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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.

Go Gold!
August 15, 2016

Last Friday marked one week since the start of the Rio de Janeiro Olympics, and it’s been nothing short of amazing. Michael Phelps, whose name should forevermore be synonymous with the Olympics, won his 22nd overall gold medal. He also was awarded his 13th individual gold, effectively breaking a record last set in 152 B.C. by legendary runner Leonidas of Rhodes.  

What I find most remarkable about Phelps’ success is that he’s had to overcome strong personal challenges to reach the level he’s at. He was diagnosed with attention deficit hyperactivity disorder (ADHD) at a young age, and when he chose to get off his medication, he turned to swimming. More recently, he’s dealt with alcoholism, which landed him a DUI in 2014. His is a quintessentially American story of otherworldly success born out of failure, of meeting the obstacles that block his path to his goals head on.

When Phelps made the decision to compete in his fourth Olympics, he reteamed with his longtime swim coach Bob Bowman and set his mind to training harder than he ever had before—which, at his “advanced” age of 31, would be necessary if he hoped to have a shot at winning the gold.

The most decorated Olympian in history, Phelps, like all winners, focuses on winning. Losers, on the other hand, focus not on winning but on the winners in front of them. They’re more concerned about the short-term noise, at the expense of their long-term goal. The image at the top is a perfect illustration of this, with Phelps’ competitor clearly more concerned with “the Baltimore Bullet” than his own performance.

But many investors, I’ve found, are the same way. Today there’s a lot of noise and distraction, which can influence investment decisions. Much of that distraction is coming from the presidential election, which is already turning out to be one of the most negative and highly contentious in American history.

Trump Self-Sabotages

Someone who could benefit from Phelps’ steadfastness and commitment to his craft is the Republican presidential candidate, Donald Trump, who all too often sabotages his own campaign with controversial and incendiary remarks.

We saw this happen last week. While speaking to the Detroit Economic Club, Trump promised that, if elected, he would place a “temporary moratorium” on any new financial regulation. Further, he would repeal the Dodd-Frank Act and reform the tax code to include only three income-tax brackets, down from the current seven.

These are solid proposals, appealing to not only everyday taxpayers but also many of the CEOs I speak with on a regular basis. After all, they’re the ones who must deal with regulations on a daily basis.

The problem, though, is that Trump can’t stay on message. In the opening image, Trump is more like the guy who’s distracted by Phelps rather than Phelps himself. Trump invariably will say something inflammatory soon after making a sensible remark on policy, thereby effectively resetting the news cycle. In last week’s case, it was his comment on “Second Amendment people”—a veiled threat against Hillary Clinton, some interpreted—that dominated the headlines, taking all attention away from the moratorium on financial regulations.  

Research Firm: Get Ready for Madam President Clinton

The cover of TIME’s August 22 edition displays a striking likeness of Trump melting like an Air Wick candle. A single word punctuates the stark image: “Meltdown.” Whether or not you support the New York billionaire, you must admit that the “Trump train” has repeatedly jumped the track since the Republican convention. What’s more, we just learned that GOP Chairman Reince Priebus is being pressured by dozens of Republican insiders to withdraw all party support, including campaign financing, from Trump’s candidacy.

Things aren’t looking good. Even regression analysis now appears to show that Trump’s chances are retreating.

In a new report, investment research firm Ned Davis makes the case that, based on historical precedent, economic as well as stock and bond market performance so far this year is pointing to an incumbent party victory in November. The chart below shows that the upward trajectory of the Dow Jones Industrial Average in 2016 more closely resembles the average performance seen in all years when the incumbent party—Republican or Democrat—held on to office.

Dow Jones Industrial Average Performance Pointing to Incumbent Party Win in November
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According to Ned Davis strategists Ed Clissold and Victor Jessup, “When the economy has not been in a recession, the odds of the incumbent party retaining control of the White House has jumped to 71 percent.” Since 1900, presidential elections have landed during recessions five times. In four of these instances (1920, 1932, 1960 and 2008), the incumbent party lost. The exception was 1948 when Harry Truman won—just barely, if you remember your history—but the recession began the same month as the election.

