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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 Does It Take to Be in the Top 1 Percent? Not As Much As You Think
August 1, 2018

what does it take to be in the top 1 percent not as much as you think

When you think of the top 1 percent of all income earners in American households, how much do you think this group rakes in? Millions? Tens of millions? What about the top 10 percent?

On the contrary, to be considered in the top 1 percent of taxpayers nationally, you’d need an annual income of $480,930. The top 10 percent of taxpayers make at least $138,031. These figures are based on 2015 income tax data, the most recent year available.

This income level varies widely by both state and city. In San Jose, California, the top 1 percent income threshold is close to $1.2 million, almost double the level for Los Angeles. As seen in the chart below, the spread is fairly wide between the top 10 most populous cities in the U.S. In San Antonio, Texas – home to U.S. Global Investors – you’d need to make $416,614 annually to be considered in the top 1 percent, slightly below the national threshold of top 1 percenters.

top 1 percent income level varies greatly by location 10 most populous US cities ranked by annual income required to be in top 1 percent
click to enlarge

Earning enough income to be in the top 1, 10 or even 20 percent is no small accomplishment, but chances are good that many people you know, and may not think of as wealthy, fall into the top 1, 10 or 20 percent.

Is the Top 1 Percent Paying Their Fair Share?

Contrast the above income statistics with the picture often painted in the media that the wealthiest Americans aren’t paying their fair share. According to the Tax Foundation, the top 1 percent of households collectively pay more in taxes than all of the tax-paying households in the bottom 90 percent.

Take a look at how much this has changed over the past few decades. In 1980, the bottom 90 percent of taxpayers paid about half of the taxes. The top 1 percent contributed about 20 percent.
Now, the top 1 percent pays more than the bottom 90 percent. Perhaps this is more than their fair share?

top 1 percent now pay omre than bottom 90 percent comparison of taxpayers' share from 1980 to 2015
click to enlarge

Below is the line chart from the Tax Foundation showing how the income tax share for each category has changed since 1980. For the majority of years, the share of the bottom 90 percent fell while the share of the top 1 percent rose.

income share of top earners has been rising percent of federal income paid by top 1 percent versus bottom 90 percent
click to enlarge

Individual Tax Rate Cuts Take Effect in 2018

Taxpayers in the highest bracket should see a noticeable change when filing for the 2018 tax year since the top rate fell from 39.6 percent to 37 percent. President Donald Trump’s administration passed the Tax Cuts and Jobs Act in late 2017, which included small reductions to income tax rates for most individual brackets plus changes to exemptions, deductions and more. The average top 1 percent taxpayer will get a tax break of over $50,000 in 2019, according to estimates.

The new tax bill, however, eliminates the ability of taxpayers to deduct more than $10,000 in state and local taxes from their federal tax returns. This could significantly increase the tax burden of top earners who itemize their deductions in high-income tax states such as California and New York. One possible solution for these investors could be to take advantage of municipal bonds, which are often exempt from local, state and federal taxes.

Maximize Tax-Advantaged Investment Vehicles

Although it can be discouraging to see how top earners pay the majority of income taxes, there are still tax advantages for hard-working Americans who make saving and investing a priority in their lives.

How can you help make sure less of your money is going to the government and more of it is working for you in your investments? One way is to maximize your contributions to tax-advantaged investment vehicles such as an individual retirement plan, a 401(k), individual retirement account (IRA) or simplified employee pension (SEP) for the self-employed, all of which offer tremendous tax benefits.

To make it easier to have the discipline to set money aside, try an automatic plan that invests a fixed amount at regular intervals, such as the U.S. Global Investors’ ABC Investment Plan.

Wealth Isn’t Just a Number

No matter how much you earn, wealth is determined by how much you keep. My friend, Alexander Green, chief investment strategist of the Oxford Club, is a great source of inspiration for me and for many investors with his uplifting, holistic articles that relate to both health and wealth. Alex says wealth isn’t necessarily determined by an income figure. Instead, real wealth is determined by looking at your balance sheet. Here’s his formula:

“Maximize your income (by upgrading your education or job skills). Minimize your outgo (by living beneath your means). Religiously save the difference. (Easier said than done.) And follow proven investment principles.”

