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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.

An Unexpected Change in Gold’s Seasonal Trading Pattern
May 15, 2017

an unexpected change in gold's seasonal trade pattern

Here at the outset, I want to share with you an interesting observation we made last week of gold’s seasonal trading pattern. As you can see in the chart below, based on data provided by Moore Research Center, the five-year pattern, represented by the orange line, is diverging from the longer-term trends. Note that the index on the left measures the greatest tendency for the asset to make a seasonal high (100) or low (0) at a given time.

Gold Historical Patterns
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The data show that lows are now reached late in the year, not in January (according to the 15-year period, represented by the dark blue line) or August (according to the 30-year pattern, represented by the light blue line). Historically, September has seen the highest returns on gold as Indians make huge purchases in preparation for Diwali and the fourth-quarter wedding season, but lately we’ve seen changes. When we calculate the average monthly returns of the past five years, from January 2012 to December 2016, we find that January is the strongest month, returning 5.3 percent, followed by August with 2.3 percent. September actually returns negative 1.3 percent.

There could be a number of reasons why this is, but it’s important to recognize that the five-year period captures the bear market that dragged gold from its high of $1,900 an ounce in August 2011 to a recent low of $1,050 in December 2015. The years 2013, 2014 and 2015 all saw negative returns, so it’s little wonder why the orange line trends down from February-March to December. 

Inflation Props Up Gold

Consumer and producer prices rose in April compared to the same time last year, favoring gold prices going forward. Consumer goods climbed 2.2 percent, down slightly from March’s 2.4 percent. Wholesale goods, meanwhile, flew up 5.3 percent, higher than economists’ expectations and the strongest year-over-year increase in nearly six years. 

U.S. Inflation's Gonna Get You
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On numerous occasions I’ve shown that higher inflation supports demand for gold, which has often been seen as a safe haven investment. The money you have sitting in the bank right now is guaranteed to lose value over time. The five-year Treasury bond is currently yielding a negative return. Diversiying a part of your portfolio into gold and gold stocks could help mitigate the effects of inflation on your household wealth. I’ve always recommended a 10 percent weighting with annual rebalances.   

Chindia Demand Was Strong in the First Quarter

Chindia Demand was strong in the first quarter

In India, no one questions this. Aside from property, gold is seen as the most reliable store of value, which is why it’s routinely given as a gift during weddings, graduations, births and other important life events.

Indians’ demand for gold jewelry jumped 16 percent year-over-year in the first quarter, according to the World Gold Council (WGC), as the country slowly recovers from the economic shock of Prime Minister Narendra Modi’s demonetization scheme in November.

Demand in China for gold bars and coins had an unusually strong start to the year, fueled by concerns over a weakening renminbi and uncertainty over the country’s real estate market. The first quarter has historically been a good time for Chinese demand, as that’s when the Lunar New Year falls. This year, though, demand was up an amazing 30 percent, with 105.9 metric tons (tonnes) purchased during the three-month period. According to the WGC, this was the fourth-strongest quarter on record.

Looking ahead, gold prices could be supported by steadily declining mine production. Over the next five to 10 years, output from currently-operational mines is expected to drop off steeply as a consequence of deep spending cuts for project development as well as a lack of significant new deposit discoveries.

Mine Production Likely to drop beyond 2018 as the project pipeline is squeezed
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Between 2012 and 2016, capital expenditure for companies in the NYSE Arca Gold BUGS Index contracted 65 percent, the WGC reports. This will inevitably squeeze the supply chain and help prices firm up.

Stock Investors Have No Fear

In the near term, gold faces a number of headwinds, including a strong U.S. dollar, rising nominal interest rates and a still-robust stock market. Despite recent geopolitical shockwaves such as President Donald Trump’s surprise firing of FBI director James Comey, investors still see stocks as a good place to be, with the CBOE Volatility Index, or VIX, trading at lows last seen in 1993.

investor fear at near-record lows: headwind for gold?
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Popularly known as the “fear gauge,” the VIX measures expected volatility in the S&P 500 Index over the next month. That it’s trading so low suggests that geopolitical uncertainty doesn’t always translate into investor uncertainty. Evidently Wall Street doesn’t share the same sense of impending doom as some voters and media figures appear to have right now concerning Comey’s termination and the ongoing investigation into possible collusion between the Trump campaign and the Russian government.

