China’s Belt and Road Initiative Opens Up Unprecedented Opportunities

Author: Frank Holmes
Date Posted: August 31, 2018 Read time: 51 min

The most well-known among China's projects is the Belt and Road Initiative (BRI), one of the most ambitious undertakings in human history. The biblical-size trade and infrastructure endeavor--a sort of 21st century Silk Road...

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

Mapping the belt and road initiatives progress
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It was the best of times, it was the worst of times. A tale of two world leaders, U.S. president Donald Trump and China president Xi Jinping—both of whose countries have among the world’s best economies right now. But whereas Xi is playing Santa Claus to the rest of the world, doling out loans to finance-starved countries, Trump is playing Scrooge, waging an economic war with Canada, the European Union, China and others.

Respected economist Art Laffer, whom I’ve written about before, has always supported leaders who ignite global trade rather than close off its borders. A full-blown trade war, Laffer said recently, would be a “curse” on the U.S. economy.

Post-World War II, it was the U.S. that led global trade and infrastructure build-out—the Marshall Plan in Europe, the Interstate Highway System domestically. Both projects required massive amounts of commodities and raw materials, and employed hundreds of thousands of people.

Today, of the two leaders mentioned above, it’s Xi who has a clear foreign policy when it comes to trade and infrastructure.

U.S. Fund Flows Into Africa Are Slowing

Case in point: This coming Monday and Tuesday, Beijing will host the Forum on China-Africa Cooperation (FOCAC). The summit, which takes place once every three years and is attended by representatives from 52 African countries, touches on areas as diverse as technology, trade, infrastructure, diplomacy, culture and agriculture.

During the last forum, in 2015, China pledged as much as $60 billion toward Africa’s development in interest-free loans. The Asian country, in fact, has increased its investments in the continent around 520 percent over the last 15 years, according to Global Trade Magazine.

As just one example, Kenya agreed to let China finance and build a standard gauge railway (SGR) connecting two major cities at a cost of $3.8 billion. Contracted by China Road and Bridge, the Mombasa-Nairobi SGR is Kenya’s largest infrastructure project since it declared independence from the U.K. in 1963.

Meanwhile, U.S. fund flows to Africa have been receding, and they’re expected to slow even more during Trump’s administration.

Chinese investment in Africa has held steady as the United States declines
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Xi isn’t doing this out of the goodness of his heart, of course. China, having been Africa’s largest trading partner for nine consecutive years now, likely expects its investments to pay diplomatic and economic dividends for many decades to come.

Even Trump’s own commerce secretary, Wilbur Ross, acknowledges that the U.S. must do more in Africa. “By pouring money into Africa,” Ross wrote on CNBC earlier this month, “China has seen an opportunity to both gain political influence and to reap future rewards in a continent whose economies are predicted to boom in the coming decades,” due mainly to young demographics.

The Belt and Road Initiative Will Affect 60 Percent of the World’s Population

The most well-known among China’s projects is the Belt and Road Initiative (BRI), one of the most ambitious undertakings in human history. The biblical-size trade and infrastructure endeavor—a sort of 21st century Silk Road—could cost 12 times as much as what the U.S. spent on the Marshall Plan to rebuild Europe following World War II. The BRI has the participation of 76 countries from Asia, Africa and Europe, and is poised not only to reshape globe trade but also raise the living standards for more than half of the world’s population.

According to the International Monetary Fund (IMF), the “BRI has great potential for China and participating countries. It could fill large and long-standing infrastructure gaps in partner countries, boosting their growth prospects, strengthening supply chains and trade and increasing employment.”

The BRI, announced in 2013, will have a strong presence in Eastern Europe, also a prime destination for China FDI, as the countries there offer a wealth of metals, minerals and agricultural products.

GPD and PMI car anolog

According to Stratfor, Chinese companies have invested as much as $300 billion in Eastern Europe over the past decade. Last May, China and Ukraine agreed to cooperate on joint projects valued at nearly $7 billion, and in November, it was announced that China Railway International and China Pacific Construction would build a $2 billion subway line in the Ukrainian capital, Kiev. More recently, Chinese engineers with China Harbor Engineering completed a $40 million dredging operation in Ukraine’s Yuzhny Sea Port, allowing it to receive larger ships.

Like the Marshall Plan before it, the BRI will require tremendous amounts of commodities, metals and fuel.

