Gold Is Just Getting Warmed Up: UBS Analyst
July 12, 2016
It’s been a stellar six months for gold investors. The yellow metal has surged 28 percent year-to-date, its best first half of the year since 1974. And now there are signs that the rally is just getting started.
Charlie Munger: Invert And Use “Disconfirming Evidence”
That’s the assessment of analysts from UBS and Credit Suisse, who see gold entering a new bull run. According to UBS analyst Joni Teves, gold could climb to $1,400 an ounce in the short term on macroeconomic uncertainty, dovish monetary policy and lower yields.
“These factors,” Teves writes, “justify strategic gold allocations across different types of investors” and should encourage hesitant investors to participate.
Already-low bond yields around the globe have fallen even further in Brexit’s wake, many of them hitting fresh all-time lows, including yields in the U.S., U.K., Germany, France, Australia, Japan and elsewhere. For the first time ever, Switzerland’s entire stock of bond yields has fallen below zero, with the 50-year yield plunging to negative 0.03 percent on July 5.
Canada’s 30-year bond yield also plunged to a record low, as did yields on the 10-year and 30-year Treasuries.
About $10 trillion worth of global government debt now carry historically low or negative yields, which are “creating negative growth” in the world economy, according to billionaire “bond king” Bill Gross in his recent Investment Outlook.
Anemic yields are also contributing to gold’s attractiveness right now. Since Britain’s June 23 referendum, the precious metal has rallied more than 8 percent, helping it achieve its best first half of the year in more than a generation.
Negative Real Rates Fuel Prices
Joining UBS in forecasting further gains is Credit Suisse, which sees gold reaching $1,500 by as early as the start of next year. As Kitco reports, Credit Suisse analyst Michael Slifirski writes that “the surprise Brexit vote has solidified and intensified macro and political uncertainty and extended the time frame for a negative real rate environment in the U.S. and potentially abroad.”
This is precisely what I told BNN’s Paul Bagnell this week, using Canada as an example. The Canadian 10-year yield is sitting just below 1 percent, while inflation in May came in at 1.5 percent. When we subtract the latter from the former, we get a real rate of negative 0.5 percent—meaning inflation is eating your lunch. Like negative bond yields, negative real rates have in the past accelerated momentum in gold’s Fear Trade.
We need only look at the end of the last upcycle in gold to see this to be the case. When gold hit its all-time high of $1,900 in August 2011, real interest rates were around 3 percent. A five-year Treasury bond yielded only 0.9 percent, and that’s before inflation took 3.8 percent. But as real rates rose, gold prices fell. Now the reverse is happening.
Gold Miners Rally
The appreciation in bullion is helping to push up gold mining stocks. The FTSE Gold Mines Index, which tracks seniors such as Barrick Gold, Newmont Mining and Goldcorp, is up a phenomenal 125 percent year-to-date.
Our own Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX) are both performing exceptionally well, with USERX returning close to 80 percent for the one-year period and UNWPX surging nearly 100 percent during the same period.
Managed by Ralph Aldis, named a Metals and Mining “TopGun” by Brendan Wood International last year, the Gold and Precious Metals Fund holds four stars overall from Morningstar out of 71 Equity Precious Metals funds, based on risk-adjusted returns, as of June 30, 2016.
With gold having possibly entered the early stages of a new bull run, it might be time to consider gold stocks. I invite you to visit our gold funds page to learn more about what’s driving gold right now.
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.
Past performance does not guarantee future results.
|Fund||One-Year||Five-Year||Ten-Year||Gross Expense Ratio||Expense Cap|
|Gold and Precious Metals Fund||67.827%||-8.04%||-0.36%||2.20%||1.90%|
|World Precious Minerals Fund||87.51%||-11.85%||-2.90%||2.01%||1.90%|
Expense ratios as stated in the most recent prospectus. The expense cap is a voluntary limit on total fund operating expenses (exclusive of any acquired fund fees and expenses, performance fees, extraordinary expenses, taxes, brokerage commissions and interest) that U.S. Global Investors, Inc. can modify or terminate at any time, which may lower a fund’s yield or return. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.
Gold and Precious Metals Fund
Morningstar ratings based on risk-adjusted return and number of funds
Category: Equity Precious Metals
Morningstar Ratings are based on risk-adjusted return. The Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)
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.
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.
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 and World Precious Minerals Fund as a percentage of net assets as of 3/31/2016: Barrick Gold Corp. 1.60% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund; Newmont Mining Corp. 0.00% in Gold and Precious Metals Fund and World Precious Minerals Fund; Goldcorp Inc. 5.13% in Gold and Precious Metals Fund, 1.27% in World Precious Minerals Fund.
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