What matters most is being grateful for what you have. I’m a big believer that wealth is not a number or an amount, it’s an attitude and the umbilical cord to attitude is gratitude.

Take a look at my 10 favorite wealth and prosperity affirmations in this slideshow!

 

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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From Mobile Games to Smart Cities: A.I. Leads Innovation
July 9, 2018

frank holmes and gabe leydon CEO of Satori

Last week I had the privilege of meeting a young tech superstar in Palo Alto, California—Gabe Leydon, cofounder and now-former CEO of mobile game producer MZ. Previously known as Machine Zone, the Sunnyvale-based company is responsible for developing some of the highest-grossing mobile games of all time, including Game of War: Fire Age and Mobile Strike, both of which profited from high-dollar marketing campaigns worthy of some Hollywood films. You might have seen Game of War’s Super Bowl commercial featuring swimsuit model Kate Upton, or Mobile Strike’s, starring Arnold Schwarzenegger.

Gabe, 38, oversaw the creation of these games, among others, which have generated more than a combined $6 billion in revenue in just four years—a stunning accomplishment. His company has succeeded largely by reaching traditional as well as nontraditional players of all ages. 

But MZ was only the beginning. Last month, Gabe stepped down as CEO to shift his focus to bigger and better things—cryptocurrencies, artificial intelligence (AI) and his next big project, Satori.

Satori Welcomes You to the Future

An extension of MZ’s real-time streaming platform, Satori is a distributed, decentralized AI “mesh.” That probably doesn’t mean anything to you right now, but Gabe believes it could change the world in a number of ways. In short, Satori aims to aggregate the world’s public information feeds—from Twitter to weather sensors—and distribute them in easy-to-search data structures.

According to Gabe, Satori can process 500 million events per second, a computing speed that’s a little hard to fathom. Paired with the Hedera hashgraph platform, a blockchain-like distributed ledger, it will be able to “read and write the entire internet.”

I know this all sounds incredibly abstract, so let’s look at a couple of examples of what Gabe’s talking about.

gabe leydon satori could usher in the era of smart cities

For one, Satori can, in real-time, read all 110,000+ tweets that appear on Twitter every second. Not only that, it can analyze and categorize each tweet and, amazingly, translate it into 32 different languages. Let me repeat—this can all be accomplished in real-time. It’s blisteringly fast.

The technology behind the translator, by the way, was developed by MZ so gamers from all over the globe could speak to one another while storming castles in Game of War or deploying troops in Mobile Strike. No doubt you can think of dozens more applications for this technology.

Improving the World—One Parking Spot at a Time

Satori could also lead to the creation of “smart cities.” Today, each part of a city’s infrastructure is isolated, or siloed, from every other system. The traffic lights run separately from the water supply network and electrical grid, and there’s little to no communication between them to increase efficiency. With Satori, the various datasets can all be ingested and computed in one AI-powered, real-time ecosystem. As many as 500,000 live video streams—from any publicly accessible camera—can be funneled into one meta-channel.

According to Gabe, this has innumerable applications. Tired of not being able to find a parking spot downtown? With Satori and technologies like it, parking availability will be a problem of the past. Excited about self-driving cars? Without a dependable, lightning-fast distributed ledger to deliver real-time data, from weather to traffic conditions, it’s hard to imagine their success.

I sense your skepticism. But the truth is that Gabe has already demonstrated Satori’s effectiveness. Two summers ago, the city of Auckland, New Zealand, experimented with Satori, using it to monitor and analyze the movements of its 3,000 buses. This allowed the city to improve bus routes and develop new plans to increase ridership, such as dynamic pricing.