This matters because gold has historically benefited in times of crisis and uncertainty, whether real or perceived. But with the VIX signaling near-record-low fear in the marketplace, some investors might see this as weakening the case for gold.

Where We See the Gold Opportunities

In this environment, we seek high-quality producers that are profitable and show improvements in revenue and cash flow. This yields junior companies such as Klondex and Wesdome, both of which have demonstrated strong fundamentals, low SG&A (selling, general and administrative expenses),  cost-conscientious management and higher-grade ore.

The recent bubble in gold stocks unwound, which was harmful to some quality gold names that were affected by the issues involving the VanEck Vectors Junior Gold Miners ETF (GDXJ), which I wrote about last week. Since the GDXJ methodology update was announced, the ETF has recorded large redemptions, with assets plunging as much as 25 percent.

The GDXJ doesn’t have any smart beta attributes—instead, it relies on market cap. As portfolio manager Ralph Aldis put it, this means “we find a lot of high-quality companies being indiscriminately sold down.” We see this as an opportunity to nibble at some attractive small-cap growth names.

 

 

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 Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns. The Producer Price Index (PPI) measures prices received by producers at the first commercial sale.  The index measures goods at three stages of production:  finished, intermediate and crude.

The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.

Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market's expectation of 30-day volatility.

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

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

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 3/31/2017: Klondex Mines Ltd., Wesdome Gold Mines Ltd., VanEck Vectors Junior Gold Miners ETF.

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Can Too Much Money Go Into One ETF?
May 5, 2017

When billions of dollars flow into an ETF, it’s safe to assume this is because of its popularity among investors. The VanEck Vectors Junior Gold Miners ETF (GDXJ), which invests heavily in junior gold miners around the world, can attest to this kind of popularity, with some $1.5 billion flowing into it this year alone. Total assets jumped 60 percent in 2017 to over $5 billion.

lumber logs a 12 year high

At some point, however, as is the case with the GDXJ, asset growth can outpace an ETF’s underlying index. As BMO Capital Markets reported in mid-April, there will be a massive rebalance trade around the GDXJ on June 17, with changes already taking place. The index methodology is now permitting larger companies to be added, with significant demand for around 18 potential new additions, in conjunction with down-weighting of existing names.

The new index methodology allows the ETF’s largest company by market cap to be $2.9 billion, versus $1.8 billion under the current method, reports Investor's Business Daily. This puts it over the traditional $2.5 billion limit for small caps.

Impacts of the “Pre-Balance”

So what will the “pre-balance” and official rebalance in June mean for investors? For starters, it may mean less exposure to small-cap names. As I told Kitco News, this is a disruptor for small-cap gold stocks, which are getting knocked down for no reason when they have great fundamentals.

In addition, the ETF will need to sell $3 billion worth of its existing holdings to buy the new large-cap additions, which will create a massive funding trade significantly impacting existing names, BMO continues.

The number of companies the GDXJ can invest in starting in June will go from 48 to 69.

Sifting and Sorting For Opportunity

Since the GDXJ methodology update was announced, Macquarie Research reported last week that both the GDXJ and the VanEck Vectors Gold Miners ETF (GDX) have recorded large redemptions. Since April 13, the GDXJ has gone from $5.5 billion to $4.1 billion, losing approximately 25 percent of its assets. Similarly, the GDX went from $12.4 billion to $10.1 billion since the news – a drop of 19 percent.

lumber logs a 12 year high
click to enlarge

“Indiscriminate selling pressure has been placed on the sector due to redefining the index methodology not based on the fundamentals of companies,” explains portfolio manager Ralph Aldis. The investment universes of both the GDX and the GDXJ are defined by market cap and liquidity and designed like many ETFs are, to deliver beta but not alpha.

“There are no smart beta attributes to these ETFs, meaning we find a lot of high quality names are being indiscriminately sold down,” Aldis continues. “This may provide an excellent entry point for astute investors to pick up small-cap, high-quality growth names.”

 

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 above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the interview were held by one or more accounts managed by U.S. Global Investors as of 03/31/2017: VanEck Market Vectors Junior Gold Miners ETF (GDXJ), VanEck Vectors Gold Miners ETF (GDX).

Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

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Get Ready for Inflation! Lumber Logs a 12-Year High
April 17, 2017

There a lot construction Zurich now

As if you need more proof that inflation is finally starting to pick up, lumber prices rose to a 12-year high last week, supported mainly by expectations that steep duties will soon be levied on cheap softwood imports from Canada. Lumber futures rose to nearly $415 per thousand board feet last Monday, a level unseen since March 2005, soon after homeownership peaked here in the U.S.

lumber logs a 12 year high
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At issue is a mini-trade war between U.S. and Canadian loggers. For some time now, the American lumber industry has blamed its Canadian counterpart of unfairly dumping lumber in the U.S. that’s far below market value. Now, several factors are pushing timber prices higher. Chief among them are the likelihood of duties being raised at the Canadian border, possibly as early as next month; President Donald Trump’s calls to renegotiate NAFTA; and growing demand for new homes following the housing crisis as consumer optimism improves and millennial buyers finally seem eager to enter the market.

Shares of Canfor Corporation and Western Forest Products, Canada’s number two and number five lumber producers by annual output, have had a good three months, advancing 25.5 percent and 16.8 percent respectively as of April 12. Timberland-owner Weyerhaeuser has also impressed lately.

canadian loggers surge on higher lumber prices
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Gold Glimmers Brightly

As I told Daniela Cambone during last week’s edition of Gold Game Film, this is all very constructive for the price of gold, which has historically been used as a hedge during periods of rising inflation. The yellow metal closed above $1,270 an ounce last week for the first time since soon after the November presidential election. A “golden cross” has not yet occurred, with the 50-day moving average still below the 200-day, but such a move appears likely in the next few trading sessions if upward momentum can be sustained.

gold surges to a five month high on inflation and geopolitical risk
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Fueled also by geopolitical tensions associated with Syria, Russia and North Korea, gold demand is on the rise, with last Tuesday’s trading volumes on gold calls surging 10 times Monday’s amount on the New York Mercantile Exchange. As I already shared with you, investor sentiment of gold during the recent European Gold Forum was particularly strong. A poll taken during the conference showed that 85 percent of attendees were bullish on the metal, with a forecast of $1,495 by year’s end.

With the U.S. ramping up military action overseas, including its dropping of a devastating bomb in Afghanistan on Thursday, many investors are lightening their risk assets in favor of “safe haven” instruments such as gold and Treasuries. The S&P 500 Index dropped below its 50-day moving average last week, signaling a slowdown in blue chip stocks.

Stock Market Tumbles 50 Day Moving Average
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Financials were among the biggest laggards as investors have begun to question President Trump’s ability to deregulate the banking sector. After several disappointments and setbacks, including a failure to repeal and replace Obamacare, renewed military involvement in Syria and Afghanistan might provide a welcome boost to Trump’s sluggish job approval rating.

Gold also responded positively to recent comments by Trump on U.S. dollar strength and monetary policy. Specifically, he said the dollar is “getting too strong” and later supported a low interest rate policy, suggesting he might keep Janet Yellen as the Federal Reserve chair.

 

Millennial Homebuyers Finally Entering the Housing Market

April is New Homes Month, and to celebrate, the National Association of Home Builders (NAHB) shared some of the significant contributions housing provides to the U.S. economy. According to the Washington, D.C.-based group, “building 100 single-family homes in a typical metro area creates 297 full-time jobs and generates $28 million in wage and business income and $11.1 million in federal, state and local tax revenue.” The sector currently accounts for 15.6 percent of U.S. gross national product (GNP).

Indeed, housing has a phenomenal multiplier effect on the economy, as I’ve pointed out before, and I’m pleased to see its recovery after nearly a decade.

Not only is consumer confidence up, but homebuilder confidence, as measured by the NAHB, hit a 12-year high in March, supported by an improving economy and President Trump’s pledge to roll back strict regulations. In February, new housing starts hit 1.29 million units, beating market expectations of 1.26 million units.

Rising mortgage rates and home prices are also likely encouraging buyers to enter the market. With the 30-year rate having recently fallen to a fresh 2017 low, we might see an even stronger surge in mortgage applications.

us home prices and mortgages headed higher
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Declines in homeownership among lower-income, nonwhite and young adults were especially dramatic following the housing crisis, as subprime lending, which many homeowners had previously relied on, all but dried up. Homeownership rates in the U.S. steadily fell to a 50-year low, which only lengthened the recovery time of the Great Recession. According to Rosen Consulting, a real estate consulting group, the U.S. economy would have been $300 billion larger in 2016 had the housing market fully returned to its long-term level of construction and homebuying.

did us homeownership just bottom
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Millennials, or those generally born between 1981 and 1998, have been the biggest holdouts, but we’re finally starting to see that change. The cohort—the largest group of homebuyers in the U.S. right now—represented around 45 percent of all new home loans in January of this year. It’s likely we’ll see this figure rise as more millennials become better established in their careers and tire of renting.