The group points out, however, that it’s extremely rare for a two-term Democrat to pass the baton to a new Democrat via election. How rare? The last time this happened was in 1836, when Andrew Jackson—the very first Democratic president—was succeeded by Martin Van Buren.

Hillary for Precious Metals

I’m very often asked which candidate will be better for gold: Trump or Clinton? The honest truth is that the answer changes week-to-week. Sometimes it’s Trump because he has demonstrated unpredictability and unpreparedness. Other times, it’s Hillary because she has proposed policies that were clearly inspired by the socialist leanings of Bernie Sanders, who still remains very popular among far-left Democrats. In her economic address last week, she laid out her plan to make college “debt-free” and tuition absolutely “free” to children from families who earn less than $125,000 a year.

To make this plan happen, of course, income taxes will most likely need to be hiked. And if history tells us anything, it’s that gold demand has increased when socialist policies threatened economic growth. The price of gold is inversely correlated with the five-year and 10-year Treasury yields, which fall when the economy is floundering. This makes the yellow metal all the more attractive to investors.

That’s why I always recommend a 10 percent weighting in bullion and gold stocks, in both good and bad times. Gold has a history of holding its value even during economic turmoil, which is why it’s prudent to maintain an allocation in your portfolio.

Alibaba Beats Expectations. Is China Next?

Last Thursday, giant Chinese ecommerce site Alibaba posted spectacular numbers, suggesting a turnaround for the world’s second biggest economy possibly isn’t too far behind. Alibaba—whose 2014 IPO stands as the largest in U.S. history, according to Renaissance Capital—posted quarterly revenues of $4.8 billion, a whopping 60 percent increase from the same time last year, and the biggest ever since before the company went public.

This is constructive news for China. Alibaba works with a reported 8.5 million sellers, from mom-and-pop-type shops to multibillion-dollar, international corporations, making for a good cross-section of the Chinese economy. (You could argue the same of Amazon and the U.S. economy.) That Alibaba’s sales are up indicates that consumption in China is stronger than perhaps analysts anticipated. Indeed, Beijing reported that retail sales grew nearly 11 percent in the second quarter  year-over-year, beating estimates of 9.9 percent.   

 

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 Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

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 6/30/2016.

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The Olympic Games Reflect Our Love of Gold
August 11, 2016

a gold laurel wreath dating from the 3rd or 4th century BCE

Every child knows Olympic gold medals are for first place, silver for second and bronze for third. But where does this tradition come from?

Like most everything else relating to the Olympics, we can trace the tradition back to the ancient Greeks, who assigned metals (not medals) to different Ages of Man. First among them was the Golden Age, characterized as a peaceful time when humans and gods lived in harmony and food was plentiful. The Greeks believed this to be the pinnacle of our existence, after which it all went downhill. Following that golden period came the Silver Age, when childhood lasted 100 years. Then, the Bronze Age, a time of violence and destruction among warring tribes.

The Greeks weren’t alone in their reverence of gold, of course. It fascinates me that nearly every ancient people, no matter the continent or region, imbued the precious metal with the same degree of sacredness and purity. One of the earliest known metals, gold was valued for its resemblance to the sun, itself worshipped as a powerful deity in many cultures. The ancient Incans, in fact, referred to gold as “sweat of the sun.” When you held a gold nugget, it was believed, you held a piece of the gods themselves.

Michael Phelps showing off his Olympic gold medals on the August 2008 cover of Sports IllustratedAlthough most of us no longer believe gold emerged from the sweat glands of great celestial beings, we nevertheless still hold the metal in very high regard. This is what I often refer to as the Love Trade, the proof of which can be seen all around the globe—from beautiful gold wedding rings in the U.S., to finely crafted bridal jewelry in India, to gold coins given to newborn babies in South Korea. So high is our regard for gold that we reward the world’s most gifted athletes—our modern day Greek gods and goddesses—with a small disk of the stuff.

