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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.

New Study: We're Nowhere Near Peak Coal Use in China and India
September 15, 2015

Resource investors, take note: By 2025, just 10 years from now, energy consumption in Asia will increase a whopping 31 percent. A whole two-thirds of that demand, driven largely by China and India, will be for fossil fuels, most notably coal.

That’s according to a new research piece by financial services group Macquarie, which writes that the estimated rise in fossil fuel demand is equivalent of “three times Saudi Arabia’s current (all-time-high) oil production.”

Change-in-Primary-Energy-Consumption-Between-2014-and-2025
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Macquarie’s research is in line with BP’s “Energy Outlook 2035,” released earlier this year, which predicts that more than half of the world’s energy consumption will come from China and India by the year 2035.

Chinese Indian Demand Fossil Fuels Coal Grow Next

Many readers might approach this news with a healthy dose of skepticism. Haven’t we been told that fossil fuels are falling out of favor? Aren’t governments placing caps on coal use to appease environmentalists and climate change crusaders?

It’s true that coal demand in China has declined a huge 6 percent so far in 2015, the result of anti-air pollution laws that temporarily restricted not just coal use but also factory operations and the amount of driving you can do. Last month I shared a striking photo of a man cycling through Beijing, a brilliant blue sky overhead—something I’ve personally never seen in my 25 years of visiting the city. As most people know, Beijing is notorious for its noxious yellow haze, and the government has been pressured lately to act. In Shanghai, authorities plan to close and relocate 150 factories in preparation for the proposed Shanghai Disneyland, the thinking being that the “Happiest Place on Earth” must have clear blue skies. 

I think we all agree that clean air is preferable to smog, but there needs to be a balanced approach to environmental policy that’s also business-friendly.

“Coal producers within China are definitely facing a consistent push by the government for clean energy,” says Xian Liang, portfolio manager of our China Region Fund (USCOX).

To get a better sense of the biblical quantity of raw materials China currently consumes, check out this infographic courtesy of Visual Capitalist.

Can India Pick Up China’s Slack?

Today, China and India collectively consume about 60 percent of all coal produced in the world. In absolute terms, consumption is expected to continue expanding as their populations balloon and the energy-thirsty middle class expands. In other words, as the energy pie gets much bigger, each slice should likewise grow.

By 2025, Macquarie writes, coal will still play a dominant role in China’s energy mix.

Coal-to-Remain-the-Dominant-Energy-Source-in-China-by-2025
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It’s possible that if China’s coal consumption dramatically declines, India will be there to fill the hole. Macquarie estimates that by 2025, India’s energy demand will rise 71 percent, with coal taking the lead among oil, gas, hydro, nuclear and others. The south Asian country is already the second-largest importer of thermal coal, and it might very well surpass China in the coming years. Macquarie writes:

Although all energy use will rise [in India], coal is the major theme as consumption and local production are both set to almost double by 2025 on the back of large-scale coal power plant construction plans.

The group adds that, unlike China, India has no present interest in reigning in its use of coal. Most emerging markets, India included, recognize that coal is an extremely affordable and reliable source of energy, necessary to drive economic growth.

Even if these predictions don’t come to fruition, the consensus is that we haven’t yet seen peak coal use in Asia. Estimates vary depending on the agency, but everyone seems to agree that demand in the medium-term will rise before it retreats. A 2014 MIT study even suggests that Chinese coal consumption could rise more than 70 percent between 2012 and 2040.

Consensus-We-Havent-Seen-Peak-Coal-Use-in-China
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Follow the Smart Money

With prices at multi-year lows and coal producers under pressure, some big name investors have used this as an opportunity to accumulate shares in depressed stocks. Recently I shared with you that influential billionaire investor George Soros just took a $2-million position in coal producers Peabody Energy and Arch Coal.

Maybe he’s on to something, if Macquarie’s research turns out to be accurate.

