of fossil fuel-powered vehicles by 2020. On top of that, the company is currently building electric versions of London’s iconic taxis, and Uber is rumored to buy as many as 24,000 electric Volvos.

In October, Great Wall Motors announced its plans to form a joint venture with Germany’s BMW to begin production on a new fleet of EVs. Toward that end, the manufacturer bought a 3.5 percent stake in an Australian lithium-mining company to support long-term development of battery resources and control pricing power.

And although it’s not as big a powerhouse as its peers, relative newcomer Guangzhou Automobile Group also has high ambitions to introduce EVs in as many as 14 global markets including North America, Africa, South and Eastern Europe and South East Asia. It recently signed an agreement with tech behemoth Tencent to cooperate on artificial intelligence (AI)-driving and “smart” vehicles.

Electrified shares of chinese automakers headed higher
click to enlarge

Looking ahead to 2040, China is forecast to capture more than 40 percent of the world EV market, according to a recent report from the International Energy Agency (IEA), as well as nearly 30 percent of total new wind, solar and nuclear capacity additions. 

China leads the push for new energy technologies
click to enlarge

As for the European market, Germany is expected to outpace its neighbors in adopting EVs as Volkswagen, the world’s number one automaker by sales, seeks to become a global leader in electric and self-driving cars. The Wolfsburg-based company announced plans to invest as much as $40 billion over the next five years to expand its selection of EVs.

China’s Campaign Against Pollution to Could Drive Global Energy Trends

China’s interest in EVs is only part of a much broader effort to improve its deteriorating air quality. Faced with worsening smog in large East Coast cities, the Asian giant has ordered thousands of factories and manufacturers, especially those that burn coal, to shut down in accordance with the government’s four-year climate action plan. The capacity cuts are contributing to higher metals prices, with the S&P GSCI Industrial Metals Index having gained more than 24 percent year-to-date.  

Take a look at the following chart courtesy of the IEA. Whereas President Donald Trump is seeking to revitalize coal mining in the U.S., coal demand in China, the world’s largest energy consumer, is expected to decline nearly 500 million tonnes of coal equivalent (mtce) between 2016 and 2040. This comes after demand stood at more than 2 billion tonnes between 1990 and 2016. Instead, the country is actively pivoting into cleaner-burning natural gas and renewables such as wind, solar and hydro.

China's switch to a cleaner energy mix will drive global trends
click to enlarge

According to the Wall Street Journal, coal power production in China was negative for the second straight month in October, bringing 2017 growth to negative 3 percent. Hydropower output, on the other hand, grew 17 percent.

Lots of Room for Potential Growth

Returning to EVs, adoption isn’t currently widespread across the globe, with only 14 large metropolitan areas accounting for roughly a third of all sales, according to a recent report by the International Council on Clean Transportation (ICCT). The group highlights 20 “electric vehicle capitals” of the world, where EV sales beat the global norm in the past two years. China claimed seven of these cities, Europe a further seven. Only four U.S. cities made the list: New York City, Los Angeles, San Francisco and San Jose.

Local laws and ordinances have inevitably played a huge role in speeding up the transition from gas-powered to electric cars. In Shenzhen, for instance, all public buses must be emission-free by the end of the year, making it the first city in the world to have an all-electric fleet. Beijing will be replacing all 69,000 of its taxis with EVs. And Qingdao, about midway between Shenzhen and Beijing, is offering consumers subsidies of between $5,000 and $9,000 per electric vehicle.

Like blockchain technology and cryptocurrencies, electric vehicles are still in the early innings, with great potential growth still ahead.

Metals Gaining Leadership in Commodities Space

As I’ve pointed out a number of times before, this is all very constructive for copper, cobalt, lithium and other metals that are used predominantly in the production of EVs. On average, an electric vehicle requires three to four times as much copper as a car with a traditional internal combustion engine.

The red metal is one of the best performing materials for the 12-month period, currently up more than 17 percent on increased demand and a weakening U.S. dollar. Over the same period, cobalt has returned an incredible 112 percent.