In 2011, members of our investment team and I had the opportunity to see one of China’s high speed trains firsthand. The train averaged 185 miles per hour during our 923-mile trip from Shanghai to Beijing. As I wrote then, “I’ve traveled to all corners of the world and have seen many things during my travels, but viewing China’s explosive growth as it flies by you is something I will never forget.”

U.S. Investors Hiked Exposure to China

In light of all this, there’s no lack of negative news on China right now. I see headline after headline on the country’s “slowing economy” and “weakening consumption,” but like most things are in the media, these proclamations are overblown.

Look at China’s purchasing manager’s index (PMI). Fresh data out today showed that manufacturing expansion in August accelerated slightly faster than in the previous month. The PMI hit 51.3, up from 51.2 in July and beating analysts’ expectations of 51.0. This was the 25th straight month of economic expansion, despite what I earlier described as the Trump-Kudlow trade war with China.  

China manufacturing activity accelerated in august despite trade concerns purchasing managers index from august 2016 to august 2018
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Also, as the Peterson Institute for International Economics (PIIE) wrote this week, “there is no empirical evidence that consumption in China is weakening,” contrary to what “official” retail sales data show.

The PIIE’s Nicholas Lardy cited Alibaba’s recent announcement that sales rose 60 percent in the most recent quarter compared to a year ago—“a sign that Chinese retail sales data likely do not fully capture China’s burgeoning digital retail.”

“In any case,” Lardy continued, “retail sales are an increasingly less useful measure of consumption, as China’s large and still growing middle class is spending a growing share of their rising income on education, health care, travel and other services that are not captured in official data on retail sales.”

gross domestic product in absoluve terms and gdp on purchasing parity valuation
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Savvy investors, I believe, get it and can see the opportunity in the world’s number one economy, as ranked by purchasing power parity (PPP). Reuters reports that, in the week ended August 22, U.S. investors poured $572 million into funds that invest in Chinese equities. That was the most for such funds since January.

Although some expect Trump to impose tariffs on $200 billion additional Chinese imports next week, “investors are expecting Beijing to continue counteracting the effects of the [trade] dispute with increasingly relaxed monetary and fiscal policies,” Reuters says.


Happy Labor Day 2018!

Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 0.68 percent. The S&P 500 Stock Index rose 0.93 percent, while the Nasdaq Composite climbed 2.06 percent. The Russell 2000 small capitalization index gained 0.87 percent this week.
  • The Hang Seng Composite gained 0.50 percent this week; while Taiwan was up 2.36 percent and the KOSPI rose 1.29 percent.
  • The 10-year Treasury bond yield rose 4 basis points to 2.86 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
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  • Information technology was the best performing sector of the week, increasing by 2.03 percent versus an overall increase of 0.93 percent for the S&P 500.
  • Regeneron Pharmaceuticals was the best performing stock for the week, increasing 8.08 percent.
  • Salesforce revenue was up 27 percent in the second quarter, and the company has big-spending executives to thank. CEO Marc Benioff has conventionally been a critic of President Donald Trump, but suggested during an earnings call that tax cuts encouraged Salesforce customers to spend more.


  • Telecom was the worst performing sector for the week, decreasing by 1.67 percent versus an overall increase of 0.93 percent for the S&P 500.
  • Dollar Tree was the worst performing stock for the week, falling 13.86 percent.
  • The thriving job market could be foreshadowing a stock meltdown. As workers enjoy the lowest unemployment rate in 18 years, the fact it’s so low could indicate a dangerous period ahead for markets, according to Leuthold’s chief investment strategist, Jim Paulsen.


  • Warren Buffett’s Berkshire Hathaway is entering a $1 trillion market in India. The company confirmed Monday that it was investing in One97 Communications Ltd., the parent company of Paytm, which is the largest mobile-payment company in India.
  • Microsoft introduced an ambitious subscription plan that makes the Xbox arguably the best deal in gaming. The "Xbox All Access" plan starts at $22 a month for U.S. players, giving subscribers an Xbox One console, two years of Xbox Live Gold service, and two years of Xbox Game Pass.
  • Aston Martin has plans to become a publicly-listed company. The high-end British carmaker is expected to go public at a valuation of about $6.44 billion.