No one can deny that fossil fuels, and coal in particular, face many headwinds right now, including government policies intended to limit their use. The strong U.S. dollar has created havoc for commodities such as oil and coal, just as it has for American companies with business activities in foreign countries. And with many central banks around the globe continuing to devalue their currencies against the dollar, a strong greenback might be the “new normal” for a while.    

Also like oil, coal is facing oversupply issues, as producers had not anticipated a slowdown in emerging markets.

But there and elsewhere, coal will continue to play a vital role in providing affordable, reliable energy for decades to come.

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.

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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 6/30/2015: Peabody Energy Corporation 0.00%, Arch Coal 0.00%.

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Here's Your Guide to What the Influencers Are Saying about Commodities
September 8, 2015

A few legendary influencers in investing are making huge bets right now on commodities, an area that’s faced—and continues to face—some pretty strong headwinds. What are we to make of this?

I already shared with you that famed hedge fund manager Stanley Druckenmiller made a $323-million bet on gold, now the largest position in his family office fund. It’s also come to light that George Soros recently moved $2 million into coal producers Peabody Energy and Arch Coal. Meanwhile, activist investor Carl Icahn took an 8.5-percent position in copper miner Freeport-McMoRan, which we own.

These giants of the investing world have just given huge endorsements for gold, coal, copper, and precious metals

My friend Marc Faber, the widely-respected Swiss investor and editor of the influential “Gloom, Boom & Doom Report,” is now plugging for the mining sector and precious metals. Speaking to Bloomberg TV last week, Faber claimed that investors are running low on safe assets and suggested they revisit mining companies:

If I had to turn anywhere where… the opportunity for large capital gains exists, and the downside is, in my opinion, limited, it would be the mining sectors, specifically precious metals and mining companies… like Freeport, Newmont, Barrick. They’ve been hammered because of falling commodity prices. Now commodities may still go down for a while, but I don’t think they’ll stay down forever.

Late last month, Freeport became the first major miner to announce production cuts in response to depressed copper prices, which have slipped around 19 percent since their 2015 high of $2.95 per pound in May. This reduction should remove an estimated 70,000 tonnes of copper from global markets, according to BCA Research, and eventually help support prices.

Platinum and palladium miners in South Africa, a leading producer of both metals, also announced job cuts and mine closures, as platinum has slipped more than 16 percent this year, palladium a quarter.

But Marc sees opportunity, as I do. In my keynote speeches earlier this year I suggested that 2015 would see a bottom in cost-cutting due to divesture and slashing of capital expenditures, and that in 2016 we should see higher returns on capital.

Furthermore, using our oscillators to measure the degree to which asset classes are overbought and oversold, we find that commodities are extremely oversold right now and currently bouncing off low negative sentiment. The smart money is buying.

When asked if he thought commodities had reached a bottom, Marc had this to say:

I would rather focus on precious metals—gold, silver, platinum—because they do not depend on industrial demand as much as base metals and industrial commodities.

Marc was referring, of course, to China, the 800-pound commodity gorilla, as I’ve often described the country. The Asian powerhouse is currently responsible for nearly 13 percent of the world’s commodity demand, followed by the U.S. at a little over 10 percent.

China's demand for commodities is huge
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But as I discussed recently, China is transitioning from a manufacturing-based economy to one that emphasizes services, consumption and real estate. Commodity demand is cooling, therefore, and we can expect it to cool even further. Aside from the strong dollar, this is one of the key reasons why prices have plunged to multi-year lows.

Commodities Seeking an Upturn to Global Manufacturing

The JPMorgan Global Manufacturing PMI continues to decline as well. Since its peak in February 2014, the reading has fallen 4.5 percent. The August score of 50.7, just barely indicating manufacturing expansion, is the sixth consecutive monthly reading to remain below the three-month moving average.

I’ve shown a number of times in the past that when this is the case—that is, when the one-month reading is below the three-month trend—commodity prices have tended to trade lower. Unlike other economic indicators such as gross domestic product (GDP), the PMI is forward-looking and helps investors manage expectations. Based on our own research, there’s a strong probability that copper and crude oil prices might dip three months following a “cross below.”

