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Bitcoin Miners See a Bullish Breakout on the Horizon

Please note: The 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.

July 27, 2018

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

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The price of bitcoin surged above $8,000 on Tuesday for the first time since May after the Group of 20 (G20) meeting in Argentina concluded last weekend with little urgency to take regulatory action on cryptocurrencies. In a communiqué, finance ministers and central bank governors expressed confidence that the technology underlying alt-coins “can deliver significant benefits to the financial system and the broader economy.”

Many of these benefits were discussed in my interview with Marco Streng, cofounder of Genesis Mining, the world’s largest cloud bitcoin mining company. Genesis had a huge win this week as securities regulators in South Carolina dismissed their cease-and-desist orders from March. The move, according to CoinDesk, marks the first time the state dropped such orders against a blockchain startup.

The U.S. global sentiment indicator reaches 54 percent mid-week
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Further support came courtesy of a July 16 report by the Switzerland-based Financial Stability Board (FSB), which concluded that, “like crypto-assets in general, crypto-asset platforms do not pose global financial stability risks.” Trading platforms include Coinbase—the most popular by far—Bitfinex, Kraken and many others.

From its low of $5,850 in late May, bitcoin was up nearly 44 percent on June 24 before pulling back on the Securities and Exchange Commission’s (SEC) decision not to approve a bitcoin ETF filed by Cameron and Tyler Winklevoss. (Today it was back above $8,000.) I believe bitcoin’s fundamentals are lining up for a significant move higher, its price having already broken sharply above the 50-day moving average.

Keep in mind, though, that we’re still very early in crypto investing. It was only 10 years ago that the mysterious Satoshi Nakamoto wrote the now-famous whitepaper that led to the creation of bitcoin. Volatility is still roughly six times as high as large-cap stocks and gold in a single trading session, and 11 times as high in the 10-day period. As I told Market One Media last week, the space remains speculative, but there are opportunities for tremendous upside.

understanding cryptocurrency's "DNA of volatility"

Bitcoin’s Hash Rate Is Telling a Bullish Story 

Among the most bullish signs is bitcoin’s rapidly surging hash rate. In simple terms, a “hash” is a calculation made by a bitcoin miner in an attempt to secure a block reward, which currently sits at 12.5 bitcoin per block. (The reward automatically halves every 210,000 blocks. At the present mining rate, the next halving is estimated to occur in May 2020, after which the reward will drop to 6.25 coins.) The “hash rate,” then, is how many calculations are made per second across the globe. It generally reflects the pace at which new miners are joining the network.

Every 10 minutes on average, a new block is mined, meaning 1,800 bitcoin—or $14.8 million at today’s prices—are created every day of the week. Blockchain technology, remember, guarantees the validity of these new virgin coins. Imagine if stock trading were as quick, efficient and worry-free as crypto-mining. You can see now why JPMorgan, Citigroup, Bank of America and other big banks are rushing to patent blockchain processing systems of their own. 

Look at the chart below. The bitcoin hash rate has continued to grow at an astonishing pace despite the selloff, suggesting miners are still very bullish on future prices.

despite decline in bitcoin price, miner enthusiasm has continued to surge
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This month, the number of operations passed above 45 trillion per second for the first time ever. That’s a more than sixfold increase in power from only a year ago. It also signifies a huge recovery after extensive flooding in Sichuan, China knocked out significant amounts of hashing power in late June and early July.

Speaking of bitcoin mining power, critics often like to point out how much electricity the network consumes, in an effort to turn public opinion against the industry. To be sure, mining bitcoin and other cryptocurrencies requires a lot of energy, but the figures you might have seen are highly exaggerated. Some sources claim that industry demand stands at 65 terawatts per hour (TWh), or 65 trillion watts per hour, on an annualized basis. But a more accurate estimate is closer to 35 TWh, “less than the annual energy consumption of Luxembourg, a country of 585,000 people,” according to CoinShares Research analysts Christopher Bendiksen and Samuel Gibbons.

How did Bendiksen and Gibbons arrive at this figure, and why is it so drastically lower than other estimates? The analysts point out that hardware efficiency is nearly doubling every year (81 percent), while the cost of hardware is almost cut in half on an annual basis (-48 percent). This means miners are increasingly able to do much more for much less. Miners also prefer to operate in colder climates, which lower cooling costs, and they largely rely on cheap green energy. This is part of what attracted me to HIVE Blockchain Technology, which conducts most of its business in Iceland and Sweden.

“Our total findings suggest that the bitcoin mining industry is relatively healthy, profitable and continues to grow at breakneck speeds,” Bendiksen and Gibbons write. “The hash rate is tripling on an annual basis while the efficiency of the hardware is rapidly increasing and costs are coming down.”

You Can Now Trade Crypto Securities on Coinbase. When Will We Get an ETF?