More or less.

Alas, today’s Olympic gold medals contain only a small trace of the yellow metal. According to Kitco News, they’re about 95 percent silver and 1.2 percent gold, making them worth nearly $570 at current prices. (Of course, the real value is much higher. A gold medal earned by an obscure athlete can go for $10,000 at auction, and the price goes up from there. Jesse Owens’ gold medal, awarded during the 1936 Berlin Games, sold for $1.47 million in 2013.) The last (and only) time medals were 100 percent pure was during the 1912 games in Stockholm.

If this seems disappointing, it’s better than it once was. In ancient Greece, winners weren’t awarded a medal of any kind. Instead, they were crowned with wreaths of olive branches, a tradition that was observed in the first modern Olympics, the 1896 Athens Games. It wasn’t until the 1904 St. Louis Games that the current practice of awarding gold for first, silver for second and bronze for third was standardized.

Gold Has Taken the Gold Compared to Most Major Asset Classes

the first Olympic gold medal was awarded during the 1904 Games in St. Louis Besides the pageantry and superhuman athleticism, fans and viewers are drawn to the competitiveness that’s on display at the Olympic Games. Athletes have trained for countless hours to prepare for their events, often costing their families tens of thousands of dollars in the hopes that they will stand atop the winners’ podium and be awarded the gold medal.

Likewise, many investors, myself included, gain a lot of pleasure (and heartache) watching their favorite asset classes perform in global markets—including gold.

There was much heartache indeed during the recent bear market that sunk gold from its 2011, all-time high of $1,900 an ounce to its trough of $1,053 near the end of 2015. Since the start of the year, however, the yellow metal has rallied more than 26 percent, leading many analysts and brokers— including Paradigm Capital, HSBC, RBC Capital Markets and the World Gold Council (WGC)—to declare this the beginning of a new upcycle, as uncertainty over central bank policy is deepening.

gold has outperformed most asset classes
click to enlarge

According to the WGC, gold has outpaced other major benchmarks and asset classes for both the one-year (horizontal axis) and year-to-date (vertical axis) periods of return. In addition, the metal’s volatility has been fairly comparable to S&P 500 Index stocks. (In the chart above, volatility is represented by the size of the circles.) The Love Trade is still strong globally, but much of gold’s appeal right now stems from investors’ concerns that unconventional monetary policies have not been effective at jumpstarting growth.

Gold is up not just in U.S. dollars. It’s also rising steadily in countries with a major presence in the gold-mining space, including the U.K., Turkey and Russia. Note the huge spike in pound sterling-priced gold following the Brexit vote and subsequent currency drop.

gold returns priced in various currencies
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These Gold Funds Are Built to Compete

That doesn’t mean all gold funds have provided the same level of performance. Like a highly trained Olympian, our Gold and Precious Metals Fund (USERX)and World Precious Minerals Fund (UNWPX) have demonstrated a competitive edge in a cutthroat competitive space.

Check out the stats: According to Morningstar data, the Gold and Precious Metals Fund ranked five out of 73 Equity Precious Metals funds for total return for the one-year period as of June 30, 2016. The fund also ranked six out of 69 and 35 out of 50 such funds for total return for the five- and 10-year periods.

As for the World Precious Minerals Fund, it ranked two out of 73 Equity Precious Metals funds for the one-year period, 44 out of 69 funds for the five-year period and 47 out of 50 funds for the 10-year period as of June 30.

What’s more, USERX and UNWPX have BOTH been recognized by Morningstar, with USERX earning four stars overall among 71 Equity Precious Metals funds and UNWPX receiving five stars for the three-year period among the same number of funds.

Morningstar Rating
    Gold and Precious Metals Fund   World Precious Minerals Fund
  Overall/71 Overall/71
  3-Year/71 3-Year/71
  5-Year/69 5-Year/69
  10-Year/50 10-Year/50

Morningstar ratings based on risk-adjusted return and number of funds
Category: Equity Precious Metals
Through: June 30, 2016

Don’t settle for the bronze! I invite you to explore the performance and holdings of the Gold and Precious Metals Fund and World Precious Minerals Fund.