  • A board member has resigned from MoviePass’ parent company, Helios and Matheson Analytics. In his resignation letter, Carl Schramm raised concerns about the corporate governance of Helios and accused management of withholding material information from the board for months.
  • Warren Buffett said it would be a bad idea for Apple to buy Tesla. He said that building a long-term competitive advantage in the auto industry is much more difficult than in the tech industry, where companies can use speed, scale, and network effects to maintain an edge over competitors.
  • Air freight volumes point to a continued slowdown in global trade. Freight tonne kilometers grew at a seasonally adjusted 2.1 percent year-over-year in July, its smallest increase since May 2016, according to data released by the International Air Transport Association.

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The Economy and Bond Market



  • The U.S. economy maintained a strong growth rate in the first half of the year, setting it on a course for its best performance in more than a decade. Gross Domestic Product (GDP) expanded at an annualized rate of 4.2 percent in the U.S., 0.1 percent faster than first estimated, marking the most rapid growth seen in four years, according to the U.S. Bureau of Economic Analysis.
  • U.S. consumer spending increased solidly in July, pointing to strong economic growth early in the third quarter. The Commerce Department said on Thursday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4 percent last month after advancing by the same margin in June. Economists polled by Reuters had forecast consumer spending rising 0.4 percent in July.
  • A key measure of inflation accelerated last month to the fastest annual pace since 2012, as robust spending by consumers and businesses steadily pushed up prices for goods and services across the economy. From July 2017, the PCE Index is up 2.3 percent.


  • The University of Michigan consumer sentiment index was revised slightly higher in its final August estimate but remained at the lowest reading of the year. The index was 96.2 in August, below July’s level of 97.9. Economists had expected a final reading of 95.5. Most of the August decline was in the current economic conditions index, which fell to its lowest level in almost two years.
  • The U.S. goods trade deficit widened sharply in July as exports of agricultural products tumbled, suggesting trade will likely be a drag on economic growth in the third quarter. The Commerce Department said on Tuesday the goods trade gap surged 6.3 percent to $72.2 billion last month. Exports of goods dropped 1.7 percent to $140.0 billion.
  • The Chicago PMI fell to a reading of 63.6 in August from 65.5 in the prior month, MNI Indicators said. Economists expected a reading of 63.8, according to Econoday.


  • The key takeaway from second-quarter earnings is that corporate America is on a roll. Pretax profits at U.S. companies climbed 7.7 percent from a year earlier, the most since 2014 and the seventh consecutive gain, according to Commerce Department data released Wednesday. Given the boost from lower taxes that went into effect this year under the Trump administration, firms have plenty of wherewithal for more investment and hiring.

US corporate profits rose last quarter by the most since 2014
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  • U.S. nonfarm payrolls will be released on Friday. The monthly jobs report always gains traction and moves markets. July’s report saw a weaker-than-expected increase in jobs, only 157,000. The forecast is for better numbers in this report. This is the last report before the Federal Reserve convenes later in September.
  • Given the low unemployment rate, next week’s initial jobless claims report should continue its moderate trajectory.


  • The U.S. ISM Manufacturing PMI report will be released next Tuesday. The forward-looking purchasing managers’ report dropped last month as trade worries weighed on sentiment in July. The 58.1 reading still represents robust growth, but it is weaker than beforehand. Apart from the headline, it is important to note the prices component as the Federal Reserve watches inflationary pressures.
  • The ISM Non-Manufacturing PMI will be released next Thursday. The services sector saw slower growth than the manufacturing sector back in July, with a print of 55.7. Growth is still healthy according to this but businesses are less-optimistic than they used to be. A similar figure is likely for August.
  • With manufacturing PMIs dropping recently, next week’s release of durable goods orders is likely to resume its downtrend.

Gold Market

This week spot gold closed at $1,201.08 down $4.82 per ounce, or 0.40 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 1.98 percent. Junior-tiered stocks outperformed seniors for the week, as the S&P/TSX Venture Index rose 1.88 percent. The U.S. Trade-Weighted Dollar Index ended the week off 0.06 percent.

