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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.

The Many Uses of Gold
March 14, 2018

The many uses of gold

As our loyal readers know, at U.S. Global Investors we carefully monitor the price of gold. We pay close attention to the macro drivers moving the yellow metal, like government policy and cultural affinity spurring demand globally. We also monitor the micro drivers, like company management and quant factors that make one gold stock superior to the next.

Gold’s qualities make it one of the most coveted metals in the world and a popular gift in the form of jewelry – this is what I call the Love Trade. From the beginning of the Indian wedding season in September until Chinese New Year in February, the price of gold tends to rise due to higher demand from the two biggest consumers of gold, China and India.

The Love trade China and India gift gold for weddings and other celebrations

On the other hand is the Fear Trade, driven by negative real interest rates and the fear of poor government or central bank policies that could result in currency devaluation or inflation. This fear triggers people to buy gold as a hedge against possible negative returns in other asset classes, which in turn, pushes the gold price higher. 

For more on gold’s seasonal trading patterns, download the free whitepaper Gold’s Love Trade.

Gold in a Portfolio

We believe gold is an essential part of a portfolio due to its history as a protector against inflation. I’ve always recommended a 10 percent weighting in the metal, 5 percent in gold bullion or jewelry, and 5 percent in gold stocks, mutual funds and ETFs.

In fact, current economic conditions make an even greater case for gold. The stock market is still on a historic bull run, and the tax reform bill is helping ratchet up share prices. It’s important to remember that the precious metal has historically shared a low-to-negative correlation with equities. For the past 30 years, the average correlation between the LBMA gold price and the S&P 500 Index has been negative 0.06.

Gold has also performed competitively against many asset classes over the past few decades, as seen in the chart below. This makes the metal, we believe, an appealing diversifier in the event of a correction in the capital markets or an end to the bull market.

Gold has performed very competitively against a number of asset classes over the years
click to enlarge

Our investment team brings knowledge and experience in a variety of fields, with one of the most notable being gold. As such, we have written numerous pieces about the precious metal. One of our most popular is the Many Uses of Gold slideshow that outlines eight different uses of gold, other than in your portfolio. From dentistry to electronics and space travel to currency, gold remains widely used in everyday life.

We believe it’s important to truly understand the asset class you are investing in, and we hope this slideshow does just that. Explore gold’s many uses here!

Explore the many uses of gold slideshow


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

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

The LBMA Gold Price is the global benchmark prices for unallocated gold delivered in London. The auctions are run at 10:30 am and 3:00 pm London time. The final auction prices are published to the market as the LBMA Gold Price AM and LBMA Gold Price PM.

Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management. Correlation is computed into what is known as the correlation coefficient, which has value that must fall between -1 and 1.

The Bloomberg Barclays Short Treasury Bill Index tracks the market for Treasury bills issued by the U.S. government.

The Bloomberg Barclays US Aggregate Bond Index, which until August 24, 2016 was called the Barclays Capital Aggregate Bond Index, and which until November 3, 2008 was called the "Lehman Aggregate Bond Index," is a broad base index, maintained by Bloomberg L.P. since August 24, 2016, and prior to then by Barclays which took over the index business of the now defunct Lehman Brothers, and is often used to represent investment grade bonds being traded in United States. 

The MSCI USA Net Total Return Index is a market capitalization weighted index designed to measure the performance of equity securities in the top 85% by market capitalization of equity securities listed on stock exchanges in the United States.

The MSCI EAFE Net Total Return Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.

The Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Indexes. The index was originally launched in 1998 as the Dow Jones-AIG Commodity Index (DJ-AIGCI) and renamed to Dow Jones-UBS Commodity Index (DJ-UBSCI) in 2009, when UBS acquired the index from AIG. The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange.

Diversification does not protect an investor from market risks and does not assure a profit.

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The Historic Bull Market Faces Off Against Steel Tariffs
March 12, 2018

the historic bull market faces off against steel tariffs

Friday marked the ninth anniversary of the stock bull market, the second longest since World War II following the spectacular run in the 1990s that finally met its match when the tech bubble burst in March 2000. The current expansion, which some consider the “most hated bull market in history,” has largely been fueled by extraordinarily accommodative monetary policy in the form of massive money printing and near-zero interest rates. It’s withstood a number of significant headwinds, including a relatively slow economic recovery, the collapse in the price of oil and other commodities, ongoing conflict in the Middle East and an especially nasty presidential campaign cycle. If it can avoid dropping more than 20 percent in the next six months, it will become the longest-lasting ever.

can this bull market become the largest in history
click to enlarge

No doubt you’ve heard before that bull markets don’t die of old age. I can’t say for sure what will end this particular business cycle—no one can—but we’re seeing huge shifts in monetary and fiscal policy right now that investors can’t afford to ignore. As I often say, government policy is a precursor to change.