Investors have a growing number of options to gain exposure to bitcoin and cryptocurrencies, besides buying the actual assets themselves. There are several publically traded companies that have begun integrating blockchain technology into their business, such as IBM and Hitachi. Other firms have direct involvement in mining cryptos—HIVE Blockchain, for instance, and China’s Bitmain, which is seeking $1 billion in financing before a possible initial public offering (IPO). Bitcoin futures are available for trading on the CME and CBOE. And Coinbase just received SEC approval to “move forward with a trio of acquisitions that could allow it to become one of the first federally regulated venues for trading digital coins deemed to be securities,” according to Bloomberg.

most crypto investors favor ethereum and bitcoin
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But so far a bitcoin ETF has not yet been made available. I believe that once such a product comes on the market, the price of bitcoin will really take off.

Just look at the chart below. Gold traded mostly sideways throughout the 1980s and 1990s. Then in March 2003, the first gold ETF appeared, and the price of the yellow metal skyrocketed 420 percent as trading became more liquid and streamlined. I can’t say bitcoin would respond likewise, of course, but a crypto ETF would certainly attract more curiosity to the space.

the first gold ETF boosted metal prices. can the same happen with bitcoin?
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There’s no lack of investor interest in a bitcoin ETF. A recent survey conducted by international law firm Foley & Lardner found that nearly three quarters of participants, 72 percent, were hopeful they’ll have the opportunity to invest in an ETF that holds bitcoin or other cryptocurrencies.

As I mentioned earlier, the Winklevoss twins have now made two (unsuccessful) attempts to bring one to market, and the SEC has said it will postpone making a decision on five other proposed ETFs until September. Even if these get struck down as well, we move closer to getting one every day.

HashFlare Drops Its Contracts Amid Scandal

Cloud mining is one portion of the cryptocurrency mining landscape that can be a bit tricky to understand because there’s potential for fraud. One example is with the recent scandal around cloud mining platform HashFlare, which announced July 20 that it dropped its mining service of certain bitcoin contracts pursuant to a clause in its terms of services.

HashFlare failed to produce payouts higher than its maintenance fees for 28 days in a row, activating the clause for the conclusion of its contracts.

News such as this is positive for companies like Genesis and HIVE Blockchain—both reputable miners.

Voters Insist on Streamlining of Regulations and Accountability from Government Officials

One final thought. In my observations at conferences and by reading news headlines, I see a global pushback taking place against entrenched, big-government bureaucrats. Each country has its own dynamics. Even when some of the headlines are hard to stomach, I believe this development is generally a positive thing and am bullish on it.

The pushback isn’t limited to President Donald Trump. Disruptors are being voted in and assuming power all over the world—Narendra Modi in India, Xi Jinping in China, Giuseppe Conte in Italy and now

even in Canada. Yesterday, Ontario Premier Doug Ford unexpectedly announced he would slash the number of Toronto’s city council positions nearly in half, from 47 to 25, in an effort to shrink the size of the government. This is significant, as Toronto is the fourth-largest city in North America following Mexico City, New York City and Los Angeles.

This all comes back to taxpayers wanting accountability from regulators and government officials. Who is going to help represent them to achieve that? If regulators aren’t facilitating growth, particularly in non-government roles, then they should be held accountable. It seems that voters are demanding this more and more, and in a growing number of places around the world.

Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average gained 1.57 percent. The S&P 500 Stock Index rose 0.61 percent, while the Nasdaq Composite fell 1.06 percent. The Russell 2000 small capitalization index lost 1.97 percent this week.
  • The Hang Seng Composite gained 2.13 percent this week; while Taiwan was up 1.31 percent and the KOSPI rose 0.25 percent.
  • The 10-year Treasury bond yield rose 6 basis points to 2.96 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
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Strengths

  • Energy was the best performing sector of the week, increasing by 2.32 percent versus an overall increase of 0.60 percent for the S&P 500.
  • Corning was the best performing stock for the week, increasing 15.18 percent.
  • Amazon on Thursday reported a $2.5 billion second-quarter profit, which far exceeded Wall Street's expectations. Investors applauded the results, sending the stock up as much as 4 percent in after-hours trading.

Weaknesses

  • Information technology was the worst performing sector for the week, decreasing by 1.15 percent versus an overall increase of 0.60 percent for the S&P 500.
  • Nielsen Holdings was the worst performing stock for the week, falling 25.14 percent.
  • Facebook saw the biggest wipeout in stock market history. Shares plunged 19 percent on Thursday following the social media giant's disappointing second-quarter results and future growth guidance, wiping out $120 billion in market value.

Opportunities

  • Cybersecurity company Tenable spiked in its trading debut. Shares surged 31.5 percent on Thursday, giving the company a market cap of about $2.7 billion. 
  • The Alphabet company beat on both the top and bottom lines and delivered strong growth in the face of the European Union's record-breaking $5 billion fine. Additionally, Google's underrated translate service could be its next hit product. CEO Sundar Pichai revealed the app translates 143 billion words every day and said it saw a big boost during the 2018 World Cup.
  • Details have been uncovered about two new Xbox consoles Microsoft is developing. Thurrott's Brad Sams reported that Microsoft is working on both a more traditional console and a smaller lower-powered device designed for game-streaming.