Stay Curious to Learn and Improve

I think it’s only natural for us to question the new and unfamiliar. The ancient Greek philosopher Socrates was famously against writing because he thought it would lead to rampant forgetfulness. In his 1854 classic Walden, Henry David Thoreau dismissed the telegraph.

“We are in great haste to construct a magnetic telegraph from Maine to Texas,” Thoreau wrote, “but Maine and Texas, it may be, have nothing important to communicate.”

No one today has the same grievances toward written language and telecommunications because we recognize that without them, life as we know it now would be impossible. A generation or two from now, we might similarly wonder how we got by without the technologies that underlie advanced systems such as smart cities.

Curious to learn more? I urge you to watch Gabe Leydon’s presentation at the Hedera hashgraph network launch in March. Also, be sure to visit Satori’s website, where you can read about the company’s own digital token, LIT.

 

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.

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 3/31/2018.

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Gold, World War II and Operation Fish
June 5, 2018

Darkest Hour I recently had the opportunity to see the excellent 2017 film Darkest Hour, about British Prime Minister Winston Churchill’s struggle to keep the United Kingdom in the fight against the Nazis, even as members of his own government pressured him to capitulate. Gary Oldman’s portrayal of the tough-as-nails leader is at turns tender and rousing—and very well deserving of the Best Actor Oscar.

I’d recommend the film to anyone, whether they’re a student of World War II or not.

It got me thinking, though, about the important role gold played in how the war was financed, as well as the U.K.’s daring efforts to prevent its gold holdings from falling into Adolf Hitler’s hands, should Nazi forces successfully invade the island and ransack its central bank. After all, Germany had done as much in a number of Central European countries before threatening the U.K.

Although not directly addressed in Darkest Hour, the U.K. ended up evacuating billions of dollars’ worth of gold bullion and other assets across the Atlantic, all to be kept safely in Canada. The mission, codenamed “Operation Fish,” is still the largest movement of physical wealth in history.

Germany’s Economic Straits

So why was Hitler so interested in acquiring gold?

To answer that, we really need to go back to the 1920s. At the time, Germany was in serious economic straits. It faced unprecedented hyperinflation, among the very worst such incidents in world history.

This was clearly a problem for Hitler, who, soon after being appointed Reich Chancellor in 1933, set in motion the remilitarization of Germany, in direct violation of the Treaty of Versailles. Because the Western European country is not particularly resource-rich—the one exception is coal—everything from aluminum to zinc would have to be imported to manufacture the guns, tanks, ships, and warplanes needed to wage an extended conflict in the age of advanced machines.

But this was the Great Depression, which had suffocated the German economy as much as it had the United States’. Unemployment climbed to as high as 30 percent. In his inaugural address via radio, Hitler vowed to “achieve the great task of reorganizing our nation’s economy” through “a concerted and all-embarking attack against unemployment.”

Much like Roosevelt’s New Deal in the U.S., Hitler’s government tackled unemployment by dipping into deficit spending. It financed great public works projects such as the autobahn, railroad, housing and more.

The plan worked. Within four years, just as promised, unemployment was virtually thwarted. It’s been said that, had Hitler stopped in 1936 or 1937, he might today be remembered as one of the 20th century’s most admired leaders.

However, Hitler assumed a much more aggressive stance toward national rearmament in an effort to reclaim lost dignity—the Treaty of Versailles be damned. What stood in his way was not only his country’s lack of natural resources but also the fact that many supplier nations would not accept Germany’s worthless currency. They insisted instead to be paid in their own currency; some other international, convertible currency such as Swiss francs or U.S. dollars; or hard currency.    

How then would Germany pay for Sweden’s iron ore? Romania’s oil? Turkey’s chromium? Portugal’s tungsten and Spain’s manganese?

Enter gold.