Unintended Consequences of Steel Tariffs

For one, the decade-long era of easy money is coming to an end. The Federal Reserve is unwinding its enormous balance sheet, its enormous balance sheet, which carries some risk.

us steel demand by industry

Meanwhile, the Trump administration is ratcheting up its protectionist trade policies. After surprising markets in recent days with plans to impose tariffs on steel and aluminum imports, President Trump signed the authorization Thursday afternoon, applying taxes broadly to all countries except Canada and Mexico. It was greatly feared that Canada, the number one supplier of steel and aluminum to the U.S., would be included, but it appears someone managed to change the president’s mind. When former President George W. Bush imposed a steep 30 percent tariff on steel imports in 2002, Canada was likewise spared.

The 2002 tariff, by the way, had some serious unintended consequences that critics of Trump’s policy hope are not repeated. A report put out by the Consuming Industries Trade Action Coalition (CITAC) found that about 200,000 Americans, in every U.S. state, lost their jobs in 2002 as a result of higher steel prices, representing some $4 billion in lost wages. More people, in fact, lost their jobs than the total number of people working in the domestic steel industry itself. Not surprisingly, a quarter of lost jobs occurred in steel-consuming industries such as machinery and equipment, automotive and parts manufacturers.

To be clear, U.S. steel companies did benefit from the tariffs, with profits in the first three quarters of 2002 rising $2.1 billion. This growth was offset, though, by a $15 billion decline in profits for steel-consuming companies.

Today, representatives of those same industries warn that the current tariffs could do more harm than good.

Roy Hardy, president of the Precision Metalforming Association, claims that they “will damage downstream U.S. steel and aluminum consuming companies.” Hardy estimates the tariffs could cost the U.S. economy 146,000 jobs this year alone, a figure that—as was the case in 2002—outnumbers the 140,000 Americans currently employed by the domestic steel industry.

As many as 107 House Republicans expressed deep concerns last week, writing in an open letter to the president that the “new taxes in the form of broad tariffs would undermine” the “remarkable progress” made by the tax overhaul. Meanwhile, outgoing Republican Senator Jeff Flake of Arizona said he would introduce a bill that would block Trump’s tariffs.

The tariffs come at a time when domestic steel producers’ balance sheets are steadily improving. According to Bloomberg data, the industry posted net profits totaling $2.5 billion in 2017, up from $60 million in 2016. The group lost a whopping $2.5 billion in 2015, with Pittsburgh-based U.S. Steel contributing the heaviest losses at $1.6 billion. 

domestic steel industry has seen three straight years of rising profits
click to enlarge

In the coming days and weeks, the tariffs should serve to boost domestic steel production and employment. The Wall Street Journal reports that U.S. Steel has plans to reopen a blast furnace in Granite City, Illinois, and call back 500 workers. This follows an announcement by Century Aluminum that it will double its workforce to 600 at a Kentucky smelter.

I’m pleased to hear this news but remain skeptical on the long-term impact. The U.S. now faces retaliation from its trading partners, from China to the European Union.

A Recession in the Near Term Doesn’t Look Likely

Despite some of the negativity, I see no cause for alarm with regard to the U.S. economy. The country added a whopping 313,000 jobs in February, the most since July 2016 and the 89th straight month of gains—a new record. Economists had anticipated only 200,000. Earlier, Moody’s chief economist Mark Zandi called the job market “red hot,” adding that with “government spending increases and tax cuts, growth is set to accelerate” even more.

One of the most historically reliable economic indicators currently looks very healthy. The Conference Board Leading Economic Index (LEI) opened 2018 on sure footing, posting a 108.1 in January, up a full percent from the previous month. The reading reflects “an economy with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets,” the Conference Board writes.  