Threats

  • While Starbucks reported record revenue in its third fiscal quarter, its same-store sales in China fell 2 percent amid strong competition and setbacks in its delivery program, Reuters reported.
  • AMD said its crypto boom is over. According to Lisa Su, AMD's chief executive, "for Q2, we were approximately 6 percent of revenue for blockchain. For Q3, we're planning very little blockchain."
  • Ford lowered its full-year earnings outlook. The automaker posted mixed quarterly results and joined its peers General Motors and Fiat Chrysler in lowering its 2018 full-year earnings outlook, saying it expected adjusted earnings of $1.30 to $1.50 a share, down from a range of $1.45 to $1.70.

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The Economy and Bond Market

 

Strengths

  • Gross domestic product (GDP) grew at a strong 4.1 percent in the second quarter, for the best pace since 2014. The number matched economists’ expectations and was boosted by a surge in consumer spending and business investment.
  • New orders for key U.S.-made capital goods increased more than expected in June and shipments surged. The data pointed to solid growth in business spending on equipment in the second quarter. Overall orders for durable goods increased 1.0 percent in June, as demand for transportation equipment rebounded.
  • The seasonally adjusted IHS Markit Flash U.S. Manufacturing PMI index came in flat for June. The index rose marginally to 55.5 in July up slightly from June’s 55.4 reading and above the average since the index started in May 2007. A relatively solid rebound in manufacturing business conditions reflected strong new order growth, along with a strong pickup in both production volumes and employment numbers.

Weaknesses

  • U.S. consumer sentiment fell to a six-month low in July amid concern over trade tensions, according to the University of Michigan report released on Friday. While sentiment remains high by historical standards, uncertainty surrounding trade has strained confidence as Americans fear economic fallout from the tariffs and potential inflation. Sentiment among consumers fell to 97.9 in July, down from 98.2 in June.
  • U.S. home sales fell for a third straight month in June as a persistent shortage of properties on the market pushed up house prices to a record high, likely sidelining some potential buyers. The National Association of Realtors said on Monday that existing home sales fell 0.6 percent to a seasonally adjusted annual rate of 5.38 million units last month. May's sales pace was revised down to 5.41 million units from the previously reported 5.43 million units. Economists polled by Reuters had forecast existing home sales gaining 0.5 percent to a rate of 5.44 million units in June. Existing home sales, which make up about 90 percent of U.S. home sales, fell 2.2 percent from a year ago in June.
  • Sales of new U.S. single-family homes fell to an eight-month low in June and data for the prior month was revised sharply down, the latest indications that the housing market is slowing down. The Commerce Department said on Wednesday new home sales dropped 5.3 percent to a seasonally adjusted annual rate of 631,000 units last month, the lowest level since October 2017. May's sales pace was revised down to 666,000 units from the previously reported 689,000 units. Economists polled by Reuters had forecast new home sales, which account for about 10 percent of housing market sales, falling 2.8 percent to a pace of 670,000 units in June.

Opportunities

  • By at least some measures, investors in two-year U.S. Treasuries have never experienced as much pain as they have over the past two years, according to Bloomberg’s Brian Chappatta. Two-year notes have declined in price for eight consecutive quarters, the longest losing streak in at least three decades, while yields at two-year Treasury auctions have increased month-over-month for 19 of the past 22 sales. That all led up to Tuesday’s result: $35 billion of notes priced to yield 2.657 percent, the most in a decade. However, the auction had the highest bid-to-cover ratio since January, showing that some investors are warming to the allure of short-dated U.S. debt.

U.S. Two-Year Yield Climbed to highest level since 2008 at latest treasury auction
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  • On Tuesday, the personal consumption expenditures (PCE) report will provide the latest update on personal income, consumption and the Fed’s preferred inflation measure, the core PCE price index. Both personal income and consumption are forecast to grow by 0.4 percent month-on-month in June, underlining the strong momentum in the second quarter. The core PCE index hit 2 percent for the first time in six years in May and is forecast to stay at that level in June.
  • Next Friday the unemployment rate is forecast to dip slightly from 4.0 percent to 3.9 percent, while average hourly earnings are expected to remain steady at 2.7 percent year-on-year.

Threats

  • Monday of next week will see the release of pending home sales for the month of June. Recent figures suggest the U.S. housing market is slowing and there could be a further indication of this in the data release.
  • The July jobs report next Friday is expected to show a slowdown in the pace of U.S. jobs growth in July, with nonfarm payrolls forecast to rise by 195,000, down from 213,000 in the prior month.
  • The European Commission’s economic sentiment gauge will be released on Monday. The index, which tracks activity across various sectors of the eurozone economy, is expected to continue sliding, falling to 112.0 in July.

Gold Market

This week spot gold closed at $1,222.93 down $9.07 per ounce, or 0.74 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 2.03 percent. Junior-tiered stocks outperformed seniors for the week, as the S&P/TSX Venture Index came in off just 0.70 percent. The U.S. Trade-Weighted Dollar Index rose this week by 0.20 percent.