 

Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every invest.

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 3/31/17: Canfor Corp., Western Forest Products.

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

The S&P/Case–Shiller U.S. National Home Price Index is a composite of single-family home price indices for the nine U.S. Census divisions. It is calculated monthly, using a three-month moving average.

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Gold Finds Strong Support from Negative Real Rates
April 5, 2017

7 Reasons to Be Bullish on Emerging Europe

In case you haven’t already noticed, inflation has been steadily creeping up since July. In February, the most recent month of available data, consumer prices advanced at their fastest pace in five years, hitting 2.7 percent year-over-year. March data won’t be released until next week, but I expect prices to proceed on this upward trend, buttressed by rising mortgages and costs associated with health care and energy.

One of the consequences of strong inflation is that real rates—what you get when you subtract the current consumer price index (CPI) from the nominal rate—have turned negative. And when this happens, gold has typically been a beneficiary. This is the Fear Trade in action.

Take a look below. Gold shares an inverse relationship with the real 10-year Treasury yield, which is influenced by consumer prices. When inflation is soft and the yield goes up, gold contracts. But when inflation is strong, as it is now, it can push the Treasury yield into subzero territory, prompting many investors to move into other so-called safe haven assets, including gold.

Gold Expected to Continue Benefiting from Low to Negative REal Rates
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Again, I expect consumer prices to continue rising, especially if President Donald Trump gets his way regarding immigration and trade. Slowing the stream of cheap labor from Mexico and other Latin American countries, coupled with raising new tariffs at the border, should have the effect of making consumer goods and services more expensive. Although it might sting your pocketbook, faster inflation could be constructive for gold investors.

$1,475 an Ounce Gold this Year?

In its weekly precious metals report, London-based consultancy firm Metals Focus emphasized the importance of negative real rates on the price of gold, writing that “real and even nominal rates across several other key currencies, including the euro, should also remain negative for some time.” The European Central Bank’s deposit rate currently stands at negative 0.4 percent, not including inflation, and Sweden’s Riksbank, the world’s oldest central bank, will continue its negative interest rate policy as it awaits stronger economic growth. Meanwhile, the Bank of Japan left its short-term interest rate unchanged at negative 0.1 percent at its meeting last month.

This is all beneficial for gold. Discouraged by the idea of negative rates eating into their wealth, many savers might be compelled to invest in gold, which enjoys a reputation as an excellent store of capital.

Based on the near-term outlook for real rates, as well as uncertainty over Brexit, rising populism in Europe and Trump’s trade and foreign policies, Metals Focus analysts see gold testing $1,475 an ounce this year. If so, that would put the yellow metal at a four-year high.

Central Banks Still Have an Appetite for Gold

Since 2010, global central banks have been net buyers of gold as they move to diversify their reserves away from the U.S. dollar. Although 2016 purchases fell about 35 percent compared to 2015, they still remained high on a historical basis, thanks mostly to China and Russia.

These purchases are likely to continue this year, according to Metals Focus, though at a slower rate as many banks get closer to meeting their target reserves amount.

Central Banks Have Been Net Buyers of Gold Since 2010
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Because gold accounts for only 2.3 percent of China’s reserves, as of March, the Asian country might very well keep up with its monthly purchases for some time. (The U.S., by comparison, has nearly 75 percent of its reserves in gold.)  

I’ve pointed out before that it’s reasonable for investors to pay attention to what central banks are doing. They’re diversifying their assets and, in a way, hedging against their very own policies. It would be prudent for every household to do the same. As such, I recommend a 10 percent weighting in gold, with 5 percent in bullion (coins and jewelry), the other 5 percent in quality gold stocks.

