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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.

What America Can Learn from China’s Infrastructure
May 22, 2015

As one of the greatest nations on the planet, the United States excels in a number of areas, innovation and entrepreneurship foremost among them. But something you might be hard-pressed to find at the top of anyone’s best-of list is infrastructure—specifically roads, rail and mass transit.

Quality, dependable infrastructure is essential for strong economic growth

In this department at least, the U.S. has some catching up to do with other parts of the globe. The World Economic Forum’s Global Competitiveness Report 2014-2015 ranks the U.S. 16th in “quality of overall infrastructure”—15th in quality of its rail system and 16th in quality of its roads.

Heavy news indeed for the country known for building the first-of-its-kind transcontinental railway and interstate highway system.

But if you’ve been keeping up with current events, this shouldn’t come as a shock. The recent and very tragic Amtrak derailment in Philadelphia is a somber reminder that America needs stronger infrastructure policies at every level of government. This will not only help save lives but also create jobs, boost the economy and make transportation more safe and efficient.

Civil engineers have been making this case for years. Following its most recent assessment of all forms of infrastructure, from energy to schools to drinking water, the American Society of Civil Engineers (ASCE) gave the U.S. a depressingly low overall grade of D+. Levees and inland waterways were the worst offenders, both slapped with a D-. According to the group, which releases its report every four years, a staggering $3.6 trillion will be necessary by 2020 to bring the nation’s infrastructure up to ideal conditions. Short of this investment, the ASCE says, $1 trillion in U.S. business sales could be lost every year, along with millions of jobs.

The mayors of some of the largest U.S. cities emphatically acknowledge the relationship between quality infrastructure and strong economic growth. In a recent poll taken of several mayors, Politico magazine found that infrastructure sits atop their list of concerns. Thirty-five percent cited “better infrastructure” as the one thing that could help their city’s economy grow the most; 31 percent said that “deteriorating infrastructure” was the city’s greatest challenge.

U.S. Mayor Emphasize the Importance of Infrastructure and Education
click to enlarge

But public spending on infrastructure, at every level, has declined pretty rapidly as a percentage of GDP since the recession, falling well below its lowest point in the last 20 years.

total Public Construction Spending in the U.S. as a Percentage of GDP
click to enlarge

And now, some emerging regions, most notably China, are chugging ahead with large-scale construction projects, both domestic and international, that promise to kick-start business, strengthen trade routes and safely connect people from all corners or their borders.

One Road, One Belt… Big Opportunity

Whereas the U.S. spends less than 2 percent of its GDP on infrastructure, China currently spends around 9 percent on both domestic and foreign projects. Back in December, I pointed out that China has the most extensive network of high-speed rail in the world—approximately 7,000 miles’ worth, all told—with thousands more miles of track under construction. This will require untold amounts of natural resources.

And with China’s grand “One Road, One Belt” initiative underway, even more resources will be needed. The strategy, which harkens back to the famed Silk Road, is intended to open up new trade routes to Southeast Asia, the Middle East and Eastern Europe.

The flagship project of One Road, One Belt is the China Pakistan Economic Corridor, an elaborate series of roads, rail and pipeline that will cut lengthwise through Pakistan, giving China convenient access to ports on the Arabian Sea. Along the way, several energy projects are slated to be built.

the Proposed $46-Billion China Pakistan Economic Corridor
click to enlarge

If everything goes according to plan, the entire 2,000-mile corridor, expected to take 15 years to complete, should come in at around $46 billion, making it one of the most expensive infrastructure projects in human history.

It’s certainly the most China will have ever spent in another country. If you recall, it’s now investing more money outside its borders than it is domestically, having exceeded $100 billion for the first time in 2014. The country is investing so heavily in Africa, in fact, that some economists have nicknamed it “China’s Second Continent.”

One of the ways our China Region Fund (USCOX) is participating in the massive One Road, One Belt endeavor is through China Railway Construction, a top-10 holding.

Here’s hoping China sees huge returns on their investment.

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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.

The Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

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 3/31/2015: China Railway Construction Corp. 2.22%.

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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China to Take the Reins in Funding Regional Infrastructure Projects
March 31, 2015

This Tuesday marked the last day that countries could submit their applications to become founding members of the new China-led Asian Infrastructure Investment Bank (AIIB). As of this writing, a little over 40 nations have either already been approved or have applied for membership, including strong U.S. allies such as Britain, Germany and Australia.

Notable absentees, as you can see below, are the U.S. and Japan.

Countries that Have Joined or Applied to Join Asian Infrastructure Investment Bank (AIIB)

Conceived to serve as an alternative to Western-dominated sources of credit such as the World Bank, International Monetary Fund (IMF) and Asian Development Bank, the AIIB will aim to invest in regional infrastructure projects ranging from energy to transportation to telecommunications.

The new development bank, which is expected to launch later this year, will have $100 billion in capital to begin with—a massive mountain of money, to be sure, but it falls far short of the estimated trillions that will be necessary to fund Asia’s astronomical infrastructure demand.

China’s creation of its own global bank highlights the country’s desire to wield more control over funding such projects. It currently commands only 5.17 percent of the vote in the World Bank and 3.81 percent in the IMF.

China is aiming for its currency to become part of the Special Drawing Right (SDR), the International Monetary Fund's composite currency unit.

And so the currency wars continue to heat up. China’s move demonstrates its ongoing efforts to establish the yuan as a global reserve currency on par with the U.S. dollar. It’s no secret that the country wants the yuan to become part of the IMF’s Special Drawing Right (SDR), a composite currency unit that now consists of the dollar, Japanese yen, British pound sterling and euro. The founding of the AIIB might very well bring the country closer to realizing these goals.

A-Shares Headed Higher

Chinese stocks are currently having a moment. Mainland A-shares, as measured by the benchmark Shanghai Composite Index, are up an incredible 92 percent for the 12-month period on the back of strong recent performance in the financial, property and infrastructure industries.

There’s generally a high correlation between the A-share market and China and Hong Kong, but the A-shares have outperformed by a wide margin over the past year.

Shanghai Composite's Breakout Continues

Last Wednesday the index fell a slight 0.8 percent, ending a 10-day rally that contributed 12 percent, its longest winning streak in 23 years.

Chinese policymakers have recently eased quota controls for foreign investors in mainland stocks and bonds, as they promote the yuan to be accepted as an SDR. The potential for greater inflows into the market should help the Shanghai Composite head even higher.

Our China Region Fund (USCOX) has participated in this rally through the Morgan Stanley China A Share Fund and a closed-end fund.

Read more about China:

  • China Consumes More Gold Than the World Produces
    “What’s not so well-known—but just as amazing—is that China’s supply of the precious metal per capita is actually low compared to neighboring Asian countries such as Taiwan and Singapore.”
  • China Just Crossed a Landmark Threshold
    “One of the most headline-worthy developments is China’s $16.3-billion infrastructure initiative intended to revive trading routes along the centuries-old Silk Road. Thousands of miles of railways, roads and pipelines will link Beijing to major markets all over Asia, Africa and Europe.”
  • China Wants to Conduct the World’s High-Speed Rail Market
    “In recent months, Chinese Premier Li Keqiang has emerged as the nation’s top salesman for what he calls the ‘New Silk Road’—miles upon miles of high-speed transportation connecting all corners of the world. His plan might very well become one of China’s most lucrative exports and culturally significant contributions to the world: fast, efficient and reliable railways.”

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.

The Shanghai Composite Index (SSE) is an index of all stocks that trade on the Shanghai Stock Exchange.

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 12/31/2014: Morgan Stanley China A Share Fund, Inc. 1.52%.

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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A Tale of Two Economies: Singapore and Cuba
March 26, 2015
A Victoria's Secret in the Toronto Pearson International Airport

It would be nearly impossible to find two world leaders in living memory whose influence is more inextricably linked to the countries they presided over than Cuba’s Fidel Castro and Singapore’s Lee Kuan Yew, who passed away this Monday at the age of 91.