According to FactSet, a record number of S&P 500 companies have issued positive earnings per share (EPS) guidance for 2018. The financial data firm classifies positive guidance as an EPS estimate that’s higher than the mean estimate before the guidance was issued. As many as 127 companies shared positive EPS guidance for the year, more than double the 10-year average of 49 companies for the same period. FactSet attributes this optimism to tax reform, an improving global economy and weaker U.S. dollar.

record number of s and p 500 companies issued positive guidance for 2018
click to enlarge

And it’s not just large S&P 500 companies that are feeling confident. January’s Small Business Optimism Index found that a record percentage of small business owners are eager to expand. Thirty-two percent of owners said that “now is a good time to expand,” the highest such reading in the survey’s 45-year history.

Could Fertility Be a Leading Economic Indicator?

On a final note, a new study lends additional credibility to the theory of “wisdom of crowds,” which states that large groups of people are smarter and better at analyzing data than an elite few. In one recent example, I showed you how investors accurately predicted the election of Donald Trump as far back as July 2016.

But could declining fertility rates predict the next recession? A team of researchers from the University of Notre Dame thinks so, and they have some compelling evidence to support their idea.

Granted, there's nothing unique about the idea that birth rates drop during and after economic downturns. Married couples have tended to put off expanding their families when they see friends and neighbors being laid off and a greater number of foreclosed homes in their neighborhoods.

What makes this study worth discussing is that it suggests conceptions, those that result in live births, noticeably begin to drop months before a recession strikes. This pattern, according to the study’s authors, can be observed in recessions beginning in 1990 and 2001, as well as the Great Recession.

united states conception rates began to fall months before a recession
click to enlarge

Above, you can see the percent change in conception rates tumbled sharply sometime before GDP growth began to stall or even reverse course. Conception, then, could be used to anticipate recessions just as well as any other economic indicator.

In fact, conception rates could end up being even more accurate “in situations where employment significantly lags the overall economy, and where conceptions lead the economy,” the authors write.

So how are families able to anticipate and act on economic trends more reliably than professional economists? Again, the wisdom of crowds prevails. Everyday people no doubt sense the tremors before the earthquake by hearing things in their firms and comparing observations with friends and acquaintances. There’s no way to quantify this, of course, but live birth records in the U.S. are readily available.

You might be wondering what the data tells us about the economy’s health in the near term. Sadly, the study makes no mention of this. But in January, the Pew Research Center reported that U.S. fertility rates fell to 62 births per 1,000 women of childbearing age in 2017—a new all-time low.

Before you begin to panic, though, it’s important to know that there are different ways to measure fertility, which could skew the data. Also, the drop in fertility could just be further evidence that young adults are choosing to delay starting a family.

Regardless of the rate, people will continue to have babies, increasing the need for even more raw materials and resources.

Craving even more expert insight on global markets, gold, cryptocurrencies and behavioral finance? Join thousands of other curious investors like you and sign up to receive my award-winning CEO blog, Frank Talk! It's FREE!



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 Index is a stock market index that tracks the 500 most widely held stocks on the New York Stock Exchange or NASDAQ.

The Small Business Optimism Index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members.

The Conference Board Leading Economic Index is an American economic leading indicator intended to forecast future economic activity. It is calculated by The Conference Board, a non-governmental organization, which determines the value of the index from the values of ten key variables.

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 12/31/2017.

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An Olympian's Guide to the Market Selloff: Seeking Rewards In High-Risk Situations
February 12, 2018

Frank Holmes Robert Friedland

Today I’d like to share a few words about the Olympics, but first, two words: Don’t panic.

The stock selloffs last Monday and Thursday were the two biggest daily point drops in the history of the Dow Jones Industrial Average, but in terms of percentage point losses, they don’t even come close to cracking the top 10 worst days in the past 10 years alone.

After a year of record closing highs and little to no volatility, it was expected that the stock market would need to blow off some steam. Last Monday, the CBOE Volatility Index, or VIX, surged nearly 116 percent, its biggest one-day increase since at least 2000.

volatility returns to the markets
click to enlarge

As I explained last week, the selloff appears to have been triggered by a number of things, including the positive wage growth report. This stoked fears of higher inflation, which in turn raised the likelihood that the Federal Reserve, now under control of newcomer Jerome Powell, will raise borrowing costs more aggressively than expected to prevent the economy from overheating.

Also contributing to the uncertainty was news from the Treasury Department that the U.S. government plans to borrow nearly $1 trillion this year, compared to almost half that last year. In the first quarter alone, the Donald Trump administration will issue $66 billion in long-term debt, the first such boost in borrowing since 2009, as the U.S. Treasury seeks to cover budget deficits brought on by higher entitlement spending, not to mention the recently passed tax overhaul.