Date Event Survey Actual Prior
Jul-25 New Home Sales 668k 631k 666k
Jul-26 Hong Kong Expors YoY 7.9% 3.3% 15.9%
Jul-26 ECB Main Refinancing Rate 0.000% 0.000% 0.000%
Jul-26 Intial Jobless Claims 215k 217k 208k
Jul-26 Durable Goods Orders 3.0% 1.0% -0.3%
Jul-27 GDP Annualized QoQ 4.2% 4.1% 2.2%
Jul-30 Germany CPI YoY 2.1% -- 2.1%
Jul-31 Eurozone CPI Core YoY 1.0% -- 0.9%
Jul-31 Conf. Board Consumer Confidence 126.0 -- 126.4
Jul-31 Caixin China PMI Mft 50.9 -- 51.0
Aug-1 ADP Employment Change 180k -- 177k
Aug-1 ISM Manufacturing 59.2 -- 60.2
Aug-1 FOMC Rate Decision (Upper Bound) 2.00% -- 2.00%
Aug-2 Intial Jobless Calims 220k -- 217k
Aug-2 Durable Goods Orders -- -- 1.0%
Aug-3 Change in Nonfarm Payrolls 190k -- 213k

Strengths

  • The best performing metal this week was palladium, up 3.41 percent on tensions residing over tariffs on automobiles. Gold traders turned bullish this week, as prices rose from their lowest in a year, after being the most bearish since December in last week’s survey. Bullion rebounded from a loss after U.S. GDP data was released showing growth at the fastest pace since 2014, which actually missed estimates.
  • Net imports of gold by mainland China from Hong Kong were 81,304 kilograms, which is the most since March 2017. Gold reserve holdings in China have long been a mystery, as the nation often goes years without reporting increases or decreases, but reserves could be rising. China has kept its official gold holdings unchanged at 59.24 million ounces since October 2016, valued at $74.1 billion. The growing trade war with the U.S. and a slump in gold prices are reasons that China could be buying gold.

China usually goes a long time between reserve announcements
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  • Newmont Mining Corp. beat its earnings estimate for the second quarter coming in at an adjusted earnings-per-share of $0.26 versus estimates of $0.21. The mining company announced a $275 million acquisition of a 50 percent interest in the Galore Creek project from NOVAGOLD. The acquisition will be a staged investment with an initial payment of $100 million then subsequent payments over five years after certain feasibility studies are completed. The Galore Creek project contains one of the highest copper grades in North America.

Weaknesses

  • The worst performing metal this week was gold, down 0.74 percent. Gold is set for its third weekly decline as the focus this week was U.S. GDP growth and anticipation of the Federal Reserve policy meeting next week. Two major players won dismissal from silver and gold price-fixing suits, in a blow to hopes that suppression in the precious metals markets would come to an end. Barclays and UBS won dismissal in their silver and gold price fixing suits, respectively, as judges ruled that there was a lack of evidence of price fixing or suppression.
  • Several gold miners reported poor results in the second quarter of this year, led by New Gold, which saw a 20 percent decline in pre-market trading on Thursday due to disappointing results at its key project. Goldcorp, Agnico Eagle and Barrick also experienced misses in the second quarter. Torex Gold Resources Inc. was downgraded to a hold from a buy by TD Securities analyst Daniel Earle, reports Bloomberg.
  • Bloomberg writes that AngloGold Ashanti Ltd. has appointed Kevin Dushnisky as its new chief executive officer, who is currently the President of Barrick Gold Corp. He will join the company on September 1 to replace its outgoing CEO. Barrick said that it will announce a replacement for Dushnisky in due course; however, questions have been raised on whether this successor will have more or less power at the world’s largest gold producer.

Opportunities

  • Two mergers and acquisitions were announced this week. Lundin Mining Corp. announced that it offered to acquire all of Nevsun Resources Ltd., for which Nevsun shareholders will receive CAD$4.75 in cash for each share – a significant premium of 82 percent. Additionally, Bonterra Resources Inc. and Metanor Resources Inc. announced they have entered into a definitive arrangement to merge and become a Canadian gold exploration and development company focused on the Urban Barry Quebec Gold Camp.  Deals in the gold sector are happening but have yet to get much attention quite yet.
  • SilverCrest Metals Inc. announced extremely strong drill results for the Las Chispas Property in Sonora, Mexico. The company reported silver grams-per-ton (gpt) results of 2.2 meters grading 7,436, 2.1 meters grading 1,286 and 1.4 meters grading 6,695. SilverCrest CEO Eric Fier said that “We continue with our successful Phase III expansion drill program with further high-grade silver-gold intercepts in multiple veins at Las Chispas.” AngloGold’s hiring of a former Barrick executive, mentioned in the section above, emphasizes that the company is pivoting to North America. This could be positive for Corvus Gold and Pure Gold, both companies in which AngloGold holds an interest in. Northern Empire has a strategic land position surrounding the Corvus’s Motherlode discovery which would likely require its participation should any transaction surface.
  • Pimco money manager Nic Johnson wrote on Friday that falling gold prices in the absence of rising real yields means gold has cheapened versus other haven assets. Coupled with the fact the President is concerned that a rising U.S. dollar will derail their growth plans, this could reignite interest in the yellow metal. Johnson also notes “Over the past decade, gold has traded like an asset with nearly 30 years’ duration, meaning that a 100-basis-point move lower in Treasury real yields has translated to a roughly 30 percent increase in the price of gold.” He points out that gold has fallen as real yields have remained stagnant. This may be too much focus on the dollar versus real interest rates.