You might find this hard to believe now, but in 1959—the year both leaders assumed power—Cuba was a much wealthier nation than Singapore. Whereas Singapore was little more than a sleepy former colonial trading and naval outpost with very few natural resources, Cuba enjoyed a thriving tourism industry and was rich in tobacco, sugar and coffee.

Fast forward about 55 years, and things couldn’t have reversed more dramatically, as you can see in the images below.

Cube in 1950, Singapore in 1950, Cuba today, Singapore today

The ever-widening divergence between the two nations serves as a textbook case study of a) the economic atrophy that’s indicative of Soviet-style communism, and b) the sky-is-the-limit prosperity that comes with the sort of American-style free market capitalism Lee introduced to Singapore.

Sound fiscal policy, a strong emphasis on free trade and competitive tax rates have transformed the Southeast Asian city-state from an impoverished third world country into a bustling metropolis and global financial hub that today rivals New York City, London and Switzerland. Between 1965 and 1990—the year he stepped down as prime minister—Lee grew Singapore’s per capita GDP a massive 2,800 percent, from $500 to $14,500.

Since then, its per capita GDP based on purchasing power parity (PPP) has caught up with and zoomed past America’s.

Lee Kuan Yew's Singapore Flourished while Fidel Castro's Cuba Floundered

Under Castro and his brother Raúl’s control, Cuba’s once-promising economy has deteriorated, private enterprise has all but been abolished and the poverty rate stands at 26 percent. According to the CIA’s World Factbook, “the average Cuban’s standard of living remains at a lower level than before the collapse of the Soviet Union.” Its government is currently facing bankruptcy. And among 11.3 million of Cuba’s inhabitants, only 5 million—less than 45 percent of the population—participate in the labor force.

Compare that to Singapore: Even though the island is home to a mere 5.4 million people, its labor force hovers above 3.4 million.

Singapore Had Third-Highest GDP Based on Purchasing Power Parity (PPP) Per Capita

Because of the free-market policies that Lee implemented, Singapore is ranked first in the world on the World Bank Group’s Ease of Doing Business list and, for the fourth consecutive year, ranked second on the World Economic Forum’s Global Competitiveness Report. The Heritage Foundation ranks the nation second on its 2015 Index of Economic Freedom, writing:

Sustained efforts to build a world-class financial center and further open its market to global commerce have led to advances in… economic freedoms, including financial freedom and investment freedom.

Cuba, meanwhile, comes in at number 177 on the Heritage Foundation’s list and is the “least free of 29 countries in the South and Central America/Caribbean region.” The Caribbean island-state doesn’t rank at all on the World Bank Group’s list, which includes 189 world economies.

Many successful international businesses have emerged and thrived in the Singapore that Lee created, the most notable being Singapore Airlines. Founded in 1947, the carrier has ascended to become one of the most profitable companies in the world. It’s been recognized as the world’s best airline countless times by dozens of groups and publications. Recently it appeared on Fortune’s Most Admired Companies list.

Singapore AIrlines

Xian Liang, portfolio manager of our China Region Fund (USCOX), notes that Lee’s key legacy is an emphasis on pragmatism and adaptability.

Lee was a great visionary indeed,” Xian says. “He achieved wonders, fast-tracking Singapore’s GDP growth to U.S. levels.

We at U.S. Global Investors honor the legacy of Lee Kuan Yew, founder of modern-day Singapore. He showed the world that when a country chooses to open its markets and foster a friendly business environment, strength and prosperity follow. Even on the other side of the globe, the American Dream lives on.

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.

The Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

The Ease of Doing Business Index is an index created by the World Bank Group. Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

The Index of Economic Freedom is an annual index and ranking created by The Heritage Foundation and The Wall Street Journal in 1995 to measure the degree of economic freedom in the world's nations.