The opposite has also been true: Prices have a stronger probability of ticking up three months after the one-month crosses above the three-month.

Commodities and commodity stocks historically rose three months after pmi "cross-above"
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This is why we believe prices will have a better chance at recovery after the global PMI crosses above its three-month moving average.

I have great respect and admiration for Druckenmiller, Soros, Icahn and Marc—all of whom are clearly bullish on commodities—but we would prefer to see global manufacturing growth reverse course.

In the meantime, low commodity prices are a windfall for many companies in Europe, Japan and the U.S. Metals and other raw materials are at their lowest in years, which is the equivalent of a massive tax break for the construction and manufacturing sectors.

Low gold prices are also expected to generate high demand in India as we approach fall festivals such as Diwali and Dussehra, not to mention weddings. According to estimates from Swiss precious metals refiner Valcambi, demand could reach 950 tonnes by the end of the year, compared to 891 tonnes in 2014.

Emerging Markets Might Have Found a Bottom

It might be challenging for the global PMI to cross above the three-year moving average since Chinese manufacturing has slowed, but there’s burgeoning strength in other emerging markets, many of them unexpected: the Philippines, Myanmar, Ethiopia. The Czech Republic has the highest PMI reading among emerging Europe countries and the fastest-growing economy in all of Europe.

An interesting chart from Morgan Stanley suggests that emerging markets might have found a trough and are ready to turn up. Assuming that August 24, 2015 was the bottom, the bank compares the recent bear market to five previous ones and finds that it’s tracking a similar price action as 1995, 2002 and 2011. It’s also much less severe than 1998 and 2008.

A contrarian thesis: have emerging markets found a bottom?
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Additionally, Bloomberg reminds us that by 2050, 3 billion people will enter the middle class, nearly all of them in the developing world. Emerging markets might be struggling somewhat right now, but they’re still very much our future.

U.S. Travelers to Spend Big This Labor Day Weekend, but Airline Stocks Are Reasonably Priced

This Labor Day weekend, Americans were projected to spend a whopping $13.5 billion, according to the U.S. Travel Association (USTA). This figure included spending on goods and services as people traveled by automobile, jet or some other means to visit friends and family. Air travelers alone spent $2.9 billion, if expectations were accurate.

Luxury in the air: delta is now offering private jet upgrades to select passengers

The International Air Transport Association (IATA) released air travel demand figures for the month of July, noting that demand continues to be robust both domestically and internationally. All global markets saw growth in July, with domestic flight demand rising 5.9 percent year-over-year. At an eye-popping 28.1 percent, India posted the strongest growth.

As GARP (growth at a reasonable price) investors, we still find airline stocks attractively priced, as do many others. Barron’s recently made note of this, stating: “Major airline stocks are trading 9.4x our 2015 EPS (earnings per share) estimates and 9.0x our 2016 EPS estimates, below their historical trading range of 10x – 12x.”

We own a number of these carriers in our funds: Delta Air Lines (which announced a $5-billion stock buyback program in May), Alaska Air, and JetBlue in the Holmes Macro Trends Fund (MEGAX); Ryanair (which just hit a new 52-week high) and Aegean Greece in the Emerging Europe Fund (EUROX). We also own several names in the aircraft manufacturing and airport services areas, including Pegasus Hava Tasimaciligi, Wizz Air Holdings and TAV Havalimanlari.

The Iran Nuclear Deal Could Be a Boon to Boeing and Airbus

On a final note, if you’ve been paying attention to the news, you’re probably familiar with the pending nuclear deal with Iran. When implemented, trade barriers will be lifted for the first time in decades. Whether you approve or disapprove of the deal, you have to recognize that this could be a huge opportunity for many companies that, up until now, have been cut off from doing business with the Middle Eastern country.

One area that’s in dire need of an overhaul is Iran's aging jet fleet. The average age of the United Arab Emirates’s planes is 6.3 years. In Iran, meanwhile, it’s 27 years. These are ancient relics!  