SHOW ME THE WAY TO GOLD INVESTING!

 

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.

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 (e.g., short-term trading fees of 0.05%) 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 here or by calling 1-800-US-FUNDS.

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 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 (if applicable) Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Ratingä 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.)

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 GSCI Total Return Index in USD is widely recognized as the leading measure of general commodity price movements and inflation in the world economy. Index is calculated primarily on a world production weighted basis, comprised of the principal physical commodities futures contracts. The Barclays High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, and 144-As are also included. The Barclays 1-3 Month Treasury-Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturely of less than 3 months and more than 1 month, are rated investment grade and have a $250 million or more of outstanding face value. The Barclays U.S. Credit Bond Index represents publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity and quality requirements. To qualify, bonds must be SEC-registered. The index includes both corporate and non-corporate sectors. The corporate sectors are Industrial and Finance, which include both U.S. and non-U.S. corporations.

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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The Last Known Gold Deposit
August 8, 2016

Goldcorp CEO Chuck Jeannes called 2015 the eyar for peak gold, citing the lack of new major gold discoveries. Do the facts line up with his predictions?

Gold is one of the rarest elements in the world, making up roughly 0.003 parts per million of the earth’s crust. (For some perspective, one part per million, when converted into time, is equivalent to one minute in two years. Gold is even rarer than that.) If we took all the gold ever mined—all 186,000 tonnes, from the bullion at Fort Knox to India’s bridal jewelry to King Tut’s burial mask—and melted it down to a 20.5 meter-sided cube, it would fit snugly within the confines of an Olympic-size swimming pool.

The yellow metal’s rarity, of course, is one of the main reasons why it’s so highly valued across the globe and, for most of recorded history, recognized and used as currency. Unlike fiat money, of which we can always print more, there’s only so much recoverable gold in the world. And despite the best efforts of alchemists, we can’t recreate its unique chemistry in a lab. The only way for us to acquire more is to dig.

But for how much longer?

Goldman Sachs analyst Eugene King took a stab at answering this question last year, estimating we have only “20 years of known mineable reserves of gold.”

The operative word here is “known.” If King’s projection turns out to be accurate, and the last “known” gold nugget is exhumed from the earth in 2035, that won’t necessarily spell the end of gold mining. Exploration will surely continue as it always has—though at a much higher cost.

(In fact, our insatiable pursuit of gold might one day soon take us to space, as President Barack Obama signed legislation in November that permits commercial mineral extraction on asteroids and the moon. Many near-Earth asteroids are said to contain trillions of dollars’ worth of precious metals and other minerals. But that’s a discussion for another time.)

We’ll probably see a surge in mergers and acquisitions, as I told Kitco News’ Daniela Cambone last week. I think that as long as they have reliable output, mid-cap companies could be gobbled up by the Barricks and Newmonts of the world.

Another consequence of recovering the last known nugget? The gold price could spike dramatically to levels only imagined. My colleague Jim Rickards, in his book “The New Case for Gold,” puts it at $10,000 an ounce. GoldMoney founder James Turk says it’s closer to $12,000. There’s really no way of knowing how high gold could go.

Did Gold Production Peak in 2015?

What we do know is that global gold output has been contracting since 2013. Last year might have been the tipping point, however, in line with Goldcorp CEO Chuck Jeannes’ prediction that peak gold was within spitting distance.

“There are just not that many new mines being found and developed,” he told the Wall Street Journal in 2014, adding that this was “very positive” for the gold price going forward.

This year, second-quarter mine supply was 2 percent less than the same period in 2015, according to preliminary estimates made by Thomson Reuters GFMS. Some analysts now expect global production to fall 3 percent in 2016, after seven straight years of growth.

world quarterly mine production is trending down
click to enlarge

What’s more, few new projects and expansions are expected to come online this year, writes Thomson Reuters, “and those in the near-term pipeline are generally fairly modest in scale, hence our view that global mine supply is set to begin a multiyear downtrend in 2016.”