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 12/31/2014: Singapore Airlines 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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Africa Could Mine Its Way to Prosperity if It Addressed Instability
February 17, 2015

Last week I attended the Investing in African Mining Indaba in Cape Town, South Africa, as both a presenter and a student seeking opportunities. One of the highlights of the conference was former Prime Minister Tony Blair’s keynote address, during which he offered some crucial advice to African governments: To attract and foster a robust mining sector, a commitment to fiscal stability must be made.

Goods Trade with Africa in 2013

Since 2009, Blair has run the Africa Governance Initiative, which counsels leaders in countries such as Rwanda, Sierra Leone, Liberia, Guinea and others.

Simply put, without fiscal stability and predictability in taxation, capital will be unwilling to flow into any country—African or otherwise—for exploration and production. If a government changes its tax policy every three years or so, that instability discourages the inflow of financing. This is bad for Africa.

“The mining sector remains absolutely vital for Africa’s future,” Blair said, “and even with the sharp declines in [commodity] prices, there are tremendous opportunities and there will be, no doubt, an adjustment and reshaping of the face of mining within Africa over these next few years.”

I shared the following map last week, but it’s worth showing again, as it supports Blair’s point. Central and Southern Africa, especially, are extremely commodity-rich and maintain a large global share of important metals and minerals such as platinum, diamonds and gold.

In 2014, China Channeled Over $100 Billion into 156 Countries and Regions Around the Globe
click to enlarge

Fiscal instability is also bad for investors in Africa. If foreign investment is not respected by a government, if it is punitively taxed or arbitrarily confiscated, further investment will not flow into that country. Politically, African nations need to recognize that seemingly faceless investment institutions represent real people’s hard earned dollars.

In Zambia, for example, a huge 12 percent of the country’s GDP comes from mining, an industry that employs 10 percent of all Zambians. Yet its government has increased, rather than cut or at least eased, restrictive royalty taxes on mines. In the case of open pit mines, royalties were raised from 6 percent to a crippling 20 percent.

Speaking to Reuters, a mining industry spokesperson speculated: “Mining companies are not going to put another dollar in [Zambia]” if the government continues to be unreliable.

Less Friction, Fewer Disruptions

This is proof positive of what I frequently say: Government policy is a precursor to change. In the example above, the tax policy is leading to change that could very well hurt Zambia’s economy. With mining being such a strong contributor to its GDP, it seems the government would want to make it easier, not more challenging and costly, for international producers to conduct business there.

The less friction and fewer disruptions there are, the easier it is for money to flow.

But Zambia’s isn’t the only African government that’s placing roadblocks in front of miners. The Democratic Republic of Congo is in the early stages of hiking royalties on mines and revising its mining code. And in his recent State of the Nation Address, South African President Jacob Zuma announced that foreigners could no longer own land in the country, which raises the question of what implications, if any, this might have on U.S. and Canadian companies that own and operate South African mines. Zuma’s announcement comes at a time when persistent electricity shortages have stymied mining activity and rumblings of a miners’ strike similar to the one last year that brought platinum and palladium production to a five-month halt are intensifying.    

At the same time, many governments in Africa are waking up to see that they’re going to have to provide the sort of stability and consistency Prime Minister Blair outlined if they hope to attract the capital necessary to fund and develop their mining opportunities.

Miners Giving Back

A strong mining sector doesn’t just benefit the native country, either. It’s a global good that benefits all. In another presentation at the African Mining Indaba, Terry Heymann of the World Gold Council convincingly showed that the economic output of the global gold mining sector far exceeds the collective aid budget of world governments. Gold mining, he said, created and moved as much as $47.3 billion to suppliers, businesses and communities in 2013, compared to governments’ $37.4 billion.

Many gold mining companies take a more direct approach to helping the communities in the countries they operate in, including Randgold Resources, which works primarily in Mali. In an interview during the African Mining Indaba, CEO Mark Bristow detailed his company’s involvement in the fight against Ebola and other epidemics that have hit the West African country:

Our doctors, the Randgold doctors, run a technical committee meeting every day where we coordinate with the [Malian] health authorities, and we help manage the deployment of energy. Now that we’ve eradicated the second [Ebola] outbreak, our big focus is on prevention and education.
Goods Trade with Africa in 2013

Bristow explained that the company had sponsored the development of an educational film about Ebola, before highlighting other company achievements:

We were part of the Neglected Tropical Disease Initiative rollout… We’re very big on the AIDS programs around the country. We brought the malaria incident rate around our mines down by more than four times.