A weakening US dollar is constructive for commodities
click to enlarge

In a Bloomberg Intelligence report this week, commodity strategist Mike McGlone says that “positive second-half commodity-market momentum is set to accelerate in 2018,” adding that “metals are poised to sustain leadership, particularly as the dollar has peaked.”

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The U.S. Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S.trade partners' currencies.

The S&P GSCI Industrial Metals Index provides investors with a reliable and publicly available benchmark for investment performance in the industrial metals market.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 9/30/2017: BHP Billiton Ltd., Geely Automotive Holdings Ltd., Guangzhou Automobile Group Co., Great Wall Motor Co. Ltd., Tencent Holdings Ltd.

Share “Move Over, Tesla! China Holds the Keys to Electric Vehicles”

5 Agents of Change Investors Need to Know About Now
November 6, 2017

the world is running out of gold mines, here's how investors can play it

The world is changing fast right now in ways that many investors might not easily recognize or want to admit. This could end up being a costly mistake. If you’re not paying attention, you could be letting opportunities pass you by without even realizing it.

With that in mind, I’ve put together a list of five agents of change that I think investors need to be aware of and possibly factor into their decision-making process. 

1. Xi Jinping

October cover of The Economist

At China’s 19th National Party Congress two weeks ago, Xi Jinping’s political thought was enshrined into the country’s constitution, an honor that, before now, had been reserved only for Mao Zedong, founder of the People’s Republic of China, and Deng Xiaoping. It was Deng, if you recall, who in 1980 established special economic zones (SEZs) that helped turn China into the economic powerhouse it is today.

But back to Xi. His elevation to Chairman Mao-status not only cements his place in the annals of Chinese history but also makes him peerless among other world leaders in terms of political and militaristic might, with the obvious exception of U.S. President Donald J. Trump.

But whereas Trump has been criticized by some for setting the U.S. on a more isolationist path—shrinking the size of the State Department, just to name one example—Xi sees China emerging as the de facto global leader by 2050. To get there, his country is spending billions on the “Belt and Road Initiative” and other massive infrastructure projects, opening its doors to foreign investors, reforming state-run enterprises, weeding out corruption, investing heavily in clean energy and public transportation and expanding its middle class. And let’s not forget that the Chinese yuan, also known as the renminbi, was included in the International Monetary Fund’s (IMF) basket of reserve currencies in 2015, placing it in the same league as the U.S. dollar, British pound, Japanese yen and euro.

During his three-hour speech before the congress, Xi made reference to the “Chinese dream,” adding that the “Chinese people will enjoy greater happiness and well-being, and the Chinese nation will stand taller and firmer in the world.”

Xi has his own detractors, of course, who see China’s rise as a threat to established world order. But if his vision is to be realized, it might be prudent to recognize and prepare for it now. China’s economy grew a healthy 6.8 percent in the third quarter year-over-year, helping it get closer to meeting economists’ target of 6.5 percent for 2017. And although manufacturing expansion slowed in October, falling from 52.4 in September to 51.6, it was still well above the 50 threshold.  

China manufacturing power expanded at slightly lower pace in October
click to enlarge

Citing these indicators as well as strong medium and long-term bank lending to nonfinancial corporations, research firm BCA recommended that investors overweight Chinese stocks relative to the emerging market aggregate.

2. Poland

Besides China, another region I’m keeping my eye on is Poland. Already one of the fastest growing economies in Europe, the country was just upgraded from the “advanced emerging” category to “developed” by FTSE Russell, effective September 2018. This will place Poland in the same company as, among others, the U.S., U.K., Japan, Germany, Singapore and South Korea, the last country to have joined the club of top-ranking economies. Poland is the first Central and Eastern European (CEE) country to receive “developed” status.

Among the decisive factors behind the upgrade were the country’s advanced infrastructure, secure trading and a high gross national income (GNI) per capita. The World Bank expects Poland’s economic growth in 2017 to reach 4 percent, up significantly from 2.7 percent in 2016, on the back of a strong labor market, improved consumption and the child benefit program Family 500+.