In Gold We Trust

Before we continue, I want to make it clear that Hitler had no respect for the yellow metal, any more than he had for human life. Gold as a currency is built on trust, of which Hitler had none. He hated the metal and all it stands for—but he needed it to push forward his rearmament strategy.

during world war II, Germany's suppliers preferred gold to the reichsmark

Walther Funk, the Reich’s minister of economics and president of the country’s central Reichsbank, echoed this resentfulness at having to rely on gold:

“As far as currency is concerned, gold is unimportant to us,” Funk said in 1940. “We don’t need it as backing for a currency—which is being managed by price, volume, and wage control—but only to pay clearing balances.” 

In other words: We have absolutely no need for gold—until we need it.

But here another problem emerged: Just as it had few natural resources of its own, Germany laid claim to a relatively small gold reserve. In 1933, the Reich’s official holdings stood at only $109 million—not nearly enough to finance the kind of force Hitler envisioned.

The Greatest Gold Heist in History

So began the Reich’s looting of Europe’s gold reserves, beginning with Austria’s in 1938. At the time, Germany’s coffers were nearly empty. The infusion of Austria’s 90 to 100 metric tons of hard currency gave Hitler the boost he needed to continue his plundering.

Today we remember the Nazi’s gold heist as “one of the greatest thefts by a government in history,” in the words of Ambassador and Undersecretary of Commerce Stuart E. Eizenstat, spoken during his 1997 hearing on the status of Holocaust assets. Although estimates vary, and although the gold price fluctuates over time, it’s believed that as much as $600 million—now valued in the billions—were seized from the central banks and vaults of neighboring, occupied countries, including Austria, Poland, Belgium, Holland and the Netherlands. Millions more in silver, platinum, diamonds, artwork and other assets were stolen as well.

Operation Fish

Not every country’s hoard was pilfered, however. Once it was clear what the Nazis were up to, many outlying European countries had the prudence and foresight to secure their own reserves and keep them falling into Hitler’s hands.

And this is where we catch up with the timeline in Darkest Hour. In July 1940, as fears of a Nazi invasion intensified by the day, the U.K. shipped as much as 1,500 metric tons in gold—worth a mind-boggling $160 billion in 2017 dollars—across the Atlantic to be stored in Canada’s central bank in Ottawa.

one of the gold-bearing ships, the HMS enterprise

Codenamed “Operation Fish,” the evacuation was one of the greatest gambles ever. Writes Ottawa-based historian James Powell:

The only way to transport the tons of gold and securities was by ship across the U-boat infested North Atlantic, where 100 Allied and neutral merchant ships had been sunk in May 1940 alone. History was also not reassuring. During World War I, the SS Laurentic, carrying 43 tons of gold from Liverpool to Halifax, had been sunk in 1917 by a German U-boat off of Ireland. The loss of even one treasure ship would have major negative consequences. To buy weapons and other war materiel that it sorely needed from neutral United States, Britain had to pay in gold or U.S. dollars; no credit was permitted under the strict Neutrality Act in effect in the United States at that time.

Britain’s gamble paid off. Every last ingot made it safely across the Atlantic and was prevented from being used by the Nazis to extend their reign of terror a single day longer.

Germany Today a Gold Powerhouse

Although Hitler’s goals were despicable, his absolute need for gold reflects the precious metal’s centuries-long role as a widely accepted and trusted currency.

It’s a lesson Germany hasn’t forgotten, even today.

The country’s official gold holdings stand at 3,372 metric tons, more than any other except the U.S. Gold represents a whopping 70 percent of its foreign reserves—again, second only to the U.S. This has helped Germany become one of the most powerful and stable economies in the world.

More recently, Germany has emerged as the world’s largest gold investor. Although China and India still outpace the European country in total amount of gold consumed, Germans are ploughing more money into gold coins, bars and exchange-traded commodities (ETCs).

Interested in reading more about the history of gold? Check out some of my other posts below!

 

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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Frank Talk Turns Eleven Years Old!
April 24, 2018

Eleven years ago, U.S. Global Investors launched the Frank Talk blog as a way to share my experiences traveling the world and the investment insights I pick up along the way. After thousands of blog posts, we continue to cover the latest market news and educate investors. We’re one of the few sources online today that strives to take a balanced approach on gold investing, emerging markets and a handful of other topics.