Because Randgold is the largest employer in Mali, Bristow suggested, he feels a moral obligation to partner with his host country and make it a healthier, safer place to live and work.

During the same interview, he insisted that Randgold, which we hold in our Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX), has a “solid five years ahead of us,” citing the fact that the company holds no debt and managed to replace all the ounces it mined in 2014 at $1,000 long-term gold price. It also increased its dividend 20 percent.

Despite bullion’s price hovering just above the relatively low $1,230 range, Randgold has delivered 16 percent year-to-date.

This is in line with gold mining stocks in both the NYSE Arca Gold Miners Index and FTSE Gold Mines Index, which are outperforming the return on bullion.

Gold-Mining-Stocks-Outperforming-Bullion-Year-to-Date
click to enlarge

As I mentioned back in July, when mining stocks do well, bullion has tended to follow suit. This also shows that producers are successfully adjusting to a $1,200-per-ounce environment by scaling back on capital spending, selling off assets, putting exploration on hold and engaging in mergers and acquisitions—which in the past has signaled that a bottom in spot prices might be reached. B2Gold Corp. closed on its deal to buy Papillon Resources in October; we learned in November that Osisko Gold Royalties is taking over Virginia Mines; and last month it was announced that Goldcorp would be purchasing Probe Mines.

Weak Currencies, Low Fuel Prices

Speaking with Kitco News’s Daniela Cambone during last Monday’s Gold Game Film, I commented on some of the macro events aiding gold mining companies such as Randgold:

Mark Bristow has just hit the ball out of the park. He benefits from a weak Mali currency and he benefits from a weak euro because everything is priced in euros. He’s also benefited from weak oil prices.

Indeed, many miners not operating in the U.S. are the beneficiaries of a weak local currency. The West African CFA franc, Mali’s currency, is off 20 percent; the South African rand, 40 percent; the Canadian dollar, 15 percent.

Low energy prices are also helping gold producers, just as they’re helping companies in other industries, airlines especially. In most cases, fuel accounts for between 20 and 30 percent of gold miners’ total operating costs. Because Brent oil is currently priced around $60 per barrel, gold producers are seeing significant savings.

The Gold Demand

This Thursday marks the Chinese New Year, a traditional occasion for gold gift-giving. Chinese demand for the yellow metal was strong in 2014, as 800 tonnes flowed into the country. Over half of the global gold demand, in fact, was driven by the world’s two largest markets, China and India.

Chinese-and-Indian-Growth-Has-Spurred-Market-Infrastructure-Development
click to enlarge

Historically low real interest rates are also driving investors into gold and gold stocks. As I told Daniela:

When you look at real interest rates out of the G7 and G10 countries, the only one with a modest increase is the U.S. dollar. Any time you get this negative real interest rate scenario, gold starts to rally in those countries’ currencies. Now what’s really dynamite is the gold mining companies like Goldcorp, which pays a dividend higher than a 5-year government bond.

Emerging Markets Webcast

Make sure to join us during our webcast tomorrow, February 18. USGI Director of Research John Derrick, portfolio manager of our China Region Fund (USCOX) Xian Liang and I will be discussing reflationary measures in China and emerging Europe. Don’t miss it!

Time-Tested History of No Drama - Near-Term Tax Free Fund - U.S. Global Investors

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.

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.

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 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 FTSE Gold Mines Index Series encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold.

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. Note that stocks and Treasury bonds differ in investment objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, and tax features. A fund’s yield may differ from the average yield of dividend-paying stocks held by the fund.