On Friday, the S&P 500 Index briefly plunged below its 200-day moving average before rebounding in volatile trading.  

stocks plunge below their 200-day moving average
click to enlarge

With stocks down more than 8 percent from its closing high on January 26, we're closing to entering correction territory. Historically, it’s taken four months for stocks to recover from a correction, according to Goldman Sachs analysis. By comparison, a bear market, which is generally defined as more than a 20 percent drop, can take up to two years.

I’m not saying a bear market is imminent—only that it might be time to reevaluate your tolerance for risk and, if appropriate, act accordingly. It’s times like these that highlight how important it is to be diversified in a number of asset classes such as gold, commodities, municipal bonds and international stocks.

Diversity Is Key in Volatile Times

I remain bullish on the U.S. market, but there will always be risk—even in a booming economy. This is one of the biggest reasons why I recommend a 10 percent weighting in gold and gold stocks, with additional diversification in commodities, international stocks and other asset classes.

But to get the greatest benefits, it’s important to rebalance at least once a year, based on your risk tolerance.

Last week, gold was under pressure from surging Treasury yields. Since its 52-week low in September, the 10-year yield has increased almost 40 percent. Not only is it at a four-year high but it’s also above its five-year average of 2.1 percent.

north american shale activity expected to drive global well demand
click to enlarge

Keep in mind that fundamentals remain robust. The U.S. economy is humming along. Unemployment is at a 17-year low, and wage growth is finally bouncing back after the financial crisis. The global manufacturing sector began 2018 on strong footing, with the purchasing manager’s index (PMI) registering 54.4 in January.

Like an Olympic cross-country skier, take the long-term approach and keep your eyes on the prize.

A Year for Olympic Record-Breaking

Before it even began, this year’s Winter Olympics was breaking records. A historic number of athletes, around 3,000, qualified to compete for an unprecedented 102 medals. For the first time ever, an African country—Nigeria—will be represented in the bobsled category, making this also the country’s first visit to the Winter Games. And not only is this South Korea’s first go-round hosting the Winter Olympics, but PyeongChang could be among the coldest host cities ever, with wind chills in some cases dropping temperatures to an arctic negative 25 degrees Celsius, or negative 13 degrees Fahrenheit.

pyeongchang winter olympics 2018

One record that won’t be broken, though, is the cost to host the Games. South Korea spent an estimated $13 billion to bring the rugged, mountainous ski destination up to Olympic standards, building not just stadiums and arenas but also rail, roads, energy infrastructure and more. Amazingly, newly-constructed wind farms in Gangwon Province will generate more than enough energy to power the 16-day event, according to Hyeona Kim, a project manager with the PyeongChang Organizing Committee for the 2018 Olympic Games (POCOG).

Thirteen billion dollars sounds like a lot, but it pales in comparison to the record-breaking $50-55 billion Russia spent to host the Sochi Olympics in 2014.

Sochi Gets Soaked in Debt

Sochi is the most expensive Olympics ever—Winter or Summer. But because Russia’s original price bid was $16 billion, it’s also among the most expensive in terms of cost overruns, according to a 2016 report by the University of Oxford. Looking just at Winter Games, only Lake Placid in 1980 has a bigger cost increase. (The 1976 Summer Olympics in Montreal is biggest of all at 720 percent over budget.)

five most expensive winter olympics by cost overruns
click to enlarge

To put Sochi’s overrun in perspective, the average cost per event is now estimated at $223 million, or a mind-boggling $8 million per athlete.

Contributing to the budget bust was Russia’s need to boost the region’s electricity capacity by as much as 800 percent, leading to the construction of 49 new energy projects. As one deputy minister put it, the undertaking was the country’s largest since Stalin’s time.

Of course, this all raises the question of what economic benefits, if any, hosting the Olympics brings to a city. It took Montreal 30 years to pay off its debt. The 2004 Summer Games in Athens—the birthplace of the Olympics—is now partially blamed for triggering the Greek debt crisis. And in Rio de Janeiro, Brazil, host of the 2016 Summer Games, a number of multimillion-dollar stadiums and arenas sit unused and have become eyesores. (PyeongChang, by contrast, plans to raze the stadium it built for opening and closing ceremonies after the Games are complete.)

Like any other type of investing, there’s no reward without some risk—and, as last week has proven, it’s all about how you manage it.