One of our values at U.S. Global is having a “curiosity to learn and improve” and I feel starting a blog was a great tool to help our shareholders understand the nuances of global investing. In fact, my CEO blog was one of the first produced by a mutual fund company. Since the first Frank Talk blog post was published in 2007, it’s now widely read around the world and regularly appears on a number of financial news outlets. Over the years the Frank Talk blog and our other educational content have won many STAR Awards from the Mutual Fund Education Alliance (MFEA).

In the eleventh year of Frank Talk, we decided to challenge ourselves and develop a supplemental video series for our readers. This video series, appropriately named Frank Talk Live, allows me to dig even deeper into the material I write about and connect with viewers on a personal level. In this digital age, we believe it’s important to educate our viewers using a variety of mediums, such as video.

In case you haven’t seen a Frank Talk Live yet, I’d like to share with you the most viewed ones so far:

  • Understated Inflation Could Be Good for Gold – At the beginning of the year I like to give my price forecast for gold, in addition to updating it throughout the rest of the year. In this video I talk about gold and its relationship with inflation.
  • Electric Car Demand Set to Drive Copper Sky High – My good friend Robert Friedland, founder and CEO of Ivanhoe Mines, visited the U.S. Global offices and I shared with viewers his insights on the copper market and how electric car demand might send copper prices soaring.
  • Chinese New Year and Gold’s Love Trade – I like to talk about Chinese New Year every year, since it’s a big contributor to gold’s seasonal trading patterns, which I call the Love Trade.

I invite you to subscribe to our YouTube page to receive notifications when a new Frank Talk Live is released.

Thank you to my loyal Frank Talk subscribers, and welcome to those of you who are new. If there is ever a topic you’re curious to learn more about, please drop a note to editor@usfunds.com.

Happy Investing!

 

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 links above, you may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

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 3/31/2018: Ivanhoe Mines Ltd.

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Commodities Are Flashing a Once-in-a-Generation Buy Signal
April 23, 2018

Everything is bigger in Texas

Since the commodities supercycle began unwinding 10 years ago, many investors have been waiting for the right conditions to trigger mean reversion and lift prices. I believe those conditions are either firmly in place right now or, at the very least, in their early stages. Among them are factors I’ve discussed at length elsewhere—a weaker U.S. dollar, a steadily flattening yield curve, heightened market volatility, overvalued U.S. stocks, expectations of higher inflation, trade war jitters, geopolitical risks and more.

In addition, nearly 60 percent of money managers surveyed by Bank of America Merrill Lynch believe 2018 could be the peak year for stocks. A recent J.P. Morgan survey found that three-quarters of ultra-high net worth individuals forecast a U.S. recession in the next two years.

All of this makes the investment case for commodities, gold, and energy more compelling than at any other time in recent memory.

Exhibit A is the chart below, which I’ve shared before but recently updated with new data. Relative to equities, commodities are as cheap right now as they’ve been in decades. This is literally a once-in-a-generation opportunity that investors with a long-term view should seriously consider. For perspective, had you invested in a fund tracking the S&P GSCI or an equivalent commodities index in 2000, you would have seen a compound annual growth rate (CAGR) of around 10 percent for the next 10 years, according to Bloomberg data.

Commodities at most undervalued level in decades
click to enlarge

We all know that past performance is no guarantee of future results, but it’s doubtful you’re going to get a clearer or resounding signal that now could be an ideal time to add to your commodities exposure. If you feel as if you’ve been stuck at a traffic light these past few years, just waiting to put your foot on the accelerator, you can breathe a sigh of relief because the light may have just turned green.

Goldman: Time to Overweight Commodities

us steel demand by industry

I'm not alone in my bullishness. In a note last week, analysts at Goldman Sachs wrote that “the strategic case for owning commodities has rarely been stronger.” The bank recommends an overweight position, estimating that commodities will yield at least 10 percent over the next 12 months, with most of the gains being made by crude oil and aluminum.