Indeed, if we look at projects that opened in just the last two or three years, we see that they’re of lower grade, meaning they don’t produce nearly as much as older, easy-to-mine gold deposits.

new mines are making small contributions to global gold production
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The truth of the matter is, when it comes to discovering new gold deposits, the low-hanging fruit has likely already been picked. Gone are the days when someone could stumble upon an exposed hunk of gold at the bottom of a riverbed, as James Marshall did in 1848, setting off the California Gold Rush. Every year, the pursuit of gold becomes increasingly more challenging—not to mention more expensive—requiring ever more sophisticated tools and technology, including 3D seismic imaging, direction drilling and airborne gravimetry. (A satisfactory “gold fracking” method, however, seems unlikely to become reality any time soon.)

Compounding the issue is the fact that the number of years between discovery of a new major deposit and production is widening, due to the increase in feasibility assessments, compliance, licenses and more—and that’s all before nugget one can be extracted. The average lead time for gold mines worldwide is close to 20 years, though it can sometimes be more, depending on the jurisdiction. This highlights the need for worldwide policy reform to remove many of the barriers that obstruct responsible mining.

number of years between deposit discovery and production is growing
click to enlarge

In The Goldwatcher, the book I co-wrote with John Katz, I expressed the importance of knowing which developmental stage of a mine’s lifecycle a project currently falls into, as this has a strong influence on stock performance. Investing, like life, is all about managing expectations.

lifecycle of a mine
click to enlarge

Few New Mines as Companies Deleverage

What all of this means is we’ll probably continue to see fewer and fewer major discoveries, or those that yield more than a million ounces. As you can see below, new gold discoveries peaked in 1995. Exploration spending peaked nearly 20 years later when the price per ounce averaged $1,600.

Where Have All the Gold Discoveries Gone
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With gold now trading above $1,340 an ounce, up 26 percent for the year, many investors expect producers to begin lifting spending on exploration and production (or dividends).

Instead, most companies are in cost-cutting mode, using this opportunity to pay down debt and liquidate assets. According to Reuters, North American gold producers have managed to lower their debt levels 30 percent since late 2014.

Speaking to Mining.com, Newmont Mining CEO Gary Goldberg said his company, the second-largest gold producer in the world, is one of the few that’s currently building new mines—specifically the Merian project in Suriname and Long Canyon in Nevada. Because of the lack of new mines being built, he sees supply falling 7 percent between now and 2021.

Demand for the yellow metal, on the other hand, should remain strong during this period, helping to support prices even more.

Massive Inflows into Gold Funds

Daily Percent Change Following Positive Jobs Report

In the meantime, gold continues to find support from global monetary policy and low to negative government bond yields. Last week the Bank of England cut rates as part of a stimulus package, which both weakened the British pound 1.5 percent and gave the yellow metal a jolt.

These gains were erased, however, following Friday’s better-than-expected U.S. jobs report, which sparked a rally in Treasuries. This contributes to the narrative that gold and government debt are inversely related, a key component of the Fear Trade.

When priced in the local currencies of the U.S., Canada, South Africa or Australia—four of the largest gold-producing countries—bullion is up, which has boosted miners’ profits. Gold stocks, as measured by the NYSE Arca Gold Miners Index, have appreciated 128.92 percent in the last 12 months.

Gold Priced in Local Currencies
click to enlarge

For the first half of 2016, inflows into commodities have been the strongest since 2009. Gold and other precious metals account for about 60 percent of the new money, which has pushed commodity assets under management above $235 billion. Barclays believes 2016 could be the best year on record for gold-related ETFs and other funds, with many big-name hedge fund managers, from Stan Druckenmiller to Paul Singer to Bill Gross, singing the praises of the yellow metal.

 

Explore investing opportunities in gold!