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, World Precious Minerals Fund and China Region Fund as a percentage of net assets as of 12/31/2014: B2Gold Corp. 0.28% World Precious Minerals Fund; Goldcorp, Inc. 1.03% Gold and Precious Metals Fund; Osisko Gold Royalties 0.00%; Papillion Resources 0.00%; Probe Mines 0.00%; Randgold Resources Ltd. 2.30% Gold and Precious Metals Fund, 1.43% World Precious Minerals Fund; Virginia Mines, Inc. 1.14% Gold and Precious Metals Fund, 10.35% World Precious Minerals Fund.

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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15 Charts to Keep Your Eyes on for ‘15
January 8, 2015

In anticipation of the new year ahead, I’ve pulled together 15 charts that we’ll be watching and might help guide our expectations for what 2015 has in store for us. After looking them over, be sure to share some of your own via Facebook, Twitter or Instagram.

A Not-So-Crude Trend

Crude oil has recently dipped below $50 per barrel for the first time since 2009, one of the reasons for which is the rise of oil production in the United States. The glut has already prompted many U.S. companies to halt or limit projects, especially those that make use of hydraulic fracturing, or fracking. With oil prices as low as they are, it’s possible even more companies will join them.

1.

The Rise of Oil Production in the United States
click to enlarge

The bright side, however, is that a bottom and subsequent rally might emerge as early as next month, if the 5-, 15- and 30-year trend stays in place.

2.

West Texas Crude Oil Historical Pattern
click to enlarge

Airline Stocks Taking Off

Low oil prices have certainly hurt companies involved in the exploration and production of oil, but cheap fuel has benefited many companies that consume barrelsful of the stuff, airlines included. Despite some turbulence, such as the October pullback and pre-election Ebola scares, airline stocks have continued to ascend.

3.

Airline Stocks at a 12 Year High
click to enlarge

PMI: The Economic Soothsayer

Gross domestic product (GDP) tells you where you’ve been. Only the global manufacturing purchasing manager’s index (PMI) can tell you where you’re headed. Our research shows that when the one-month PMI reading crosses above the three-month moving average, gains have been made in select areas six months afterward:

4.

Commodities and Commodity Stocks Historically Rose Six Months After PMI "Cross-Over"
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Since September of last year, the global one-month reading has remained below the three-month moving average.

5.

Global Manufacturing PMI's One-Month Moving Avergae Remains Below the Three-Month Moving Average
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We’ll be eyeing the global PMI closely this year because when the “cross-above” occurs, it’ll be time to act!

End of One Secular Cycle, Start of Another?

We might be nearing the end of another 30-year-or-so secular market cycle, which is both exciting and a signal for caution. Adjusted for inflation, each of the three cycles—1921-1949, 1949-1982 and 1982-2015—have risen successively in performance.

6.

Three S&P 500 Secular Market Cycles from the Last 100 Years
click to enlarge

This raises more than a few questions, two of which immediately spring to mind: When will this current cycle end? And will the next one follow the trend of even better inflation-adjusted returns?

Ruble Rubble

We all know Russia’s going through tough times. International sanctions, sliding oil prices and a collapsing currency have all contributed to dire economic straits.

7.

Russian Ruble Volatility Looks SImilar to Moves During 2008 Financial Crisis
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The Federation’s economy is expected to contract by almost 5 percent, and Standard & Poor’s recently announced that it could very well downgrade Russian debt to junk status within the next three months.

Whatever your opinion on Russia is, it’s important to acknowledge that ours is a global economy. It would be in our country and company’s best interest for Russia to transform itself into a more attractive place to conduct business.

BRICS of Gold

Many investors are aware that gold is often used as a safe-haven currency. We’re witnessing this fear trade unfold right now in most of the BRICS countries—Brazil, Russia, India, China and South Africa.

By year’s end, Russia had snapped up 130 tons of the precious metal, a 73-percent increase from 2013. Since India eliminated its 80:20 rule in November, which mandated that 20 percent of all imported gold must be exported before any new shipments could be brought in, gold demand has exploded. In South Africa, gold producers are currently leading a stock market rally.

And in China, wholesale gold demand has remained steady as its economy has slowed. Total withdrawals from the Shanghai Gold Exchange came in just shy of the record set in 2013.