Iran nuclear deal: a huge opportunity for Boeing and Airbus?
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The total number of jets that will need replacing is estimated to be 400—and cost $20 billion.

Aircraft manufacturers Boeing and Airbus already have a growing backlog of new aircraft orders—10,000 jets altogether, according to the Wall Street Journal—and the Iran deal has the potential to increase it even further.

We also see it as an opportunity for energy companies in particular that the median age of Iran’s educated population is 28 years—this is a market with promising growth potential.

You might have seen headlines that energy officials from Iran and Saudi Arabia secretly met to cooperate on trying to get crude oil prices stable at between $70 and $80 per barrel. Oil prices spiked this past week in response, but as far as we can tell, this is only chatter. Don’t bet on rumors, but rather on good government monetary and fiscal policy, excellent management and undervalued stocks.

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.

Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus.

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% 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.

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 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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Holmes Macro Trends Fund (MEGAX) and Emerging Europe Fund (EUROX) as a percentage of net assets as of 6/30/2015: Peabody Energy Corporation 0.00%, Arch Coal Inc. 0.00%, Freeport-McMoRan Inc. 0.00%, Newmont Mining Corp. 0.00%, Barrick Gold Corp. 0.00%, Valcambi SA 0.00%, Delta Air Lines Inc. 0.00%, Alaska Air Group Inc. 0.00%, JetBlue Airways Corporation 0.00%, Ryanair Holdings plc 0.00%, Aegean Airlines SA 0.00%, Pegasus Hava Ta??mac?l??? SA 0.50% Emerging Europe Fund, Wizz Air Holdings plc 0.00%, TAV Havalimanlar? Holdings 1.09%, The Boeing Co. 1.50% Holmes Macro Trends Fund, Airbus Group SE 0.00%.

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.

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What Airlines Can Teach the Energy Sector about Adversity
August 6, 2015

Learning to cope with adversity can help build stronger people and companies

If you’ve studied psychology, and specifically behavioral finance, you might be familiar with the concept of adversity quotient (AQ), which measures how well someone is able to face and cope with, well, adversity. It looks at how we use the tools given to us in order to survive and recover from setbacks.

To get a better idea of AQ, picture two soldiers who have recently returned home from war. Both are jaded, shaken and physically and emotionally scarred. And yet only one of them truly manages to cope with what he did and saw on the field of battle. He attends school, obtains a degree, gets married and becomes a loving husband and father. Maybe he even starts his own business.

Keeping in mind that there are numerous factors outside our control, both internal and external, it’s constructive to consider what steps could be taken in this hypothetical scenario to confront adversity and not only survive but thrive. Why was one soldier more successful than the other?

The same question can be applied to companies facing adversity. Right now, many companies have to deal with one of the worst commodities bear markets in recent memory and an overbearing U.S. dollar, among other challenges.

When the greenback gains in strength, it squeezes the value of overseas sales and hurts exports. The dollar is up 20 percent for the one-year period, compared to the S&P 500 Index, up around 9 percent.

U.S. Dollar vs. the S&P 500 Index
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Like the soldier with the higher adversity quotient, some companies and industries are more nimble and better able at thriving in different climates, even one as challenging as now. 

Record Earnings Season for Domestic Airlines

Domestic airlines, for instance, posted their first-ever $5 billion in net quarterly profits, with the four industry leaders alone generating a combined $4.99 billion, according to aviation reporter Terry Maxon of the Dallas Morning News. It’s now estimated that carriers will manage to beat this amount in the third quarter by as much as $1 billion.

Not bad for an industry that only 10 years ago was mired in plunging margins and multiple bankruptcies.

Learning to cope with adversity can help build stronger people and companies

Investment analysts are taking note. In a recent report, S&P Capital IQ writes that, although several airlines’ stock prices have declined this year, “airline execs have learned from past costly mistakes on adding too much capacity.” The financial information provider “forecasts 2015 as a record profitability year, driven by revenue growth and the benefits of lower oil prices.”