Date Event Survey Actual Prior
Aug-27 Hong Kong Exports YoY 6.0% 10.0% 3.3%
Aug-28 Conf. Board Consumer Confidence 126.5 133.4 127.9
Aug-29 GDP Annualized QoQ 4.0% 4.2% 4.1%
Aug-30 Germany CPI YoY 2.0% 2.0% 2.0%
Aug-30 Initial Jobless Claims 212k 213k 210k
Aug-31 Eurozone CPI Core YoY 1.1% 1.0% 1.1%
Sep-2 Caixin China PMI Mfg 50.7 50.8
Sep-4 ISM Manufacturing 57.7 58.1
Sep-6 ADP Employment Change 190k 219k
Sep-6 Initial Jobless Claims 213k 210k
Sep-6 Durable Goods Orders -1.7%
Sep-7 Change in Nonfarm Payrolls 187k 157k


  • The best performing metal this week was palladium, up 5.04 percent as hedge funds flip to net bullish on the metal this past week. Despite gold facing a fifth month of losses and bullion-backed ETF holdings reaching a 10-month low, analysts and traders are bullish on the yellow metal, according to a weekly Bloomberg survey. During the Jackson Hole Economic Symposium, Federal Reserve Chair Jerome Powell indicated that investors can expect continued gradual interest rate increases. Gold prices surged following Powell’s comments and held the majority of those gains.

is gold bottoming bears are seeing upside potential
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  • In a great example of gold’s Love Trade, a strong U.S. economy empowered consumers to spend their discretionary income on gifts for their loved ones – in particular, gold jewelry. Signet Jewelers, the parent company for Kay Jewelers, experienced a startling 20 percent increase in premarket trading after an unexpected bump in sales. Last quarter, the company reported only a 1.7 percent rise. Tiffany & Co. posted a strong second quarter as well, increasing its global sales by 12 percent. The jeweler announced plans to expand its brick-and-mortar presence in China. This move is well-timed as nationwide gold consumption in China is up 0.3 percent. Gold bar sales in China are down 16 percent, which is completely offset by the gain in jewelry.
  • The International Monetary Fund (IMF) approved adding the yuan, China’s currency, into the IMF’s foreign exchange basket. This is the first time the IMF has ever added a new currency to its foreign exchange basket. The IMF’s acceptance opens the door for potentially putting the yuan on par with the U.S. dollar, according to Reuters. Meanwhile, Shandong Gold, a state owned Chinese gold mining company, is preparing to raise $1 billion via a Hong Kong listing.


  • The worst performing metal this week was silver, down 1.92 percent as hedge funds boost their net bearish view to a 20-week high. Gold has fallen for the fifth straight month, making this the longest decline in five years.  The yellow metal has been weakened by a variety of sources. U.S. equities are at record highs, the U.S. dollar has been strengthening and President Donald Trump announced his intention to add another $200 billion in tariffs on Chinese imports. In light of these external influences, gold’s road to recovery is unlikely to be a straight one.
  • Heavy flooding in Kerala, India, resulted in over $3 billion in damages, draining away funds that would have otherwise been used during the upcoming wedding season. Kerala is India’s biggest gold-buying state. Under ordinary circumstances, families in Kerala spend 200 grams to 1 kilogram of gold for the average wedding. This is expected to drop 50 percent according to the All Kerala Gold & Silver Merchants Association president.
  • The Commodity Futures Trading Commission (CFTC) ordered UBS Group AG, a Swiss multinational investment bank and financial services company, to pay a $15 million penalty for manipulating and spoofing precious metals futures markets from January 2008 to December 2013. 


  • The NYSE Arca Gold BUGS Index rebounded from oversold levels while the relative strength index reached a low on August 16 that hasn’t been seen since July 2015. The last time sentiment toward gold was this bearish was at the end of 2015, before the market swung aggressively the other way, according to BMO analyst Colin Hamilton. “You probably won’t see the short squeeze until about $1,225,” says George Gero, a managing director for RBC Wealth Management.
  • Northern Star Resources, the Australia’s third-largest gold producer, announced its acquisition of Sumitomo Metal Mining Co.’s Pogo Mine in Alaskan for $260 million, marking its first overseas operation. This mine is expected to add as much as 260,000 ounces to the Australian producer’s yearly output. Pogo has a resource of 4.1 million ounces at 14 grams per tonne. We continue to see limited merger and acquisition activities playout within the gold sector, despite valuations in the junior space being very depressed.
  • Cardinal Resources Limited announced positive drill results earlier this week, identifying significant gold intersections at shallow depths. The company reported 27.0 grams per tonne of gold at 2 meters, 12.6 grams per tonne at 6 meters and 2.2 grams per tonne at 7 meters. Allegiant Gold Ltd. similarly reported successfully expanding the drilling area for its Eastside gold project outside of Tonopah, Nevada. One of its drill holes returned 42.7 meters of 2.49 grams per ton of gold, including 9.1 meters of 9.03 grams per tonne.