A Case Study in Good Financial Planning

One city that got it right was Los Angeles.

For many of you, California might not immediately come to mind as a shining example of good fiscal management. But when the city was awarded the Olympics for 1984, the reins were turned over to Major League Baseball (MLB) commissioner Peter Ueberroth, who had previously founded and run a successful travel company. Under his leadership, the 1984 Summer Olympics became the first privately financed Games. A committee was set up that operated more like a corporation. Financing came from private fundraising, corporate sponsorships, TV deals and more.

It certainly didn’t hurt that L.A. was already a highly developed metropolitan area with world-class infrastructure, but Ueberroth urged fiscal restraint and rationality. The results were better than anyone could have anticipated. Remember Sochi’s $8 million price tag per athlete? L.A. ended up spending only around $100,000 per competitor (in 2015 dollars), among the best records ever in Olympic history.

What’s more, the L.A. Games turned a tidy profit, netting the city more than $225 million, all of which was plowed back into the U.S. Olympic Committee. As recently as 2016, those profits were still helping athletes gear up for Olympic glory, according to Ueberroth himself.  

In 1984, Ueberroth was selected as TIME’s Person of the Year for developing “a new model for the Games” and proving that “in a free society, anything is possible.”

Last week I had the chance to speak with Peter Smyrniotis of Market One Media Group about cryptocurrencies, blockchain technology and initial coin offerings (ICOs). Watch the interview by clicking here!


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.

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.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

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You'll Want to Read This Living Legend's Thoughts On Copper
January 22, 2018

Frank Holmes Robert Friedland

Last week the U.S. Global Investors office was visited by a living legend in the junior mining industry, billionaire founder and executive chairman of Ivanhoe Mines, Robert Friedland. In case you don’t know, back in the mid-1970s, Robert was caretaker of an apple orchard south of Portland that one of his buddies from Reed College would often visit. That buddy’s name was Steve Jobs, who later went on to found a little company he named—what else?—Apple.

Before Robert and Steve Jobs began palling around, Jobs was known as shy and withdrawn. It was Robert who taught him his skills in what’s been described by many as “reality distortion.” Having seen numerous speeches by Robert over the years, I can attest to his masterful ability to utterly command a room of hundreds with his electric charisma. Some of that charisma must have rubbed off on Jobs, helping the future iPhone innovator evolve into the shrewd, larger-than-life business leader he’s celebrated as today.

frank holmes and robert friedland ivanhoe mines

Robert’s “reality distortion” was on full display during his visit. I was pleased and honored, as were my U.S. Global team members, to have the opportunity to hear his unique insights on a wide range of issues, from the debilitating smog in Delhi, India; to China’s efforts to become the world’s leading electric vehicle (EV) economy; to Ivanhoe’s development of the Kamoa-Kakula Copper Project in the Democratic Republic of Congo, independently ranked as the largest high-grade copper discovery in the world.

Robert made a very compelling case for Kamoa-Kakula, which he calls “the most disruptive Tier One copper project in the world today.” In its first year of production, its average copper grade is estimated to average an ultra-high 7.3 percent. Because the site is flat and uninhabited, and wages are paid in local currency, the cash cost for the life of the mine is projected to be a low, low $0.64 per pound of copper. As of my writing this, copper is priced at $3.20 a pound, so the margin is significant. After an initial $1.2 billion in capital costs to develop the project, the company expects a payback period of only 3.1 years.

It’s all a very attractive proposition.

Robert Friedland: You're Going to Need a Telescope

I reminded Robert that we’re bullish on both copper and the industries it supports, including the imminent EV revolution and massive electricity demand in emerging markets, especially China and India. EVs, as I’ve pointed out before, require three to four times as much copper as traditional gas-powered vehicles. By 2027, as much as 1.74 million metric tons of copper will be needed to meet EV demand alone, up from only 185,000 tons today, according to the International Copper Association.

The red metal was one of the best performing commodities last year, surging more than 30 percent, and with investment demand near all-time highs, I predict another year of phenomenal returns. That would represent a third straight year of positive gains, something copper hasn’t accomplished this decade.

As you can see below, open interest in copper futures on the Chicago Mercantile Exchange (CME) is still historically high, even after cooling somewhat from its all-time high set in late July, when contracts hit an average 319,000 contracts. Open positions last month averaged more than 285,000, up 7.3 percent from the previous month and 26.9 percent from December 2016.