Threats

  • South Africa’s gold industry, once the world’s largest, has been facing big production declines for many years and fell 16 percent in May from a year earlier. AngloGold Chairman Sipho Pityana told Bloomberg in an interview this week that “gold is a sunset industry” and that “it doesn’t matter what you do, it doesn’t matter how you do it, you are not going to be able to change that,” citing rising costs for having to dig deeper at its South African mines.
  • The National Association of Realtors’ report released on Monday shows that sales of previously owned U.S. homes unexpectedly fell in June, indicating a shortage of affordable listings while rising prices continue to limit demand, writes Bloomberg. The housing market in cutthroat areas appear to be headed for the broadest slowdown in years as buyers are being squeezed by rising mortgage rates and prices climbing twice as fast as incomes. Robert Shiller, a Nobel Prize-winning economist says that “this could be the very beginning of a turning point.” Cornerstone Macro noted that that the performance of homebuilder stocks and lumber prices has been abysmal. These indicators often correlate to, or lead, the business cycle.
  • Cameco, a Canadian mining company, announced this week that it will be indefinitely extending the shutdown at one of the world’s largest uranium mines, amid concerns of tariff uncertainty. Bloomberg writes that this decision comes as President Donald Trump threatens to extend metals tariffs to uranium imports. Energy Fuels Inc., with U.S.-based uranium assets, could be a beneficiary if tariffs come into effect on uranium imports upon which the U.S. imports the bulk of its needs.

Blockchain and Digital Currencies

 

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended July 27 was Refereum, which gained 292.93 percent.
  • On Tuesday morning, bitcoin rose by more than 5 percent to $8,100 – topping the $8,000 mark for the first time in two months, reports Seeking Alpha. The bounce has now hit nearly 50 percent since bottoming in late June, the article continues.
  • According to VanEck analyst Gabor Gurbacs, bitcoin’s market capitalization could triple if investors begin to view it as a safe-haven allocation like gold or in this case, digital gold, writes ETF Trends. “It’s a de-risk asset,” Gurbacs said. “Basically, if someone wants to outlay systemic risk, then one would go to assets like gold or digital gold – bitcoin. Investors are looking at adding uncorrelated assets to their portfolios.”

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended July 27 was Riecoin, which lost 82.44 percent.
  • This week, bitcoin put more distance between itself and its smaller rivals like Ethereum and Ripple, writes Bloomberg. Although the move is positive for bitcoin, other major cryptocurrency peers have been unable to keep pace with the popular coin’s rally, once again lagging as bitcoin moved higher by as much as 5.8 percent at the start of the week.

Largest Digital Coin Advances More Than Closest Rivals, Index
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  • In the second quarter of 2018, Ripple reported a sharp decline in XRP sales, when compared to the first three months of the year, reports Coindesk. In the company’s report published Tuesday, it explains that $75.53 million in XRP were sold in the second quarter compared to the previous quarter’s $167.7 million – a decrease of 54.96 percent. The good news, however, is that Ripple’s customer base grew in the second quarter from the first.

Opportunities

  • Finance officials from the Group of 20 leading nations (G20) continued their optimistic stance on the crypto market at the summit in Argentina, reports MarketWatch, stating that digital currencies don’t necessarily pose a big threat to the financial system but that countries must still remain vigilant. “Technological innovations, including those underlying crypto-assets, can deliver significant benefits to the financial system and the broader economy,” the G20 said.
  • “Crypto stocks, the darlings of late last year that quickly lost their luster, may be rising from the dead,” writes Bloomberg News. At the end of 2017, many small firms rebranded themselves with blockchain in order to boost share prices. Of course, their market values fell when the bitcoin price plummeted from its highs; however, with the popular coin rising above $8,000 early this week, some of these stocks are once again mimicking bitcoin’s moves.
  • Coinbase is rolling out a new feature that will let European customers cash out their crypto coins for digital gift cards, writes Bloomberg. In cooperation with a London-based startup known as WeGift, users will now have the option to convert their digital currency into gift cards from over 120 different retailers.

Threats

  • In his congressional testimony last week, Jerome Powell placed himself firmly in the conventional wisdom camp, writes Seeking Alpha, noting that cryptocurrencies lack investor protections and are ideal for nefarious uses like money laundering. In response to Powell’s comments, Cowen’s Jaret Seiberg thinks the new Federal Reserve Chair to be an “obstacle to the use and expansion of digital currencies.”
  • The European Union has warned that bitcoin and other decentralized cryptocurrencies could be derailed by the world’s central banks, reports Forbes. The European Parliament Committee on Economic and Monetary Affairs commissioned a report on fintech competition, which outlines that if banks and central banks were to issue their own cryptocurrencies, it could be bad news for the likes of bitcoin, the article continues.
  • The Australia Competition and Consumer Commission (ACCC), an independent government authority tasked with the mandate of enforcing consumer protection laws, has seen a new trend over the last 12 months. According to CCN.com, the ACCC has warned that cryptocurrency trading scams have grown significantly over the last year, and are now the second most-common kind of investment scam in the country.

what are gold royalty companies explore the infographic

Energy and Natural Resources Market

 

Strengths

  • Gasoline was the best performing major commodity this week rising 4.55 percent. The commodity posted its best week in a month, supported by a strong U.S. GDP print, and a greater-than-anticipated U.S. inventory draw.
  • The best performing sector this week was the S&P/TSX Oil & Gas Refining & Marketing Index. The index rose 9.03 percent after crack spreads widened, with crude dropping and gasoline prices rising.
  • The best performing stock for the week was Ferrexpo PLC. The major producer of steelmaking iron ore rose 12.7 percent following rising steel prices and renewed confidence that China’s fiscal stimulus may help avert a global trade war crisis. 