  • For those declaring that an inverted yield curve is no longer a recession predictor, the Federal Reserve Bank of San Francisco may have some bad news, reports Bloomberg. “Adjusting for the compensation investors demand to hold longer-dated bonds doesn’t invalidate the curve’s prognosis powers,” notes a new research post published on Monday. Markets have their eye on the narrowing gap between short- and longer-term rates. And as Canada’s yield curve approaches inversion for the first time in more than a decade, the nation’s central bank believes there is little cause for alarm. BlackRock Inc., however, isn’t so sure.
  • Some of the biggest buyers of short-dated corporate debt are now turning into sellers, reports Bloomberg. Companies like Apple, Microsoft and Oracle at one time bought $25 billion of debt per quarter, but are now selling in $50 billion clips. According to data tracked by Bank of America Corp., this is leaving a $300 billion-a-year hole in the market and could drive up borrowing costs.
  • During the month of June, home prices in 20 U.S. cities rose at the slowest monthly pace in nearly two years, writes Bloomberg. Data released Tuesday point to demand cooling due to affordability constraints. Other notable market news this week includes the fact that short positions against FAANG stocks have surged by more than 40 percent in the past year, to $37 billion. According to Bloomberg, this comes as investors are betting against some of the biggest drivers of the global bull market. Lastly, U.S. President Donald Trump seems to have made no real progress on one of his core promises as he heads into a midterm referendum on his presidency, reports Bloomberg – to raise the wages of America’s “forgotten man and woman.” After factoring in the impact of inflation, the typical hourly earnings of Americans are lower than they were a year ago.

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Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended August 31 was Bitcoin File, which gained 192.20 percent.
  • The price of bitcoin hit a three-week high on Tuesday morning of $7,044.35, reports MarketWatch. This puts the popular digital currency on track to log five winning sessions over the last six. This also puts bitcoin more than 20 percent off its August 14 low, the article continues.
  • Digital payments company Square won a patent this month that allows merchants to accept bitcoin and other cryptocurrencies as payment, according to CCN. Although Square is not the first payments solution firm to facilitate such transactions, it is among the largest and most recognizable, responsible for nearly $40 billion in gross payment volume in the first half of 2018. Square founder and CEO Jack Dorsey, who is also co-founder and CEO of Twitter, believes that within a decade, bitcoin will become the native currency of the internet.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended August 31 was HeartBout, which lost 53.93 percent.
  • According to a headline from Bloomberg this week, three-quarters of companies aren’t diving into blockchain. A new report from PwC shows that out of 600 global executives, only 15 percent have a live project adopting this new technology and only 10 percent are piloting blockchain’s use. The positive news is many companies are at least researching or tinkering with the distributed-ledger technology.
  • IT security firm Trend Micro reported this week that malicious crypto-mining attacks grew 956 percent from the first half of 2017 to the first half of this year. Coindesk writes that there were over 787,000 detections of malicious cryptocurrency mining software in the first six months of 2018. The practice of “cryptojacking” is on the rise, where hackers use businesses’ or individuals’ computers to mine cryptocurrencies without their knowledge or consent. The Trend Micro report says that “the new challenge for enterprises lies in the fact that cryptocurrency miners are less visible, more silent threats, the non-detection of which is likely to induce a false sense of security.”