Open interest in copper futures off record still historically high
click to enlarge

Robert expressed confidence that copper—along with aluminum, cobalt, nickel, platinum and scandium—will be among the biggest beneficiaries of the global transition to EVs and clean energy.

“You’re going to need a telescope to see copper prices in 2021,” he told us theatrically.

A rally is already in the works. From its recent low two years ago this month, the Bloomberg Industrial Metals Subindex, which tracks aluminum, copper, nickel and zinc, has surged more than 65 percent. Support looks strong, and copper prices could be headed even higher on global supply disruptions, as labor negotiations continue in Chile, the world’s top producer of the red metal.

“There are between 20 and 25 collective negotiations expected. If some of them lead to significant strikes, that would have a positive impact on [copper] prices,” explained Sergio Hernandez, vice president of Cochilco, Chile’s state copper commission.

Industrial metals exhibiting strong upward momentum
click to enlarge

Other fundamental trends are driving commodities, as I’ve noted earlier. The global purchasing manager’s index (PMI), a gauge of the manufacturing industry, is near a seven-year high. Construction confidence in the eurozone turned positive. And construction spending here in the U.S. hit $1.257 trillion in November, a new high.

China and India Cleaning Up Its Act

About half of all the copper produced globally every year is consumed by China. Last year, the Asian giant set a new record in importing the red metal. Imports climbed to a never-before-seen 17.35 million metric tons in 2017, up 2.3 percent from the previous year.

Chians copper imports notched yet another record in 2017
click to enlarge

The metal is needed not just for the construction of new buildings but also to manufacture millions of new electric vehicles in the world’s largest auto market. Sometime this year, China is expected to announce when it plans to outlaw gas-powered vehicles, joining a growing number of other countries, including the U.K. (which is shooting for a 2040 ban), France (2040), Germany (2030), India (“next 13 years”) and more.

According to Bloomberg New Energy Finance, about 1,293 gigawatts per hour (GWh) are forecast for the lithium-ion battery market. That’s up spectacularly from only 19 GWh in 2015. About two thirds of the demand will come from China and the U.S.

Forecasted demand for lithium ion batteries from electric vehicles
click to enlarge

To accommodate all these new EVs, China has pledged to build a charging station for every vehicle on the road by 2020. That equates to around 4.8 million charging outlets and stations, requiring a total investment of $19 billion. China had 190,000 charging stations at the end of September, so to call this goal ambitious is an understatement. The U.S., by comparison, has a little over 64,000 outlets and stations around the country, according to the Department of Energy.

Even William Ford Jr., Ford Motor’s executive chairman, acknowledged that the Chinese are more aggressive than most in their mission to fully embrace the electric vehicle. “When I think of where EVs are going,” Ford said in Shanghai last month, “it’s clearly the case that China will lead the world in EV development.”

Not only was China the largest importer of copper, crude oil, natural gas and other natural resources, it also outspent every other country in new clean energy capacity. The country invested as much as $132.6 billion in 2017, about 16 percent more than the U.S. and Europe combined. The government’s efforts already seem to be having a positive effect, as sales of face masks and air purifiers in Beijing have fallen dramatically compared to last winter.

Sales of face masks in beijing are down this year thanks in part to the governments huge investment in clean energy

Another market that’s in urgent need of clean energy is India. In Delhi, the country’s capital territory, the air quality has become so noxious and filled with heavy metals that the World Health Organization has likened it to smoking at least 50 cigarettes a day. The city’s chief minister, Arvind Kejriwal, went so far as to call it a “gas chamber.”

Shell Shelling Out for Electricity Provider

It’s not just governments seeking to diversify their energy mix. Royal Dutch Shell, the largest oil company in Europe, is steadily acquiring smaller providers of electrical power and natural gas. In December it announced a deal to buy retail energy provider First Utility. It’s just the latest in a series of purchases by large oil and gas companies looking ahead to the day when charging stations, rather than gas stations, might be the norm.

In an interview this month, Shell CEO Ben van Beurden sees the current energy transition as an opportunity.

“We have to embrace the future, and the future will include battery electric cars,” van Beurden said. “Importantly, I believe Shell can achieve this without destroying value in the company. It is about identifying real business opportunities to thrive through the energy transition.”

As my friend Robert Friedland sees it, those business opportunities lie in copper, aluminum, cobalt and other key industrial metals.

“We’re in the battery business,” he told us, adding that very little of lithium-ion batteries is actually lithium.