 

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. This news release may include certain “forward-looking statements” including statements relating to revenues, expenses, and expectations regarding market conditions. These statements involve certain risks and uncertainties. There can be no assurance that such statements will prove accurate and actual results and future events could differ materially from those anticipated in such statements.

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.  The index benchmark value was 500.0 at the close of trading on December 20, 2002.

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 6/30/2016: Barrick Gold Corp., Newmont Mining Corp.

 

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Looking for Yield in All the Wrong Places
August 1, 2016

INVESTOR SEEKS ATTRACTIVE DIVIDEND YIELD

Fixed-income isn’t what it used to be. As the Wall Street Journal reports, the total amount of global government bonds that bear negative yields—meaning it costs you to have the government hold your money—has now climbed to a massive $13 trillion.

Global Negative Yielding Debt Climbs 13-Trillion
click to enlarge

This figure is likely to grow as yields continue to plumb the depths of negative territory, giving global investors little choice but to seek income elsewhere.

For some, it’s corporate debt. But even these securities have fallen significantly since the start of the year, many below zero. Bloomberg reports that roughly $512 billion worth of European, investment-grade corporate bonds now offer a negative yield.

It’s not much better in the U.S. Blue chip Walt Disney just issued a 10-year bond with the low, low yield of 1.85 percent.

For other investors, it’s American municipal bonds, which still offer attractive, tax-free income, not to mention low volatility and low default rates. Back in May, I shared with you how yield-starved foreign investors were piling into munis at an impressive clip, even though they’re ineligible to take advantage of the tax benefit. But no matter—at least it’s not costing them to participate, unlike a growing percentage of negative-yielding government debt.

Negative bond yields have also boosted demand for gold, which has had two of the most spectacular quarters in modern history. Although it doesn’t provide any income, the yellow metal has been treasured as an exceptional store of value, especially in times of political and macroeconomic uncertainty. Gold stocks are up more than 115 percent year-to-date, as measured by the NYSE Arca Gold Miners Index and Swiss financial services firm UBS puts gold prices near $1,400 by year’s end..

(Gold prices are also being supported right now by the likelihood that we’ve reached “peak gold.” According to my friend Pierre Lassonde, cofounder of Franco-Nevada, new discoveries have fallen steadily since the 1980s, while current mine production has not kept up with demand.)

Learn more about investment opportunities in gold

Are Stocks the New Bonds?

The hunt for yield has also inevitably landed many income investors in dividend-paying stocks. According to Reuters, about 60 percent of S&P 500 Index stocks now offer dividend yields that exceed the 10-year Treasury yield, which hit an all-time low of 1.36 percent earlier this month.

Dividend Paying Stocks Looking Even More Attractive
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This is one of the main reasons why recent cash flows into U.S.-based stock funds have been so strong. Money goes where it’s most respected. In the week ended July 13, ETF and mutual fund equity funds took in a whopping $33.5 billion in net new money, the largest positive weekly net inflow of the year.

Meanwhile, Treasury bond funds have been witness to some huge outflows this year. For the week ended July 25, the iShares 7-10 Year Treasury Bond ETF lost $90.5 million. Back in April, foreign investors unloaded nearly $75 billion in U.S. Treasuries, the single largest monthly amount since transactional recordkeeping began in 1978.

Increasing Dividends over the Past Three Years

In selecting the best dividend-paying stocks, we like to identify those that have grown their payments the most over the past three years. Using that metric, the leader by far right now is Alabama-based Vulcan Materials, which has increased its dividend a jaw-dropping 1,900 percent, according to FactSet data. Many financial groups, including Regions Financial and Zions Bancorporation, have also been very generous in rewarding shareholders.

COMM-SP 500 Index Companies with Largest Dividend Growth
click to enlarge

The challenge going forward has to do with corporate earnings. Dividend growth is largely driven by earnings, which are expected to be down 3.7 percent in the second quarter once all companies have reported. This will mark the sixth consecutive quarter of declines.

Energy stocks lead the way down, with crude oil prices at nearly three-month lows after falling over 20 percent since early June.