  • Morgan Creek Digital, an operating subsidiary of Morgan Creek Capital Management, launched a cryptocurrency index fund, reports MarketWatch. Mark Yusko, CIO of Morgan Creek, explained that more and more institutional investors are coming to the company for exposure to the space, so they wanted to create a vehicle tailed for these investors. The fund is a “market-cap weighted basket of the top 10 largest digital assets, excluding Ripple and Stellar as they have a central supply of more than 30 percent,” the article continues.
  • Fundstrat’s Tom Lee told CNBC this week that the signal for an “imminent rally” in the price of bitcoin will come from emerging markets. According to Lee, a relationship between the two struggling investments (to be specific, the iShares MSCI Emerging Markets Index ETF) has been forming of late. The correlation could be key in predicting a reversal for the popular digital currency, MarketWatch reports. “Both really essentially peaked early this year, and they both have been in a downward trend,” Lee said. “Until emerging markets begin to turn, I think in some ways that correlation is going to hold and tell us that sort of the risk on mentality is those buyers aren’t buying bitcoin.”
  • Cryptocurrencies are a hit in higher education. A recent survey conducted by Coinbase found that 42 percent of the world’s top 50 universities, including Stanford, Cornell and Harvard, now offer one or more courses on blockchain or cryptocurrencies. Cornell leads the bunch, offering as many as 28 courses, with titles such as “Introduction to Blockchains, Cryptocurrencies and Smart Contracts.” The survey also showed that 18 percent of U.S. college students presently own at least one type of digital currency.


  • According to an article by MarketWatch this week, the very problem that blockchain was meant to solve remains one of its most significant hurdles in corporate adoption. “Blockchain, by its very definition, should engender trust,” notes a PwC 2018 Global Blockchain Survey. “But in reality, companies confront trust issues at nearly every turn. For one, users must build confidence in the technology itself.” The element of “trust” was actually cited by 45 percent of survey participants as the biggest barrier to blockchain adoption, despite all the hype, the article continues.

The biggest barriers to blockchain adoption
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  • The state of Colorado’s “ICO Task Force” has issued orders to three cryptocurrency businesses that have allegedly offered and promoted unregistered initial coin offerings in the state, reports CCN. Colorado Securities Commissioner Gerald Rome put together the task force in May with the mandate of identifying individuals and companies that present customers with an investment risk. The North American Securities Administrators Association (NASAA) announced this week that it’s ongoing “Operation Cryptosweep” has resulted in over 200 investigations of ICOs and crypto-related products since launching in May, reports Coin Telegraph.
  • Popular Brazilian cryptocurrency investment platform, Atlas, was hacked this week with over 264,000 of its customers’ information leaked. Although no funds were stolen, information on customers’ account balances and personal contact information was exposed. According to CCN, many in Brazil believe the platform to be operating similar to a Ponzi scheme through its supposed arbitrage bot, which promises a 3 percent monthly return on investments.

Energy and Natural Resources Market



  • Gasoline was the best performing major commodity this week rising 3.17 percent. The commodity rallied after Department of Energy data showed U.S. gasoline demand rose to an all-time high of 9.9 million barrels per day.
  • The best performing sector this week was the S&P 1500 Fertilizers & Agricultural Chemicals Index. The index rose 2.92 percent after Indian potash importer IPL settled a 2018-2019 potash contract at a near 10 percent premium to expectations, suggesting tighter-than-expected supply which may lead fertilizer pricing to surprise to the upside when China settles its contracts.
  • The best performing stock for the week was China Oriental Group Co. The Chinese steelmaker rose 11.75 percent after reporting semi-annual numbers showing a 53 percent increase in gross profit per tonne, owing to major improvements in cost controls. The company also raised its interim dividend by 50 percent.


  • Nickel was the worst performing commodity this week. The commodity dropped 96 basis points, together with most metals after recent communications from U.S. trade officials suggest the possibility of imminent escalation in U.S.-China trade conflict, ratcheting up concerns for global growth.
  • The worst performing sector this week was the S&P/TSX Composite Gold Index. The index dropped 2.71 percent as gold is set for a fifth straight monthly decline, the longest losing run in half a decade, as the dollar gets a twin boost from trade tensions and the Federal Reserve’s path for higher interest rates.
  • The worst performing stock for the week was Covestro AG. The German producer of diversified chemicals dropped 6.47 percent after August polyurethane prices were down slightly, mainly because BASF is turning its plant back on and some plants in China are coming back on line after having previously been under force majeure.


  • Oil rallied past its 50-day moving average as supply risks eclipse trade concerns. Oil headed for a monthly gain as expectations that American sanctions on Iranian crude will tighten global markets outweighed the risk to demand from the ongoing U.S.-China trade dispute.