Whereas crude traders are responding primarily to concerns that output could be disrupted by intensifying conflict in the Middle East, specifically oil producer Syria, aluminum prices have skyrocketed following the imposition of fresh U.S. sanctions against a number of Russian firms. Among them is United Company RUSAL, the world’s second-largest aluminum company, responsible for producing as much as 6 percent of global supply.

WTI Testing $70 Resistance

Since its low of $26 per barrel in February 2016, the price of West Texas Intermediate (WTI) crude has surged nearly fivefold and is currently at its highest level in more than three years. Last Wednesday, oil jumped nearly 3 percent on reports that U.S. inventories had fallen more than expected, suggesting the global glut continues to recede. And on Thursday, WTI tested resistance at $70, a level we haven’t seen since November 2014.

WTI crude surges to highest level since november 2014
click to enlarge

But prices retreated again Friday after President Donald Trump blasted OPEC on Twitter, proving once again how quants comb through social media at lightning speed and use sentiment analysis to inform their trades. “With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!” the president said.

As I shared with you earlier this month, OPEC and Russia are planning to work more closely together to limit output for a number of years, possibly as many as 10 or 20. Such an agreement would help support oil prices—Saudi Arabia, in particular, seeks higher prices to take Saudi Aramco, the world’s largest energy company, public—but it’s likely American shale producers would ramp up production to fill the void. The U.S. is now the number two oil producer in the world, having overtaken Saudi Arabia late last year.

Will We See $3,000 Aluminum?

Aluminum is likewise enjoying a strong rally, jumping sharply more than 23 percent since the White House announced sanctions against select Russian firms and oligarchs in response to the Eastern European country’s alleged interference during the 2016 presidential election. In nine of the past 11 trading days through Thursday, the metal posted positive gains, surging nearly 6 percent on Wednesday alone.

Can aluminum hit 3,000 dollars
click to enlarge

Aluminum soared to $2,715 per metric ton in intraday trading Thursday, the highest we’ve seen since April 2011. The rally may have further to run, writes Goldman Sachs, which forecasts a price range of between $2,800 and $3,000 this year.

Australian-British multinational Rio Tinto and Melbourne-based BHP, two of the world’s top aluminum producers, were both upgraded to “BUY” this week by CLSA, partly in response to rising aluminum prices but also because they maintain strong balance sheets and are expected to generate favorable free cash flow (FCF) this year.

China’s One Belt, One Road Still Needs Biblical Amounts of Materials

Also bolstering the commodities investment story is China’s massive ongoing “Belt and Road” megaproject, also known as the Silk Road Economic Belt. In a note last week, CLSA reminded us that the infrastructure initiative is still in its infancy, expected to be completed by 2049. It will cut through as many as 68 countries across Asia and Europe, affecting an estimated 62 percent of the world’s population. China has already spent approximately $180 billion to complete various projects, but many billions more will go toward building roads, ports, dams, high-speed rail, airports and more—all to “enhance regional connectivity,” as President Xi Jinping put it, and strengthen China’s economic clout.

To give you some scale as to how monumental and historic this undertaking truly is, the graphic below, courtesy of BHP, compares the development to the U.S. Marshall Plan, then one of the most expensive projects in human history. The Belt and Road initiative could eventually cost 12 times as much or more, with total spending estimates ranging between $4 trillion and $8 trillion.

Barrick gold reported lowest quarterly output in 16 years
click to enlarge

Estimates of how much energy and natural resources will be needed during the development phase vary wildly, but I think it’s fair to assume that demand will continue to be supported for some time.

Gold Supply Concerns Highlight It's Rarity

Gold ended last week down slightly, the first time in three weeks it’s done so. It looks as if gold investors took some profits late in the week after the yellow metal came close to breaching $1,360 on Wednesday.