Weaknesses

  • Lumber was the worst performing commodity this week. The commodity dropped 4.63 percent after U.S. purchases of new homes fell in June to the slowest pace in eight months, while the median selling price declined to the lowest in more than a year.
  • The worst performing sector this week was the S&P 1500 Construction and Materials Index. The index dropped 5.19 percent tracking lumber prices which fell as a result of weaker-than-expected housing data.
  • The worst performing stock for the week was Fresnillo PLC. The London-based Mexican precious metals producer dropped 10.02 percent after the company downgraded its silver production outlook for 2018.

Opportunities

  • China unveiled new measures to aid growth amid trade uncertainty. Fiscal policy should now be “more proactive” and better coordinated with financial policy, according to the statement -- a signal that the finance ministry will step up its contribution to supporting growth alongside the central bank. From a tax cut aimed at fostering research spending to special bonds for infrastructure investment, the measures announced late Monday following a meeting of the State Council in Beijing are intended to form a more flexible response to “external uncertainties,” according to a Bloomberg report.
  • The U.S. dollar dropped to two-week lows this week, resting on its 50-day moving average, amid notable supply and rebounding commodities. The weakness came ahead of a crucial meeting between U.S. President Donald Trump and European Commission President Jean-Claude Juncker, amid heightened trade tensions in the global economy.

U.S. dollar drops to two-week lows amid trade tensions
click to enlarge

  • The outlook for commodities at the end of the year is positive, according to Jeff Currie, head of commodities research at Goldman Sachs. We may be on the cusp of a turning point for the U.S. dollar, as weakness in the yuan, rising commodity prices and rising U.S. rates, are not compatible. Stable-to-declining rates, rising commodity prices and a weaker U.S. dollar are a more sustainable scenario, according to Currie. 

Threats

  • This week’s EIA oil inventory report is not as bullish as the headline stock draw suggests, with most of the drop in crude confined to the west coast while a measure of demand for key refined products dropped below year-earlier levels for a third week, according to Bloomberg oil strategist Julian Lee. The four-week average demand for gasoline, which is less volatile than weekly data, was lower than during the same period in 2017 for a third consecutive week, suggesting demand growth is running out of steam.
  • Societe Generale has cut its third quarter zinc and copper forecasts by 21 percent and 13 percent, respectively, factoring in the threats that rising trade tensions pose to global economic growth. All base metals forecasts lowered as “ripple effect of new trade barriers and slower growth is likely to weigh on prices in the near-term,” according to the bank’s analysts.
  • New home sales in the U.S. tumbled to eight-month lows. The median selling price declined to the lowest in more than a year, adding to signs the housing market is cooling, according to government data Wednesday.

China Region

 

Strengths

  • India’s Nifty 50 and SENSEX Indices both soared to new all-time highs this week in a green week across the region.
  • Singapore’s year-over-year industrial production reading for the June measurement period came in up 7.4 percent, better than analysts’ anticipation of a 3.3 percent print.
  • A preliminary reading of South Korea’s year-over-year second quarter GDP growth clocked in at 2.9 percent, up from the prior reading of 2.8 percent. 

Weaknesses

  • The utilities sector came in as the worst-performing in the Hang Seng Composite Index (HSCI) this week, falling by 0.85 percent over the last five trading days in a reversal from last week’s broader selloff in the HSCI.
  • Taiwan’s year-over-year export orders dropped 0.1 percent for the June period, shy of analysts’ expectations for a 7.4 percent print and down from May’s reading of 11.7 percent.
  • The Chinese yuan did put in new 52-week highs (lows), closing the week at 6.8133, after strengthening for part of the week.

Opportunities

  • Chinese e-commerce operator Pinduoduo (PDD US)—which is listed in the United States on the NASDAQ and is backed by juggernaut Tencent Holdings—soared about 40 percent in its first day of trading after pricing at the very high end of its IPO range. The launch of PDD, which currently has a market capitalization of around $28 billion, marks the latest in massive tech IPOs; Pinduoduo’s debut catapulted its founder Colin Huang to the top-100 wealthiest people on planet earth. Technology growth continues apace.
  • South Africa played host to a BRIC conference this week featuring leaders of Brazil, Russia, India and China. Note that China was Sub-Saharan Africa’s biggest trading partner last year at about $120 billion, Bloomberg News reported this week, followed by India at $48 billion. U.S. trade with the same region has dropped by about 53 percent in the last ten years, to $40 billion.