Racing for Bitcoin

Have 48 bitcoins this lamborghini could be yours

Last week I was in Delray Beach, Florida, attending the Black Diamond Investment Conference, where I was excited to see a 2007 Lamborghini Murcielago for sale. It wasn’t so much the fact that it was a Lamborghini but that the sellers were seeking payment in cryptocurrency only. In case you have 48 bitcoins lying around—valued at a little over half a million dollars at today’s price—you could be the proud new owner of a top-quality sports car. I’m pleased to see even more transactions being made in bitcoin and other cryptocurrencies.

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

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Bloomberg Industrial Metals Subindex is composed of longer-dated futures contracts on aluminum, copper, nickel and zinc. It reflects the return on fully collateralized futures positions and is quoted in USD.

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 12/31/2017: Ivanhoe Mines Ltd., Royal Dutch Shell PLC.


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Recipe Calls for a Broad Commodities Rally in 2018
January 16, 2018

At the beginning of every year, we update what’s typically one of our most popular pages, the Periodic Table of Commodity Returns. I encourage you to explore 10 years’ worth of data on basic materials such as aluminum, zinc and everything in between. A word of warning, though—the interactive feature makes the table highly addictive. Please feel free to share it with friends and family!

best of the year top 5 frank talk posts of 2017

It was a photo finish for commodities in 2017. The group, as measured by the Bloomberg Commodity Index, barely eked out a win for the second straight year, edging up 0.7 percent. Spurred by a weaker U.S. dollar and strengthening materials demand from factories, the index headed higher thanks to a breathtaking rally late in the year that lasted a record 14 consecutive days.

The annual return might not look too impressive, but I believe the economic conditions are ripe for a broad commodities rally in 2018. I’m not alone in predicting they’ll be among the best performing asset classes by year end, perhaps even beating domestic equities as quantitative tightening threatens to put a damper on the nine-year bull run.

Analysts at Goldman Sachs, for instance, are overly bullish on commodities, recommending an overweight position for the next 12 months. Bank of America Merrill Lynch is calling for a $7,700-a-tonne copper price target by mid-2018, up from $7,140 today. In last Friday’s technical market outlook, Bloomberg Intelligence commodity strategist Mike McGlone writes that the “technical setup for metals is similar to the early days of the 2002-08 bull market.” Hedge fund managers are currently building never-before-seen long positions in heating oil and Brent crude oil, which broke above $70 a barrel in intraday trading Thursday for the first time since December 2014. It’s now up close to 160 percent since its recent low of $27 a barrel at the beginning of 2016.

Few have taken such a bullish position, though, as billionaire founder of DoubleLine Capital Jeffrey Gundlach, whose thoughts are always worth considering.

Commodities Ready for Mean Reversion?

Last month I shared with you a chart, courtesy of DoubleLine, that makes the case we could be entering an attractive entry point for commodities, based on previous booms and busts. The S&P GSCI Total Return Index-to-S&P 500 Index ratio is now at its lowest point since the dotcom bubble, meaning commodities and mining companies are highly undervalued relative to large-cap stocks. We could see mean reversion begin to happen as soon as this year, triggering a commodities super-cycle the likes of which we haven’t seen since the 2000s.

the new periodic table of commodity returns 2017
click to enlarge

Gundlach has more to say on this subject. During his annual “Just Markets” webcast, he told investors that “commodities will outperform in 2018” because they “always rally sharply—much more sharply than they have so far—late in the business cycle as we head into a recession.”

Speaking to CNBC, he added that the S&P 500 “may go up 15 percent in the first part of the year, but I believe, when it falls, it will wipe out the entire gain of the first part of the year with a negative sign in front of it.”

Gundlach might be in the minority here, but it’s hard to ignore the tell-tale signs that we’re approaching the end of the business cycle, as I’ve pointed out before. We’ve begun a new interest rate hike cycle, both here in the U.S. and the United Kingdom. The Federal Reserve has started to unwind its massive balance sheet. The Treasury yield curve continues to flatten. And the S&P 500 just had its least volatile year on record.

All of these indicators, among others, have historically preceded a substantial market correction.

In his 2018 outlook, David Rosenberg, chief economist and strategist at Canadian wealth management firm Gluskin Sheff, makes similar observations, writing that “it is safe to say that we are pretty late in the game.”

the equities bull market is 90% through, or past the seventh inning stretch.