Poland one of the fastest growing economies in th eEuro area
click to enlarge

Economists aren’t the only ones noticing the improvement. Young Polish expats who had formerly sought work in the U.K. and elsewhere are now returning home in large numbers to participate in the booming economy, according to the Financial Times. Banks and other companies, including JPMorgan Chase and Goldman Sachs, are similarly considering opening branches in Poland and hiring local talent.

This represents quite an about-face for a country that, as recently as 1990, was languishing under communist rule.

One of U.S. Global’s analysts, Joanna Sawicka, has seen the dramatic transformation firsthand. A native of Bialystok, Poland, Joanna has vivid memories of waiting in line for hours just to buy food and school supplies. After returning to the U.S. from a visit to her hometown in 2015, though, she was singing its praises:

“I saw big changes. There’s now a small business on every street corner. A lot of my old friends own businesses now. Poland is the largest beneficiary of European Union funds, and people are clearly taking advantage of having more money and better opportunities.”

3. Bitcoin

One of the most influential agents of change right now is bitcoin, and indeed the entire digital currency market. Cryptocurrencies are challenging underlying notions of the global monetary framework, upending the way many companies raise funds and disrupting the investment world.

All this from an asset class nobody even knew about 10 years ago.

For the first time last week, bitcoin traded above $7,000 a coin, bringing its 2017 gains to around 650 percent. Some are calling this a bubble, but I recently shared with you a chart that shows that, when placed on a logarithmic scale, bitcoin doesn’t appear to have found its peak yet.

Bitcoin broke above 7000
click to enlarge

 

Bitcoin can no longer be called a curiosity or niche investment. Large brokerage firms and financial institutions, including Fidelity and USAA, now allow clients to use their websites to check their holdings of bitcoin and other digital currencies alongside their more traditional assets. And just last week, the Chicago Mercantile Exchange (CME) announced it will be offering a bitcoin futures contract by the end of the year, giving investors an easier way to trade cryptos.

Following the announcement, Coinbase, a leading digital currency broker, saw a record number of people opening new accounts on its platform. Within a single 24-hour period, as many as 100,000 new users opened accounts, helping to double the number of Coinbase clients since the beginning of the year.

This explosion in interest hasn’t come without consequences in other markets, however. The U.S. Mint reported that this year’s sales of American Eagles, the popular gold coins, have fallen to their lowest level since 2007, presumably as investors who otherwise would have bought bullion have instead put money in bitcoin as a store of value.

4. U.S. Tax Reform

It’s been at least a generation at least since the U.S. has had meaningful tax reform. That might be about to change, though, as Congress and the president last week unveiled their plans to overhaul the tax code and deliver the “biggest tax cut in U.S. history,” according to Trump.

If passed and signed, the plan would consolidate the number of income brackets, currently at seven, down to only four, while also eliminating a number of tax credits and exemptions, including the alternative minimum tax (AMT). The fourth bracket, with a rate of 39.6 percent for the nation’s top earners, was added at the last minute to address concerns the new code would blow up the deficit. Many savers are no doubt relieved to learn that 401(k)s will be left alone, ending rumors that annual contribution caps would be lowered.

As for corporate taxes, the plan is to slash them from 35 percent—the highest among any country in the Organization for Economic Cooperation and Development (OECD)—to a much more competitive 20 percent. This change would be both immediate and permanent.

Right now, as much as $2.5 trillion or more in cash is estimated to be held overseas by multinational corporations to avoid having to pay the steep rate. Lowering it would allow these firms to bring profits home and reinvest them in workers, new equipment and more. It would also encourage American companies to relocate operations back to the U.S., as we saw last week with semiconductor manufacturer Broadcom.

After failing to repeal and replace Obamacare, both Congress and the president need this win if they expect voters to give them another term.

5. Jerome Powell

For the final agent of change, I’m picking someone whom some readers might not agree reflects real change. Jerome “Jay” Powell, the person Trump has tapped to replace Federal Reserve Chair Janet Yellen—assuming he gets Senate confirmation—is being described as someone who’ll mostly hold to the status quo established by his two immediate predecessors, Yellen and Ben Bernanke. Powell appears to be dovish and supportive of the cautious interest rate hikes we’ve seen during Yellen’s tenure, which will come to an end in February 2018. 