China, India overtake U.S. as biggest trading partners of sub-saharan africa
click to enlarge

  • China, the world’s second largest economy, could still grow by 6.6 percent this year, according to updated median of 62 economists’ estimates conducted in a Bloomberg poll following the recent second quarter GDP print. With Chinese authorities slowing the pace of deleveraging, allowing some weakening of the yuan to soften possible trade war impact, and instituting recent tax cuts and reserve ratio cuts, governmental fiscal and monetary stimuli may well help to keep China buzzing along. With a first quarter 6.8 percent reading and the recent second quarter 6.7 reading, who knows? Perhaps the 6.6 estimate could be revised up again before the year is out. Time will tell…

Threats

  • Trade wars – real, perceived or both – remain a concern for global and China region investors. However, this week’s China stimulus package and an appearance of relaxation between the U.S. and Europe have helped improve sentiment. 
  • According to a report published on Thursday by American intelligence agencies, China continues to steal intellectual property and trade secrets from U.S. companies for its own economic advancement, reports the Washington Post. In addition, says the article, “for the development of its military but ‘at lower volumes’ since the two countries forged an agreement in 2015 meant to curb the practice.” This news is unlikely to suppress any concerns from the White House that the Asian nation continues to pose a threat to U.S. businesses. 
  • Inflation remains high in the Philippines even as the peso remains relatively weak as of late. BSP Governor Nestor Espenilla recently signaled a plan for “strong follow-through monetary adjustment” in August, which the market will monitor carefully. Between the recent BSP action and the hint of further action—helped by broader and more positive sentiment across the region this week and a muted U.S. dollar—the Philippines Composite did manage to knock out a 4.08 percent this week.

Emerging Europe

 

Strengths

  • Poland was the best performing country this week, gaining 4.1 percent. The Warsaw stock exchange saw little impact from the massive protests against the current judicial reform. President Andrzej Duda signed into law legislation that clears the path for the appointment of a new head of the Supreme Court.  
  • The Hungarian forint was the best performing currency this week, gaining 58 basis points against the U.S. dollar. The forint gained despite the central bank’s decision to kept its dovish policy, leaving its main rate unchanged at 90 basis points. The unemployment rate dropped to record low of 3.6 percent in June.
  • Information technology sector was the best performing sector among eastern European markets this week.

Weaknesses

  • Greece was the worst performing country this week, losing .40 basis points. On Monday, wildfires broke out in two popular resorts near Athens. The second fire engulfed the coastal resort of Mati in eastern Attica and killed at least 83 people, leaving many still missing. The Greek government received criticism for how it handled these wildfires.
  • The Turkish lira was the worst performing currency this week, losing 1.1 percent against the U.S. dollar. The central bank left rates unchanged at 17.75 percent while consensus saw a 100-basis points hike. The next central bank meeting will take place September 13.
  • The consumer staples sector was the worst performing sector among eastern European markets this week.

Opportunities

  • Poland’s unemployment level fell below 1 million for the first time on record. June unemployment came in at 5.9 percent, down from 6.1 percent in May. Growing wages and declining unemployment will support consumer spending and economic growth.

number of polish unempoloyed is below 1 million for first time on record
click to enlarge

  • On July 25, Jean-Claude Juncker, President of the European Commission met with President Trump and reached an agreement to end all tariffs on industrial imports. Both sides agreed to increase trade in services, chemicals, pharmaceuticals, medical products and soybeans. Europe also pledged to buy more liquefied natural gas (LNG) from U.S. As the U.S. and European Union make up 50 percent of the world’s GDP, a positive trade agreement between the two will support global growth.
  • Hungary left its monetary policy unchanged as rebound in the forint gave the central bank more time before exiting from the broad-based easing. Furthermore, the central bank reiterated its pledge to maintain loose policy for time being in order to achieve the inflation target in a sustainable manner. Low rates should stimulate economic expansion. 

Threats

  • Growth in the euro-area softened in July due to weaker new orders along with waning confidence in the region. The preliminary Composite PMI declined to 54.3 from 54.9 on worries over increasing tariffs and trade war between major economies. However, the PMI has remained well above the 50 level that separates growth from contraction.
  • Donald Trump’s former advisor Steven Bannon is setting up foundations to boost the spread of far-right political groups across Europe. The group, called “The Movement,” will rival the liberal Open Society Foundation set up by George Soros in 1984. It is expected to hire up to 10 full-time staff and set up headquarters in Brussels ahead on the 2019 elections.
  • The European Union proposed that member states could be paid 6,000 euros for each migrant rescued from Mediterranean rescue boats. Italian Deputy Premier Salvini has dismissed the offer as insulting, highlighting that each asylum seeker costs between 40,000 to 50,000 euros. It remains difficult to find a solution to the migration situation that will satisfy all members on the euro-area.
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Leaders and Laggards