Airlines have managed to stay ahead, but other industries haven’t fared as well. Once all companies have reported this quarter, we might end up seeing the first decline in bottom-line earnings since the third quarter of 2012. And for the first time since the second and third quarters of 2009, we might have two back-to-back declines in revenue. According to the Financial Times, 10 of the largest multinational American companies, including Apple, General Motors, IBM and Amazon, have seen sales revenue drop a combined $31 billion so far this year.

Because of the greenback’s strength, real imports are outstripping real exports, leading to a decline in net exports.

Net Exports Fall After U.S. Dollar Appreciates
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The spread between the two might very well widen, or at least hold steady, in the coming weeks and months. Many central banks began to loosen monetary policies around the same time that the Federal Reserve ended its own quantitative easing program back in October. It’s now seriously considering raising interest rates at a time when other banks have lowered them. From a monetary policy standpoint, the growing divergence between the U.S. and the rest of the world could contribute to the dollar’s continued appreciation against other world currencies.

These so-called “currency wars” are part of the reason why equities in Europe and Japan, both of which slashed rates in 2014, are outperforming the American market for the one-year period.

Low Oil Prices Dragging Down Energy Companies

The sector whose earnings growth has been affected the most by the strong dollar is energy, which dropped 57 percent year-over-year in the second quarter. Oil, priced in dollars internationally, has lost more than half its value in the past 12 months and has taken many energy companies down with it.

2015 Second Quarter Earnings Growth, So far
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As I write this, West Texas Intermediate crude sits at about $44 per barrel, the lowest it’s been since March. For the one-year period, a combined $1.3 trillion has been wiped out from the valuation of companies listed in the MSCI World Energy Index. Some of the worst-performing stocks in the S&P 500 Index for the one-year period are energy-related: Southwestern Energy is down 56 percent; Consol Energy, 65 percent; Ensco, 69 percent; and Chesapeake Energy, 70 percent.

What will these energy companies do to survive this huge commodities downturn? What’s their AQ? Remember, 70 percent of U.S. airlines were operating under Chapter 11 bankruptcy protection between 2005 and 2008. Today, they’re posting record earnings. They managed to turn things around through consolidation and by restructuring their business models.

Energy companies might need to do the same in the meantime as we wait for oil and other commodities to recover.

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 MSCI World Energy Index is an unmanaged index composed of more than 1,400 stocks listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East. The MSCI World Energy Index is the Energy sector of the MSCI World Index.

Fund portfolios are actively managed, and 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 of U.S. Global Investors Funds as of 6/30/2015: Apple Inc., General Motors Co., IBM.    

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3 Reasons Why Gold Isn’t Behaving Like Gold Right Now
July 27, 2015

Green-GoldAs many of you know, I was in San Francisco the week before last where I had been invited to speak at the MoneyShow, one of the biggest, most preeminent investor conferences in the world. Over the past couple of decades, I’ve spoken at many MoneyShows all around the country and have covered many different topics. Gold investing is one that often draws a big crowd. Not this year. Guess which natural resource stole the show?

The commodity that attracted attendees’ attention is one that until pretty recently could only be grown and harvested under the shroud of secrecy. Marijuana. Currently legal in 23 states and the District of Columbia, medical marijuana generated $2.7 billion in 2014 and is expected to bring in $3.4 billion this year. Investors are taking notice. The cash crop is even starting to change intranational migration. Whereas many retired seniors flock to warmer climates in which to live out their golden years, others now factor in whether a state will permit them to self-medicate in order to treat their arthritis, according to a recent Time article.

Investors themselves who might have suffered from arthritis attended the pot presentation at their own risk, as it was standing room only. They couldn’t have been pulled away even to sit comfortably in the scarcely occupied room next door. Sentiment toward gold was indeed very bearish at the MoneyShow, as it is around the world right now.

Gold Hits the Reset Button

Gold is universally recognized as a safe-haven investment, a go-to asset class when others look uncertain. Following the 2008 financial crisis, for instance, the metal’s price surged, eventually topping out at $1,900 per ounce in August 2011.