Apple is perhaps the largest contributor to declines this quarter. The iPhone-maker posted net income of $7.8 billion, a massive 27 percent drop from the $10.7 billion it recorded during the same period last year.

But let’s give the tech giant a break—it just sold its one billionth iPhone last week, despite a decrease in sales for the second straight quarter. I must also add here that Apple is the undisputed dividend king, having paid out $2.9 billion in the first quarter alone.

Apple has sold phenomenal 1 billion iPhones

Standouts this earnings season included Facebook, Amazon and Alphabet (Google)—three quarters of the FANG tech stocks—all of which crushed expectations. Mark Zuckerberg’s social media giant handily beat analysts’ estimates on the top and bottom lines as well as ad revenue, which totaled $6.2 billion during the quarter. This helped add $5 billion to Facebook’s market capitalization, pushing it ahead of Warren Buffett’s Berkshire Hathaway.

Buffett was also surpassed last week by Amazon CEO Jeff Bezos, whose wealth leaped $2.6 billion after an extraordinary earnings report. He’s now the world’s third-richest man, ahead of the Oracle of Omaha.

jeff bezos third richest man warren buffett

Netflix, on the other hand, reported a disappointing 59 percent loss in profits, from $40.5 million in the first quarter to $16.7 million. The popular streaming service added only 1.7 million subscribers during the quarter, far below its guidance of 2.5 million.

Banks on the Chopping Block?

Well, there’s no questioning it now: Donald Trump and Hillary Clinton have both been anointed as our presidential candidates. Many wondered if Bernie Sanders would try to disrupt the nomination process and insist on a brokered convention, similar to what Franklin Roosevelt did in 1932. Sanders’ supporters certainly put up a fight, but in the end, Clinton prevailed.

This week before last, I suggested that the only thing Trump and Clinton have in common with each other is they’re both in favor of increasing infrastructure spending. It’s now come to my attention that no matter who wins, there could be an effort to break up the big banks, as both parties’ platforms include an interest in reviving the Glass-Steagall Act of 1933. The goal, of course, would be to prevent another financial crisis, but whether the banking act would actually work is up for debate.

both major political parties in favor breaking big wall street banks

Another solution might be to break up the regulatory bodies into two separate branches—one overseeing banks, the other overseeing all other financial and investment institutions, from brokers to insurance companies to mutual fund companies. Each side would have its own unique set of rules and regulations. What’s good for banks isn’t necessarily good for investment firms, and vice versa, because they’re often playing very different games.

Think of it this way: We expect referees to be experts in their particular sport. That only makes sense. But imagine if all competitive sports, from basketball to hockey to softball, suddenly drew from the same pool of referees. Games would be conducted a lot less efficiently. Officials would constantly be putting on and taking off different hats. One game’s set of rules might mistakenly (and awkwardly) be applied to a completely different game.

This is what’s happening in the financials industry as a whole.

As I always say, regulations are often well-intentioned. There’s a reason why they exist. We need them to maintain a level and fair playing field.

At the same time, it’s important that they be commonsense and not hinder or prohibit everyday, lawful business activity.

 

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.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time. Past performance does not guarantee future results.

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.0 at the close of trading on December 20, 2002. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

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 6/30/2016: Franco-Nevada Corp., FactSet Research Systems Inc., MasterCard Inc., Southwest Airlines Co.

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Will the Gold Bull Market Resume After the Summer Correction?
July 25, 2016

Donald Trump accepting the Republican nomination for president this week

Looking more Las Vegas casino than Oval Office, the stage Donald Trump delivered his nomination acceptance speech from Thursday was all gold, from the stairs to the podium, completely befitting of his showman-like style. Whether you support or oppose Trump, it’s time to face reality. This is really happening, and we should all brace ourselves for what will surely be one of America’s messiest, ugliest general election seasons.