Lipper Recognizes Our Gold Fund

I believe an exceptional way to get exposure to high-quality gold stocks is through our Gold and Precious Metals Fund (USERX), which invests in precious metals mining “seniors,” or those that generally have the largest market cap in the mining sector. The first no-load gold fund in the U.S., USERX seeks not just capital appreciation but also protection against monetary instability and the very inflation I discussed earlier.

I’m very pleased to tell you that the fund was recently recognized by Thomson Reuters Lipper. In a New York City ceremony in March, the mutual fund data provider awarded USERX with two Fund Awards for 2017 in the Precious Metals Equity Funds category for the three- and five-year periods.

In January, the Gold and Precious Metals Fund was also awarded a 5-Star Overall Rating by respected investment ranking and analysis firm Morningstar, as of December 31, 2016. The fund was rated among 71 Equity Precious Metals funds, based on risk adjusted returns.

USERX is co-managed by myself and precious metals expert Ralph Aldis. The two of us were honored with the Mining Journal’s Best Americas Based Fund Manager award for 2016.

I invite you to visit the fund page for the Gold and Precious Metals Fund (USERX) to explore its holdings and performance! 

 

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.

Past performance does not guarantee future results. A high ranking does not necessarily mean that a fund had a positive return over the ranking period. See current performance for the Gold and Precious Metals Fund here.
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.

Morningstar ratings for the Gold and Precious Metals Fund (USERX), in the Equity Precious Metals fund category: USERX was rated 5 Stars Overall out of 71 funds, 5 Stars out of 71 funds for the three-year period, 5 Stars out of 64 funds for the five-year period, and 4 Stars out of 46 funds for the 10-year period, as of December 31, 2016.

The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product 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. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

Lipper named the Gold and Precious Metals Fund the Best Precious Metals Equity Fund, out of 62 funds, for the three-year period ending 11/30/2016. The fund was also recognized as Best Precious Metals Equity Fund, out of 58 funds, for the five-year period ending 11/30/2016.   The award was earned for the fund’s consistent performance over the three-year and five-year periods ending 11/30/16.The award selection process began with Lipper calculating a Consistent Return score for each fund for the three-year and five-year time periods as of 11/30/16. Consistent Return is a quantitative metric that incorporates two characteristics: risk-adjusted return, and the strength of the fund's performance trend. The top-scoring Consistent Return fund within each classification received the awards. 

Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Users acknowledge that they have not relied upon any warranty, condition, guarantee, or representation made by Lipper. Any use of the data for analyzing, managing, or trading financial instruments is at the user's own risk. This is not an offer to buy or sell securities.

The Mining Journal’s Best Americas Based Fund Manager award is among the publication’s annual Outstanding Achievement Awards and was decided based on metrics provided by Morningstar. The Mining Journal, based in London, is a leading publication for the global mining industry.

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.

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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America’s New Emphasis on Fiscal Policy
March 20, 2017

Strong February Jobs Report Clears Path for Fed Rate HikeFor the third time in two years, the Federal Reserve lifted interest rates 0.25 percent last week following the previous week’s phenomenal jobs report. The move was seen as more dovish than many market analysts had anticipated. BCA Research went so far as to call it an “unhike,” citing a number of factors, including forecasts of only three rate hikes in 2017 instead of four.

Immediately following the announcement, the dollar lost ground, clearing the way for gold to climb more than $20 an ounce.

During her press coverage, Fed Chair Janet Yellen expressed doubt that the U.S. economy can grow much faster than 2 percent annually over the next couple of years, placing her squarely at odds with President Donald Trump, who campaigned on a pledge to boost GDP growth as much as 4 percent.

Gold Gains on a Dovish Fed
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Since Trump’s inauguration more than 55 days ago, we’ve seen a steady power shift from the monetary side to the fiscal side. I believe this will only continue to accelerate. As I said before, the eight-year stock market rally under President Barack Obama was, in many investors’ eyes, driven not by fundamentals but the Fed’s low-rate policy. Now, however, investor exuberance is being supported by proposed fiscal policy such as lower corporate taxes, deregulation and historically large budget cuts to help finance the rebuilding of the nation’s infrastructure and military.

2017 Market Outlook: The Hand Off

Not everyone is confident Trump can deliver on his infrastructure promise, however. Last week, I shared with you that the American Society of Civil Engineers (ASCE) just gave our nation’s infrastructure a dismal grade of D+, adding that we face a huge funding gap of nearly $3 trillion between now and 2025.