But last week proved to be a particularly rocky one for the metal, even with Greece and Puerto Rico’s debt dilemmas, not to mention the recent Shanghai stock market decline, fresh in investors’ minds. Gold traded down for 10 straight sessions to end the week at $1,099 per ounce, its lowest point in more than five years. Commodities in general dropped to a 13-year low.

Commodities-Drop-to-a-13-Year-Low
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Gold stocks, as expressed by the XAU, also tumbled.

gold-stocks-slide-to-a-multi-year-low
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The selloff was given a huge push when China, for the first time in six years, revealed the amount of gold its central bank holds. Although the number jumped nearly 60 percent since 2009 to 1,658 tonnes, markets were underwhelmed, as they had expected to see double the amount.

Then in the early hours last Monday, gold experienced a “mini flash-crash” after five tonnes appeared on the Asian market. Initially this might not sound like a lot, but five tonnes equates to 176,370 ounces, or about $2.7 billion. It also represents about a fifth of a normal day’s trading volume. Suffice it to say, price discovery was effectively disrupted. In a matter of seconds, gold fell 4 percent before bouncing back somewhat.

Reflecting on the trading session, widely-respected market analyst Keith Fitz-Gerald noted: “Far from being a one-day crash, this could represent one of the best gold-buying opportunities of the year.”

The last time the metal descended this quickly was 18 months ago, on January 6, 2014, when someone brought a massive gold sell order on the market before retracting it in a high-frequency trading tactic called “quote stuffing.” Last month I shared with you that we now know who might have been responsible for the action—and many others that preceded it—and pointed out that the accused party’s penalty of $200,000 was grossly inadequate. Last Monday I told Daniela Cambone during the Gold Game Film that such downward price manipulation seems to result in little more than a slap on the wrist. But if manipulation is done on the upside, traders could get into serious trouble.

Besides apparent price manipulation, other factors are affecting gold’s behavior right now, three in particular.

1. Strong U.S. Dollar

Like crude oil, gold around the world is priced in U.S. dollars. This means that when the greenback gains in strength, the yellow metal becomes more expensive for overseas buyers. With the U.S. economy on the mend after the recession, the dollar index remains steady at a 12-year high.

It’s important to recognize, though, that gold is still strong in other world currencies, including the Canadian dollar. As such, our precious metals funds have hedged Canadian dollar exposure for Canadian gold stocks, which has benefited our overall performance.

2. Interest Rates on the Rise?

Federal Reserve Chair Janet Yellen continues to hint that interest rates might be hiked sometime this year, perhaps even as early as September. When rates move higher, non-yielding assets such as gold often take a hit.

As you can see, the 10-year Treasury bond yield and gold have an inverse relationship. When the yield starts to rise, investors might find bonds a more attractive asset class.

Inverse-Relationship-Between-Gold-and-the-10-Year-Treasury-Bond-Yield
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3. Slowing Manufacturing Activity

Earlier this month I wrote about the downtrend in manufacturing activity across the globe. As many loyal readers are well aware, we closely monitor the global purchasing manager’s index (PMI) because, as our research has shown, when the one-month reading has fallen below the three-month moving average, select commodity prices have receded six months later.

Global-Manufacturing-PMI-Continues-Its-Downtrend
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China is the 800-pound commodity gorilla, and its own PMI has remained below the important 50 threshold for the last three months, indicating contraction. The preliminary flash PMI, released last Friday, shows that manufacturing has dipped to 48.2, a 15-month low. For gold and other commodities to recover, it’s crucial that China jumpstart its economy.

In the meantime, we’re encouraged by news that the slump in prices has accelerated retail demand in both China and India, which, when combined, account for half of the world’s gold consumption.

Battening Down the Hatches

They say that a smooth sea never made a skillful sailor. No one embodies this more than Ralph Aldis, portfolio manager of our precious metals funds. He and our talented team of analysts are doing a commendable job weathering this storm. We’re invested in strong, reliable companies, and when commodities eventually turn around, we should be in a good position to catch the wind.