Federal reserve chair Janet Yellens tenure
click to enlarge

There’s one huge difference, however—one that likely convinced Trump a change was needed, despite his previous acclaim for Yellen’s handling of the job. Whereas Yellen has expressed support for the raft of financial regulations that were introduced in the wake of the financial crisis, Powell generally seems to be in favor of deregulation, in line with Trump’s own agenda. On numerous occasions I’ve written that our industry needs more streamlined rules and laws, so I see this as very constructive. Although Powell, as head of the Fed, won’t have any policymaking authority to alter or reverse such rules, at least he’ll serve as an ideological ally of Trump’s.

On top of all this, Powell’s appointment will set new precedent. He’ll be the first Fed chair in decades not to hold an advanced degree in economics—he’s a former investment banker with the Carlyle Group—and he’ll also be the first in nearly as many years to replace someone before the end of their full 14 years.

In any case, I speak for everyone at U.S. Global by wishing Powell the best, once confirmed, and hope his policies can help the U.S. economy continue moving in the right direction.

Like what you read? Sign up for my award-winning CEO blog Frank Talk and never miss a post!

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

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.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 9/30/2017.

Share “5 Agents of Change Investors Need to Know About Now”

Car Manufacturers Are Electrifying Copper, "The Metal of the Future"
October 16, 2017

Copper is being called the metal of the future

As many of you know, copper is often seen as an indicator of economic health, historically falling when overall manufacturing and construction is in contraction mode, rising in times of expansion.

That appears to be the case today. Currently trading above $3 a pound, “Doctor Copper” is up close to 28 percent year-to-date and far outperforming its five-year average from 2012 to 2016.

 

Copper is far outperforming the five year average
click to enlarge

Several factors are driving the price of the red metal right now. Manufacturing activity, as measured by the purchasing manager’s index (PMI), is expanding at a pace we haven’t seen in years in the U.S., eurozone and China. The U.S. expanded for the 100th straight month in September, climbing to a 13-year high of 60.8.

Speculators are also buying in response to word of copper shortages in China, despite September imports of the metal rising to its highest level since March. The world’s second-largest economy took in 1.47 million metric tons of copper ore and concentrates last month, an amount that’s 6 percent higher than the same month in 2016.

Why Copper Is the “Metal of the Future”

Why are we seeing so much copper entering China? One reason could be battery electric vehicles (BEVs), which require three to four times as much copper as traditional fossil fuel-powered vehicles.

China is already the world’s largest and most profitable market for BEVs, and Beijing is now reportedly working on plans to curb and eventually ban the sale of fossil fuel-powered vehicles, according to the Financial Times. This would place the Asian giant in league with a number of other powerful countries similarly crafting bans on internal combustion engines within the next 25 years, including Germany, France, Norway, the United Kingdom and India.

Because of the sheer size of the Chinese market, this move is sure to delight copper bulls and investors in any metal that’s set to benefit from higher BEV production. That includes cobalt, lithium and nickel.

According to Bloomberg New Energy Finance, BEVs will account for 54 percent of all new car sales by 2040. That year, China, Europe and the U.S. are expected to make up 60 percent of the global BEV fleet.

This could have a huge effect on copper prices over the next 10 years and more. With fewer and fewer large deposits being discovered, demand should accelerate from 185,000 metric tons today to an estimated 1.74 million tonnes in 2027, according to the International Copper Association.

Electric vehicles expected to drive copper demand
click to enlarge

These are among the reasons why Arnoud Balhuizen, chief commercial officer of Australian mining giant BHP Billiton, called copper “the metal of the future” in an interview with Reuters last month.

“2017 is the revolution year [for electric vehicles], and copper is the metal of the future,” Balhuizen said, adding that the market is grossly underestimating the red metal’s potential as BEV adoption surges around the world.