Only time will tell which candidate will be triumphant in November, but in the meantime, one of the winners might very well be gold, which has traditionally attracted investors in times of political and economic uncertainty. In the United Kingdom, which voted one month ago to leave the European Union, gold dealers are seeing “unprecedented” demand, especially from first-time buyers. Some investors are reportedly even converting 40 to 50 percent of their net worth into bullion, though that’s not advisable. (I always suggest a 10 percent weighting, diversified in physical gold and gold mining stocks.) In Japan, where government bond yields have fallen below zero and faith in Abenomics is flagging, gold sales are soaring.

It’s not unreasonable to expect the same here in the U.S. between now and November (and beyond).

Strong U.S. Dollar and Treasury Yields Weighing on Gold

More so than the upcoming election, gold prices are being driven by U.S. dollar action, interest rates and low-to-negative bond yields around the world. (Between $11 trillion and $13 trillion worth of global sovereign debt currently carries a negative yield.) Right now the yellow metal is in correction mode on a strengthening dollar and rising two-year and 10-year Treasury yields, both of which share an inverse relationship with gold.

Gold Corrects on Rise of 10-Year Treasury Yield
click to enlarge

It’s also worth mentioning that the summer months have historically been among the weakest. By contrast, some of the highest gold returns of the year have occurred in September, when the Love Trade heats up in India in anticipation of Diwali and the wedding season.

Gold's Average Monthly Gains and Losses, 1975 - 2013
click to enlarge

For the past several trading days, gold demand had also been overshadowed by a hot equities market, with many stocks hitting 52-week highs. Both the S&P 500 Index and Dow Jones Industrial Average closed at all-time highs, twice in the latter’s case. The CNN Fear & Greed Index, which measures investor sentiment, is currently in “Extreme Greed” mode, at more than a two-year high.

Markets in Extreme Greed Mode

With gold taking a breather, now might be a good buying opportunity. Since 1970 there have been only four major gold bull markets, and the consensus among analysts right now is that we’re in the early stages of a new one, with end-of-year forecasts in the $1,400 an ounce range.

Learn more about what’s driving gold.

Rumors of Brexit’s Negative Impact Have Been Greatly Exaggerated

Despite gold’s correction, the metal got a boost last Thursday courtesy of Mario Draghi. The European Central Bank (ECB) president, as expected, announced that euro area interest rates and asset purchases would remain unchanged as economic ramifications of the Brexit referendum continue to be assessed.

Speaking of Brexit, Draghi noted that markets have met the volatility and uncertainty in the month following the U.K. referendum with “encouraging resilience.” Like many others, he had predicted that Brexit would dramatically stunt euro growth, but as we’ve already seen, such claims are overdone. In a note released last week, securities trading firm KCG wrote that June 24, the day following the British referendum, “was no repeat of August 24,” a reference to the “flash crash” that struck equities last summer and led to ETF mispricing.

Last week, the International Monetary Fund (IMF) trimmed 0.1 percent from its global economic growth forecast for the year, singling out Brexit fallout as the culprit. Curiously, though, the organization sees the U.K. growing faster than both Germany and France this year and next. This disconnect prompted U.K. Independence Party MP Douglas Carswell to label the IMF as “clowns” with “serious credibility problems.”

IMF Sees the U.K. Growing Faster Than Germany and France, Despite Brexit
click to enlarge

Following Draghi’s statement, gold prices immediately popped in Thursday morning trading, effectively hitting the pause button on the correction. On Friday, though, prices continued to slide, contributing to gold’s second straight week of losses.

The next hurdle to be cleared is a U.S. interest rate hike. Expectations that rates will go up in September have wobbled back and forth since Brexit, but in recent days, it’s been reported that Federal Reserve officials feel confident enough to raise them at least once before the end of the year. Gold will face additional pressure if rates are allowed to rise, but if the Fed chooses to stand pat, it could serve as another catalyst for a price surge.

 

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 Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

The CNN Fear & Greed Index monitors seven market factors, including stock price momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility and safe haven demand, by calculating how far they have veered from their averages relative to how far they normally veer, on a scale of 0 to 100, with 0 indicating fear and 100 greed. Then, the seven scores are equally combined into one.

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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