We look forward to the second half of the year, when gold prices have historically seen a bump in anticipation of Diwali, which falls on November 11 this year, and the Chinese New Year. As you can see, average monthly gold performance has ramped up starting in September.

Average-Monthly-Gold-Performance
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 “Gold is down 15 to 25 percent below production levels,” Ralph says. “That might cause some companies to halt production.”

And, in so doing, help prices find firmer footing.

After my trip to San Francisco, an important rallying point for the 1960s counterculture movement, it only seems fitting that I traveled to Colorado, one of the first states to legalize cannabis for recreational use. It was only a coincidence that Julia Guth chose to retreat to the state’s beautiful mountains for the Oxford Club’s educational seminar. It was a privilege to present to two assemblies of curious investors like yourself.  I enjoy meeting many of you when I’m on the road.

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 Philadelphia Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.

The 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.

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

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Crude Oil Is the Best-Performing Commodity of 2015 So Far
July 20, 2015

Can we really be halfway through the year? That’s what my calendar tells me, which means it’s time for the 2015 commodities halftime report.

The periodic table of commodity returns, consistently one of our most popular pieces, has been updated to reflect the first half of 2015. Click on the table for a larger image. If you’d prefer your own copy of the original, simply email us.

Commodities-Table-1st-Half-2015
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As an asset class, commodities continue to be a challenging space for investors, as they’ve faced many headwinds lately including lackluster purchasing managers’ index (PMI) numbers and a strong U.S. dollar.

Inverse-relationship-between-the-US-dollar-and-commodities
click to enlarge

Crude Pulls off Coup but Faces Strong Downward Pressure

The widest expansion this year was made by none other than crude oil, the worst-performing commodity of 2014. As of June 30, oil posted gains of over 11 percent, rising to $59.47 per barrel. After falling more than 50 percent since last summer, though, it had little else to go but up. That oil claimed the top spot just highlights the reality that commodities are in a slump right now.

Crude-Oil-Was-2015-Best-Performing-Commodity-As-Of-June-30

Case in point: This week, West Texas Intermediate (WTI) retreated to $50 per barrel, putting it back in the red for the year. This move was largely in response to Greece’s debt dilemma, China’s slowdown and weakening PMI numbers. After the JPMorgan Global Manufacturing & Services PMI was released, showing a continued downtrend in manufacturing activity, oil almost immediately dropped $4. The lifting of sanctions on Iran, if approved by Congress, could also place downward pressure on WTI, with some analysts seeing it returning to the $40s range.

As the 800-pound commodity gorilla, China greatly contributes to the performance of oil. Its own PMI reading remains below the key 50 threshold, indicating that its manufacturing sector is in contraction mode. This has a huge effect on the consumption of oil and other important commodities.

The good news is that the projected crude price for the remainder of 2015 should be high enough to support continued production in drilling areas such as the Bakken, Eagle Ford and Permian basins, according to the Energy Information Administration (EIA). The oil rig count, as reported by Baker Hughes, has advanced for the third consecutive week, after 29 straight weeks of declines.

Number-of-US-gas-and-oil-rigs-climbs-for-three-consecutive-weeks
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King Corn Pops to the Top

We all know that corn is in practically everything we eat and drink, from soda to bread to salad dressing. It’s fed to livestock and poultry and used to make ethanol, plastic, glue and more. The grain is so ingrained in our lives that the U.S. government subsidizes it to the tune of $4.5 billion a year.

For this reason and more, American farmers favor corn. In 2013, a record amount of it was grown and sent to market, which resulted in a price decline of 40 percent. That year it was the worst-performing commodity.

Since then, corn has found its footing and, as of June 30, returned 4.28 percent.   

Zinc Is Flying off Car Lots

Sought for its anti-corrosive properties, zinc is staging a comeback and is set to make its longest run of gains in over a year, according to Mineweb.