Last Thursday, after Trump unveiled his proposed budget for fiscal year 2018, ASCE president Norma Jean Mattei issued a discouraging note, writing that the president’s budget “would eliminate funding for many of the programs designed to improve our nation’s infrastructure.”  Although the $1 trillion could be raised at a later time, “that is not the way to effectively invest in, modernize and maintain our aging and underperforming infrastructure,” Mattei said.

Law of Unintended Consequences

Some investors see additional headwinds in White House policy. Near the end of January, the commercial airline industry was disrupted when Trump signed his initial executive travel ban from seven Muslim-majority countries. Between January 28 and February 4, bookings issued by those countries fell 80 percent compared to the same period in 2016, according to travel research firm ForwardKeys.

What might surprise some readers is that the ban’s effects went well beyond the Middle East, reaching most major world markets. Net international bookings to the U.S. cooled 6.5 percent during the period when the travel ban was in effect.

Year-over-Year Percent Change of Net International Bookings to the U.S. During Trump Travel Ban
click to enlarge

Among the other unintended consequences was news that customs agents were detaining a number of U.S. citizens who might not have had Western-sounding names. Sidd Bikkannavar, a U.S.-born engineer, was not only detained on his way back home to Los Angeles but also asked to turn over his work-issued phone and provide the access PIN to unlock it, potentially compromising sensitive material and contacts related to his work at the NASA Jet Propulsion Laboratory. Muhammad Ali Jr., son of the celebrated heavyweight boxer, was also stopped at least twice while flying in recent weeks.

Trump’s second travel ban, which was also struck down by a federal judge, was opposed by nearly 60 U.S. technology companies—including Airbnb, Pinterest, Lyft and Warby Parker—which filed a brief in support of Hawaii’s lawsuit to block the executive order. Tech companies “and thousands of other businesses throughout the American economy have prospered and grown through the hard work, innovation and genius of immigrants and refugees,” the brief read.  

I bring this up only to show once again that regulations, in whatever form, often emerge out of the best of intentions—in the travel ban’s case, public safety—but they sometimes carry negative consequences that act as friction in our economy. Government policy is a precursor to change, as I like to say, and it’s important for us as investors to recognize their cause, effect and possible ramifications.

Intel Enters the Self-Driving Vehicle Market

A couple of weeks ago I attended a Young Presidents’ Organization (YPO) meeting in Vancouver, where the theme was disruption. “Disrupt, or get disrupted,” John Chambers, executive chairman and CEO of tech firm Cisco, told us during his presentation.

One of the most promising upcoming disruptive technologies is autonomous, self-driving automobiles. This tech has the potential to change every industry, including mining, as I told Mining Journal chief editor Richard Roberts last week. So ubiquitous are self-driving cars expected to become, “it seems likely that eventually many people will no longer feel the need to own a car or even know how to drive,” according to management consulting firm Bain & Company. Bain sees the global value of this market, including software, hardware and services, reaching between $22 and $26 billion a year by 2025, with annual growth between 12 percent and 14 percent.

Estimated SystemsAutonomous Market Size
click to enlarge

Brian Krzanich, CEO of chip-maker Intel, sees it closer to $70 billion by 2030.

As you might have heard, Intel just finalized its deal to purchase Israel-based Mobileye, maker of sensors and cameras for driverless vehicles, for $15.3 billion. It’s the second-largest acquisition Intel has ever made, following last year’s purchase of Altera for $16.7 billion.

Mobileye stock immediately jumped more than $10 a share.

Mobileye Stock Surges on Intel Acquisition News
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Although Intel’s business deals haven’t always been profitable in the past, I believe this is a smart move. With sales of desktop computers stagnating, it’s essential for the company to expand its presence and become more competitive in the burgeoning field of internet of things, which will affect as many as 500 billion devices, including vehicles, in the next 10 to 15 years, according to Chambers.

Calling All Curious Investors

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Net Asset Value
as of 09/25/2017

Global Resources Fund PSPFX $5.78 -0.04 Gold and Precious Metals Fund USERX $8.02 0.06 World Precious Minerals Fund UNWPX $6.69 0.06 China Region Fund USCOX $10.96 -0.46 Emerging Europe Fund EUROX $6.94 -0.06 All American Equity Fund GBTFX $24.34 0.10 Holmes Macro Trends Fund MEGAX $19.99 0.03 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change