Cobalt Gets Its Day in the Sun

And let’s not forget cobalt. The brittle, silver-gray metal, used to extend the life expectancy of rechargeable batteries, is up more than 81 percent so far in 2017 and 109 percent for the 12-month period. Performance is being driven not only by growing BEV demand but also supply disruptions in the Republic of the Congo, where more than 60 percent of the world’s cobalt is mined.

“It’s a really bright future for cobalt,” Vivienne Lloyd, analyst at Macquarie Research, told the Financial Times. “There doesn’t seem to be enough of it.”

Before now, there was very little mainstream interest in cobalt as an investment, but that’s changing as rapidly as world governments are joining the chorus to move away from fossil fuels. One sign of that change is the London Metal Exchange’s (LME) upcoming cobalt contracts, one for the physical metal and another for the chemical compound cobalt sulphate. This will allow investors to trade the underlying metal and participate in the electric vehicle “revolution,” as Balhuizen calls it.

In the meantime, investors can participate by investing in a producer with exposure to cobalt—among our favorites are Glencore, Freeport-McMoRan and Norilsk Nickel—or a natural resources fund.

Gold Closes Above $1,300 an Ounce

Gold also looks constructive as we head into the fourth quarter and beyond, according to a number of new reports and analysis last week.

UBS strategist Joni Teves finds it “encouraging” that gold has managed to recover this year off its 2016 lows. Although a likely December rate hike could be a headwind, Teves points out that the metal performed well in the months that followed the previous three rate hikes. What’s more, gold has rallied in each January since 2014. We could see a similar bump in price this coming January.

Not only is gold trading above its 50-day moving average again, but for all of 2017, it’s been following a nice upward trend as the U.S. dollar dips further.

Gold following a nice upward trend as US dollar weakens further
click to enlarge

A weaker greenback, of course, is bullish for all commodities, including copper. According to Bloomberg strategist Mike McGlone, unless the dollar unexpectedly recovers in the near term, commodities, as measured by the Bloomberg Commodities Index, could gain as much as 20 percent between now and year’s end.

Meanwhile, BCA writes that major risks in 2018—inflationary expectations stemming from President Donald Trump’s protectionism, tensions between the U.S. and China, and continued strife in the Middle East among them—could keep the shine on gold.

The research firm reminds investors that gold has historically done well in times of economic and geopolitical crisis, outperforming the S&P 500 Index, U.S. dollar and 10-year Treasury by wide margins. Because the metal is negatively correlated to other assets, it could potentially serve as a good store of value if equities entered a bear market.

Such a bear market, triggered by tighter U.S. monetary policy, could take place as early as 2019, BCA analysts estimate. Gold would then stand out as a favorable asset to hold, especially if inflationary pressures pushed real Treasury yields into negative territory.

A Fear Trade Lesson from Germany

This is the lesson Germany has learned over the past 10 years, as I shared with you last week. Before 2008, Germans’ investment in physical gold barely registered on anyone’s radar, with average annual demand at 17 metrics tons. The country’s first gold-backed exchange-trade commodities (ETCs) didn’t even appear on the market until 2007.

But then the financial crisis struck, followed by monetary easing and low to negative interest rates. These events ultimately pushed many Germans into seeking a more reliable store of value.

Now, a new report from the World Gold Council (WGC) shows that German investors became the world’s top gold buyers in 2016, ploughing as much as $8 billion into gold coins, bars and ETCs. Amazingly, they outspent Indian, Chinese and U.S. investors.

Gold investment in Germany hit a new high in 2016
click to enlarge

Analysts with the WGC believe there is room for further growth, citing a recent survey that shows latent demand in Germany holding strong. Impressively, 59 percent of German investors agreed that “gold will never lose its value in the long-term.” That’s a huge number, suggesting the investment case for gold remains attractive.

Learn more about investing in gold mining by watching my interview on the floor of the New York Stock Exchange!

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The Bloomberg Commodity Index is made up of 22 exchange-traded futures on physical commodities. The index represents 20 commodities, which are weighted to account for economic significance and market liquidity.