How late? After looking at a number of market and macro variables, Rosenberg and his team concluded that we’re about “90 percent through, which means we are somewhere past the seventh inning stretch in baseball parlance but not yet at the bottom of the ninth.”

Look for mean reversion this year, Rosenberg adds, “which would be a good thing in terms of opening up some buying opportunities.”

Resource stocks, I believe, could be an attractive place to look, as they’ve traditionally outperformed in the last phase of an economic cycle.

Manufacturing and Construction Booms Underway

You don’t have to bet on a recession to be bullish on commodities. The dollar appears to have peaked, making materials less expensive for overseas markets, and the Global Manufacturing Purchasing Manager’s Index (PMI) ended 2017 at 54.5, close to a seven-year high. The sector has been in expansion mode now for the past 22 months, with the eurozone signaling its fastest growth in the series’ two-decade history.  

Global PMI Ended 2017 at Near Seven-Year High
click to enlarge

That’s not the only constructive news out of Europe. The European Commission’s headline economic sentiment indicator jumped more than economists had anticipated in December, ending the year at a 17-year high. Construction confidence in the eurozone also looks as if it’s fully recovered and is trending in positive territory for the first time since the financial crisis.

Strong eurozone economy a tailwind for commodities demand (Dec. 1997 - Dec. 2017)
click to enlarge

Strong manufacturing and construction expansion here in the U.S. is likewise supportive of commodity prices. December’s ISM Manufacturing PMI clocked in at a historically high 59.7. New orders grew 5.4 percent from the precious month to 59.4, its highest reading since January 2004. What’s more, U.S. construction spending in November rose to an all-time high of $1.257 trillion, according to this month’s report from the Census Bureau.  

Strong eurozone economy a tailwind for commodities demand (Dec. 1997 - Dec. 2017)
click to enlarge

Which Commodities Are Set to Rally the Most?

Palladium was the best performing commodity of 2017, climbing more than 56 percent on a weaker dollar, concerns of a supply crunch and a robust global auto market. Along with its sister metal, platinum, palladium is used primarily in the production of catalytic converters, which curb emissions from gasoline-powered vehicles.

For the first time since 2001, palladium traded higher than platinum beginning in September, and the week before last it hit an all-time intraday high of $1,099 an ounce. A healthy correction at this point wouldn’t be surprising, as the metal’s looking overbought compared to platinum.  

Palladium looks overheated compared to platinum
click to enlarge

“Pressured by diesel-emission scandals, platinum appears too low vs. palladium,” writes Bloomberg’s Mike McGlone. We might be in for another price reversal this year.

As I wrote recently, gold’s Fear Trade growth drivers are firmly in place. If a “Fed rally” occurs similar to the past two rallies, we could see gold climb to as high as $1,500 an ounce by summer. We also have the Chinese New Year to look forward to, which falls on February 16.

I believe 2018 could also be silver’s year to shine. The white metal rose 6.42 percent in 2017, with Indian silver bullion imports jumping an amazing 90 percent compared to imports the previous year, according to Metals Focus. Goldman Sachs analysts point out that silver has historically fared better than gold near the end of the business cycle, “as it is more strongly leveraged to global growth, given its significant industry use.”

A recent online survey conducted by Kitco News found that nearly 40 percent of respondents believed silver would outperform in 2018, compared to four other metals. Twenty-seven percent of readers said gold would outperform, followed by a quarter for copper. About 10 percent were most bullish on either platinum or palladium.


HIVE Blockchain Technologies Gets a New Ticker: HVBTF

Investors should be aware that HIVE Blockchain Technologies, the blockchain infrastructure company that U.S. Global Investors made a strategic investment in last year, recently got approval to change its ticker on the OTC Markets. HIVE will now trade under the stock symbol HVBTF. It was previously trading under the symbol PRELF. No action is required by current shareholders, but I thought they should be made aware nonetheless.


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

The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange.

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

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

Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE, directly and indirectly.

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Net Asset Value
as of 03/19/2018

Global Resources Fund PSPFX $6.05 -0.04 Gold and Precious Metals Fund USERX $7.17 0.41 World Precious Minerals Fund UNWPX $4.30 0.22 China Region Fund USCOX $12.13 -0.14 Emerging Europe Fund EUROX $7.57 -0.06 All American Equity Fund GBTFX $25.24 -0.24 Holmes Macro Trends Fund MEGAX $19.67 -0.19 Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $1.99 No Change