I still believe gold could hit $1,500 an ounce this year on rising consumer and producer prices, which I think are understated. This is more than apparent when you compare the official U.S. consumer price index (CPI) and alternative measures such as the New York Fed’s Underlying Inflation Gauge (UIG). And as Dr. Ed Yardeni points out in a recent blog post, the word “inflation” appeared as many as 106 times during the latest Federal Open Market Committee (FOMC) meeting, a sign that Fed members could be getting more and more concerned about mounting inflationary pressures.

Recent reports also suggest gold production is slowing, which could help support prices long-term. Exploration budgets have been declining pretty steadily since 2012 after the price of gold peaked, and fewer and fewer large-deposit mines are being discovered.

Last week the China Gold Association announced that the country, the largest producer of gold, produced 98 metric tons in the March quarter, down some 3 percent from the same period last year. This comes after total Chinese output in 2017 fell 6 percent year-over-year to 426 tons. Granted, miners have been pressured by Beijing to curtail production as part of the government’s enforcement of tougher environmental protection policies, but the decline in output is part of a downward trend we’re seeing across the board, especially among major producers.

Take a look at the declining quarterly output of Barrick Gold, the world’s largest gold miner. According to its preliminary results for the first quarter, Barrick produced a total of 1.05 million ounces from its 10 projects. That’s only a 2 percent decrease from the same quarter last year, but a far cry from where it was seven years ago.

Barrick gold reported lowest quarterly output in 16 years
click to enlarge

Since the news hit April 11, shares of Barrick are up about 3 percent, even after a Friday selloff.

While some investors might view the lower output as disappointing, others no doubt see it as a reminder that gold is a finite resource, one of the many reasons why it’s remained so highly valued for centuries. As I’ve written before, the low-hanging fruit has likely already been picked, making the task of mining the yellow metal more difficult as well as expensive. Supply isn’t growing nearly as fast as it once did.

And yet demand continues to climb. Not only do the peoples of India, China, Turkey and other countries have a strong cultural affinity to gold—an obsession that will only intensify as incomes rise—but the metal still plays a vital role as a portfolio diversifier in times of economic and political uncertainty.

Franco-Nevada IPO at 10

us steel demand by industry

On a final note, Franco-Nevada, one of our favorite players in the gold space, recently celebrated it's 10- year anniversary as a publically-traded company. As if to commemorate the occasion, the company reported record sales and profit in 2017, not to mention a record $167.9 million in dividends paid—all while staying debt-free.

“I am pleased that Franco-Nevada’s 10th full year since its IPO was its best year ever,” commented CEO David Harquail.      

I’d like to congratulate my good friends Seymour Schulich and Pierre Lassonde, who conceived of the gold royalty model and cofounded the company back in 1983. (As I’ve explained before, Franco-Nevada was the first IPO I worked on as a young analyst in Toronto.) Seymour and Pierre are true rock stars in the world of gold mining, and what they’ve managed to achieve is nothing short of legendary.

 

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 S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. It represents the stock market's performance by reporting the risks and returns of the biggest companies.

The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.

Free cash flow (FCF) is a measure of a company's financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

The Underlying Inflation Gauge (UIG) includes a wide range of nominal, real and financial variables in addition to prices and focuses on the persistent common component of monthly inflation. The UIG is defined as the persistent common component of monthly inflation.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.

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.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 3/31/2018: BHP Billiton Ltd., Barrick Gold Corp., Franco-Nevada Corp.

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

Share “Commodities Are Flashing a Once-in-a-Generation Buy Signal”

Net Asset Value
as of 10/23/2018

Global Resources Fund PSPFX $4.95 -0.08 Gold and Precious Metals Fund USERX $6.87 No Change World Precious Minerals Fund UNWPX $3.48 -0.02 China Region Fund USCOX $8.08 -0.13 Emerging Europe Fund EUROX $6.25 -0.03 All American Equity Fund GBTFX $25.04 -0.20 Holmes Macro Trends Fund MEGAX $17.84 -0.16 Near-Term Tax Free Fund NEARX $2.19 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change