Strong European Car Sales Have Been a Boon for ZincThe reason? Accelerating automobile sales in Europe. Zinc can be found in most car parts, from tires to door handles, and because it can store six times more energy per pound than more conventional battery systems, the metal is also used in electric vehicles. 

The European Automobile Manufacturers Association reports that demand for new vehicles is up 14 percent year-over-year in June, its largest increase since December 2009. New car registrations in most European markets are seeing double-digit growth, with Portugal, Spain, Ireland and the Czech Republic leading the pack.

Gold Demand in China Sparkles

In a much-anticipated announcement, China broke its six-year silence on the amount of gold its central bank holds. And although the number jumped nearly 60 percent from 1,054 tonnes in 2009 to 1,658 tonnes, it underwhelmed the market, as many analysts had expected almost double the amount. Bullion fell to a fresh five-year low on Friday, while stock in Barrick Gold, the world’s largest producer, plunged to a level not seen since the Bush Administration—the elder Bush, that is.

But other news out of China, the largest purchaser of gold, suggests that the yellow metal is still very much on consumers’ minds. Just-released gold withdrawal numbers from the Shanghai Gold Exchange (SGE) came in at 1,180 tonnes—a huge amount—setting a new record for withdrawals in the first half period and leading many analysts to predict a new annual record.

China-on-track-for-new-annual-record-gold-withdrawals
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Gold demand in China normally cools around this time before picking up momentum in anticipation of the Chinese New Year. That demand has held up so well is a good sign for the second half of the year.

Even though gold’s down about 3 percent year-to-date, our Gold and Precious Metals Fund (USERX) is holding up. USERX currently has four stars overall from Morningstar, among 71 Equity Precious Metals funds as of 6/30/2015, based on risk-adjusted returns. This is a testament to the management skills of portfolio manager Ralph Aldis and our team of analysts. Check out Ralph’s MoneyShow interview, where he chats about some of his favorite gold companies.

The MoneyShow San Francisco

Last week I was in San Francisco attending the three-day MoneyShow conference, where I presented. If you weren’t able to make it, you can watch the presentation on-demand on your computer, tablet or smartphone by registering at eMoneyShow. The event will be available on-demand until August 8.

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.

Total Annualized Returns as of 6/30/2015
Fund Year to Date One-Year Five-Year Ten-Year Gross Expense Ratio Expense Cap
Gold and Precious Metals Fund 6.40% -28.42% -15.80% 1.62% 1.97% 1.90%

Expense ratios as stated in the most recent prospectus. The expense cap is a voluntary limit on total fund operating expenses (exclusive of any acquired fund fees and expenses, performance fees, extraordinary expenses, taxes, brokerage commissions and interest) that U.S. Global Investors, Inc. can modify or terminate at any time, which may lower a fund’s yield or return. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

Morningstar Rating

Overall/71
3-Year/71
5-Year/68
10-Year/51

Morningstar ratings based on risk-adjusted return and number of funds
Category: Equity Precious Metals
Through: 6/30/2015

Morningstar Ratings are based on risk-adjusted return. The Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)

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% to 10% of your portfolio in these sectors.

The S&P GSCI Spot index tracks the price of the nearby futures contracts for a basket of commodities.

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 U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund as a percentage of net assets as of 6/30/2015: Baker Hughes Inc. 0.00%, Barrick Gold Corp. 0.03%.

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.

Share “Crude Oil Is the Best-Performing Commodity of 2015 So Far”

Net Asset Value
as of 11/22/2017

Global Resources Fund PSPFX $5.97 0.03 Gold and Precious Metals Fund USERX $7.36 No Change World Precious Minerals Fund UNWPX $5.76 0.03 China Region Fund USCOX $12.18 0.03 Emerging Europe Fund EUROX $7.09 0.04 All American Equity Fund GBTFX $24.06 -0.05 Holmes Macro Trends Fund MEGAX $21.36 -0.06 Near-Term Tax Free Fund NEARX $2.21 -0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change