Weekly Performance
Index Close Weekly
Change($)
Weekly
Change(%)
10-Yr Treasury Bond 2.96 +0.06 +2.25%
DJIA 25,451.06 +392.94 +1.57%
Gold Futures 1,232.20 -8.20 -0.66%
Hang Seng Composite Index 3,958.77 +82.57 +2.13%
Korean KOSPI Index 2,294.99 +5.80 +0.25%
Nasdaq 7,737.42 -82.78 -1.06%
Natural Gas Futures 2.82 +0.06 +2.36%
Oil Futures 68.94 -1.52 -2.16%
Russell 2000 1,663.34 -33.47 -1.97%
S&P 500 2,818.82 +16.99 +0.61%
S&P Basic Materials 371.89 +6.64 +1.82%
S&P Energy 566.22 +12.81 +2.31%
S&P/TSX Global Gold Index 182.12 -6.73 -3.56%
S&P/TSX VENTURE COMP IDX 707.37 -4.96 -0.70%
XAU 76.79 -2.78 -3.49%
 
Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
10-Yr Treasury Bond 2.96 +0.13 +4.71%
DJIA 25,451.06 +1,333.47 +5.53%
Gold Futures 1,232.20 -35.80 -2.82%
Hang Seng Composite Index 3,958.77 +66.95 +1.72%
Korean KOSPI Index 2,294.99 -47.04 -2.01%
Nasdaq 7,737.42 +292.33 +3.93%
Natural Gas Futures 2.82 -0.17 -5.81%
Oil Futures 68.94 -3.82 -5.25%
Russell 2000 1,663.34 +22.89 +1.40%
S&P 500 2,818.82 +119.19 +4.42%
S&P Basic Materials 371.89 +10.66 +2.95%
S&P Energy 566.22 +7.64 +1.37%
S&P/TSX Global Gold Index 182.12 -7.53 -3.97%
S&P/TSX VENTURE COMP IDX 707.37 -29.53 -4.01%
XAU 76.79 -3.14 -3.93%
 
Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
10-Yr Treasury Bond 2.96 -0.02 -0.77%
DJIA 25,451.06 +1,128.72 +4.64%
Gold Futures 1,232.20 -104.70 -7.83%
Hang Seng Composite Index 3,958.77 -171.87 -4.16%
Korean KOSPI Index 2,294.99 -180.65 -7.30%
Nasdaq 7,737.42 +618.74 +8.69%
Natural Gas Futures 2.82 +0.00 +0.04%
Oil Futures 68.94 +0.75 +1.10%
Russell 2000 1,663.34 +105.45 +6.77%
S&P 500 2,818.82 +151.88 +5.69%
S&P Basic Materials 371.89 +9.64 +2.66%
S&P Energy 566.22 +14.73 +2.67%
S&P/TSX Global Gold Index 182.12 -9.77 -5.09%
S&P/TSX VENTURE COMP IDX 707.37 -75.68 -9.66%
XAU 76.79 -5.73 -6.94%
 

U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission ("SEC"). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC.

This commentary should not be considered a solicitation or offering of any investment product.

Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

Some links above 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.

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 (06/30/2018):

Ferrexpo PLC
Fresnillo PLC
Newmont Mining Corp
Goldcorp Inc
Torex Gold Resources Inc
Lundin Mining Corp
Nevsun Resources Ltd
Bonterra Resources Inc
SilverCrest Metals Inc
Corvus Gold Inc
Pure Gold Mining Inc
Northern Empire Resources Corp
Tencent Holdings Ltd

 

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The 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.
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 S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index.

The MVDA Index is a market cap-weighted index that tracks the performance of the 100 largest digital assets.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Equal Weight Oil & Gas Index provides investors with a portfolio of securities involved in the oil and gas industry. Constituents are members of the S&P/TSX 60 Index and are in the Global Classification Standard sub-industries - Oil & Gas Drilling, Oil & Gas Equipment & Services, Integrated Oil & Gas, Oil & Gas Exploration & Production, and Oil & Gas Refining & Marketing, and Oil & Gas Storage & Transportation.
The S&P Composite 1500 Materials Index comprises those companies included in the S&P Composite 1500 that are classified as members of the GICS materials sector.
Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
PCE price index is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends.
European Commission’s Economic sentiment indicator is a composite measure that calculates the confidence level among: manufacturers, service providers, consumers, retailers and constructors.
The Philippine Stock Exchange PSEi Index is a capitalization-weighted index composed of stocks representative of the Industrial, Properties, Services, Holding Firms, Financial and Mining & Oil Sectors of the PSE.
The S&P BSE Sensex Index is a cap-weighted index. The index members have been selected on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation.
The NIFTY 50 is the flagship index on the NSE, computed using a float-adjusted, market capitalization weighted methodology. The Index tracks the behavior of a portfolio of blue chip companies, the largest and most liquid Indian securities domiciled in India and listed on the NSE.
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.
Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

Net Asset Value
as of 12/10/2018

Global Resources Fund PSPFX $4.57 -0.05 Gold and Precious Metals Fund USERX $6.47 -0.05 World Precious Minerals Fund UNWPX $3.04 -0.06 China Region Fund USCOX $7.93 0.02 Emerging Europe Fund EUROX $6.23 -0.07 All American Equity Fund GBTFX $24.09 -0.10 Holmes Macro Trends Fund MEGAX $17.97 0.08 Near-Term Tax Free Fund NEARX $2.19 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change