8.

China's Wholesale Gold Demand in 2014 Was Just Shy of 2013 Record
click to enlarge

We’ll see if China can sustain its robust demand throughout the next 12 months.

Year of the Bull Market

Speaking of China, its A-Shares have rallied strongly since the summer despite the country’s slowdown. They continue to be undervalued and offer a favorable risk-reward profile.

9.

Undervaluation of Chinese Stocks Indicates Favorable Risk-Reward
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The rally in Chinese equities cannot be overstated. Over the past six months, China’s market capitalization has surpassed that of other BRIC countries combined.

10.

China's Market Value vs. Other BRIC Countries
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Brightest of the Bunch

Although gold had another down year in 2014, losing 1.7 percent, it still smoked all other major world currencies except for the U.S. dollar, whose mounting strength has put pressure on the yellow metal.

11.

Gold is Second Best PErforming Currency of 2014
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With the global downturn in effect, gold appears likely to remain an attractive investment.

Borrowing for Free

Bad news is often good news for gold: For the first time ever, the German 5-year and 10-year bond yields have fallen below zero, indicating unambiguous deflation in the eurozone.

12.

German Five-Year Breakeven Rate Gauges Inflation Outlook
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This means that German bondholders are effectively paying the government to hold on to its debt. As a result, international investors might look elsewhere for better performance—gold, for instance, or the U.S. municipal bond market, which was valued at $3.6 trillion by year’s end.

The S&P 500 Index Paying Dividends

Nearly 85 percent of companies in the S&P 500 currently pay a dividend, with dividends per share (DPS) having grown 11.3 percent in the past 12 months.

13.

More BLue Stocks Paying Dividends
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What’s more, FactSet analysts expect DPS to increase over 8 percent in the next 12 months, with the financial and consumer discretionary sectors to report double-digit growth.

Watch the Big Apple

As the U.S.’s largest company by net capitalization, Apple has had mixed results after launching its flagship devices. When it released the first iPhone back in June 2007, its stock surged 16 percent within the next month. More recently, however, Apple stock tumbled following reports that the iPhone 6 was prone to bending.

Will the Apple Watch, to be released sometime early this year, lead company stock higher? Or will it take a bite out of gains? We’ll have to wait and see, but for now, analysts are already making their product shipment forecasts for 2015.

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Estimated 2015 Apple Watch Shipments
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Don’t Fear Rising Rates

15.

Historically, Rising Interest Rates Have Helped Boost Stocks on Average

This one remains filed under “considerable time,” as we have no idea when or to what extent the Federal Reserve will decide to raise rates this year. I’ve previously written about how rate increases might affect Treasuries. But what about stocks? Historical precedent, going back to 1971, shows that stocks have on average increased by nearly 4 percent six months following a rate hike.

What other charts do you think are important to keep in mind as we embark on a new year? Again, you’re invited to share them via Facebook, Twitter or Instagram.

Past performance does not guarantee future results.

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

The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.

The NYSE Arca Airline Index is an equal dollar weighted index designed to measure the performance of highly capitalized companies in the airline industry. The XAL Index tracks the price performance of major U.S. and overseas airlines.

Shanghai Gold Exchange is a non-profit self-regulatory organization, approved by the State Council, organized by the People's Bank of China, and registered with the State Administration for Industry & Commerce, for the purpose of trading gold, silver, platinum and other precious metals.

BRIC refers to the emerging market countries Brazil, Russia, India and China.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

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 9/30/2014: Apple, Facebook.

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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Net Asset Value
as of 06/15/2018

Global Resources Fund PSPFX $5.83 -0.08 Gold and Precious Metals Fund USERX $7.61 -0.07 World Precious Minerals Fund UNWPX $3.89 -0.06 China Region Fund USCOX $11.80 -0.04 Emerging Europe Fund EUROX $6.72 -0.10 All American Equity Fund GBTFX $25.97 0.05 Holmes Macro Trends Fund MEGAX $20.22 No Change Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change