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 U.S. Dollar Index measures the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 6/30/2017: BHP Billiton Ltd., Glencore PLC, Freeport McMoRan Inc., MMC Norilsk Nickel PJSC.

Share “Car Manufacturers Are Electrifying Copper, "The Metal of the Future"”

Manufacturers Just Had a Gangbuster Month
October 5, 2017

U.S. Manufacturing activity expanded at fastest pace since 2004 in september

American manufacturers grew at their fastest pace since May 2004 in September, according to the Institute for Supply Management (ISM). Manufacturing activity, as measured by the ISM Purchasing Managers’ Index (PMI), expanded for the 100th straight month, climbing to a 13-year high of 60.8. The higher above 50, the more rapid the acceleration.

U.S. Manufacturing Activity Expanded for 100th straight month in september
click to enlarge

Not only is this reflective of a strengthening U.S. economy, but it also supports demand for commodities going forward. With construction spending also up in the U.S., I think the time could be ripe for investors to consider increasing their allocation to energy, natural resources and basic materials.

According to the ISM report, growth was fastest in prices, which rose 9.5 percentage points from the August level. Factories reported having to pay higher prices for materials including textiles, plastics, wood products, chemical products and more. Other areas that saw rapid expansion were supplier deliveries, up 7.3 percentage points in September, and new orders, up 4.3 percentage points.

Hurricanes Harvey and Irma disrupted supply chains in August and September, prompting companies to stockpile goods as a precautionary measure. This likely lifted the already-impressive ISM reading somewhat, but it doesn’t change the strong fundamentals that underlie the U.S. economy in general right now.

Optimism Among Manufacturers Historically High

Manufacturers’ optimism remained historically high during the September quarter, with nearly 90 percent of those surveyed by the National Association of Manufacturers (NAM) saying they expected to see strong industry growth over the next 12 months. That reading’s up more than 28 percentage points compared to the same quarter last year.

U.S. Manufacturers' Business Optimism Remained Historically High in Third Quarter
click to enlarge

In the March quarter following the U.S. election, the survey rose to the highest level in its 20-year history as manufacturers expressed optimism in President Donald Trump’s plans to lower corporate taxes and streamline industry regulations. Although the reading has cooled since then, optimism still remained at historically high levels during the quarter.

Other Regions Showed Marked Improvement

The U.S. wasn’t the only region that made strong gains. Manufacturing activity in the world’s two other major economies, China and the eurozone, surged in September. China’s official manufacturing PMI rose to a five-year high of 52.4, representing the 14th straight month of expansion and beating analysts’ expectations.

Chinese manufacturing profits are among the highest in years, spurred by government spending on infrastructure, higher prices and stronger exports.
The eurozone PMI, meanwhile, climbed to a 79-month high of 58.1 in September, with output and new orders expanding in all eight of the ranked countries. Backlogs of work reached its steepest acceleration in over 11 years.  Even Greece, which has struggled to come out from under mountains of debt, registered a 52.8, a 111-month high.

All of this could be a tailwind for companies engaged in the production of natural resources and basic materials. Such companies make up a little over 60 percent of our Global Resources Fund (PSPFX). We believe energy companies also stand to benefit from increased manufacturing activity, make up close to 20 percent of the portfolio.

I urge you to visit our fund page and see if the Global Resources Fund is right for you.

 

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. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk.

The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production, inventories, new orders and supplier deliveries.

The NAM Manufacturers’ Outlook Survey is conducted quarterly among the National Association of Manufacturers’ membership of small, medium and large manufacturers.

The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

Share “Manufacturers Just Had a Gangbuster Month”

Net Asset Value
as of 02/19/2019

Global Resources Fund PSPFX $4.63 0.04 Gold and Precious Metals Fund USERX $7.81 0.30 World Precious Minerals Fund UNWPX $3.01 0.07 China Region Fund USCOX $8.15 0.04 Emerging Europe Fund EUROX $6.49 0.01 All American Equity Fund GBTFX $24.05 0.02 Holmes Macro Trends Fund MEGAX $16.83 0.03 Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change