Brent crude heads for biggest monthly gain in four months
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  • The commodity trend is up and a dip has been provided. The commodity price discount because of trade turmoil should be short-lived. Metals have the most potential to catch up to strong energy, notably if the U.S. dollar’s bounce and emerging markets volatility subside, according to Bloomberg. Commodities are in a nascent bull market, stocks aren’t. If the commodity correction becomes something greater, the indication would be greater risks to financial assets and the global reflationary trend, concludes Bloomberg.
  • China’s manufacturing sector growth picked up in August, according to official figures. The purchasing managers’ index (PMI) inched up to 51.3 in August, counter to a median forecast from economists polled by Reuters predicting a fall. The figure rose as Beijing sought to bolster banks’ lending to exporters and infrastructure projects amid an ongoing trade war with the U.S.


  • Investors withdrew from the exchange-traded funds that focus on commodities for the sixth straight week. Outflows from ETFs that invest in precious metals widened, along with funds that focus on energy assets. Outflows from U.S.-listed commodity ETFs totaled $484 million for the week.
  • ‘Nobody’ needs gold in a world of rising yields, says Citi. Analysts at Citigroup Global Markets point to technical analysis that looks at the way the price of gold has stalled twice in the past year above $1,350 an ounce, then compare that “double top” to similar patterns since the late 1970s. Based in part on those examples, they conclude the metal could slide to as low as $1,121, and potentially land below $900.
  • President Donald Trump wants to move ahead with a plan to impose tariffs on $200 billion in Chinese imports as soon as a public-comment period concludes next week, according to people familiar with the matter.

China Region



  • Taiwan’s TWSE Index jumped 2.43 percent this week, outpacing other indices in a relatively positive week for the region.
  • China’s manufacturing PMI clocked in at 51.3 for the August measurement period, up from 51.2 in July and ahead of forecasts for a 51.0 print. Non-manufacturing PMI also came in well at 54.2, up from 54.0 in July and ahead of estimates for a 53.7 showing. Caixin PMI readings will roll in next week.
  • South Korea’s industrial production kicked back into gear this month, rising 0.4 percent month-over-month and 0.9 percent year-over-year for the July period, with both numbers ahead of expectations and up from prior declines.


  • China’s Shanghai Composite finished mildly in the red, down 14 basis points for the week, among the region’s weakest performances among major indices in an otherwise mostly green week.
  • Thailand’s import and export readings for July both declined from their respective prior paces of growth, with imports at 12.4 percent year-over-year down slightly from last month’s 12.9 percent, while year-over-year exports’ growth of 8.3 percent is down from June’s 10.0 percent read.
  • The pace of growth in retail sales in Hong Kong declined for the July period from June’s readings. Year-over-year retail sales value fell to a 7.8 percent growth rate, shy of expectations for a 9.7 percent pace and down from a revised prior reading of 11.9 percent, while year-over-year retail sales volume came in at a pace of 5.9 percent, missing analysts’ estimates for a 7.5 percent pace and down from the prior reading of 9.8 percent growth.


  • By way of follow-up from last week, and as promised, this week we feature a chart highlighting GDP between several Chinese provinces and the economic powerhouse states of the U.S.—very similar to last week’s but with a key difference. This one is adjusted for Purchasing Power of Parity (PPP). By this measure, the great states of Texas and New York better pick up the pace, and California better keep up its form here: Guandong, Jiangsu, and Shandong provinces are all playing to win! 

Team China versus team USA purchasing power parity comparison between US states and Chinese provinces
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  • One of the world’s biggest indices is adding more mainland China stocks to its offerings on Friday, reports CNBC. In attempt to avoid roiling markets, MSCI has slowly been increasing the number and weighting of stocks in the Asian nation to its indices. The news comes as trade tensions stir Chinese markets, which could give them a boost from foreign investors, the article continues.
  • Alibaba is expanding its new off-line retail store, “Hema,” throughout China, opening 65 retail stores over the past year, reports CNBC. “Although it may seem a shift from Alibaba’s tech roots, the stores operate on cutting-edge innovations,” the article reads. Customers in the new retail stores will be able to use an app to scan products, get information on these products and then pay for their groceries. In addition, Alibaba will be opening robot-using restaurants, where food is ordered exclusively through an app and delivered by machines.


  • The trade war rhetoric and escalation appears set to continue, at least in the short term. U.S. President Donald Trump will be pushing ahead with his plan for tariffs on an additional $200 billion worth of Chinese goods, according to reports late this week. Asian stocks declined on the news and on Trump’s threats to withdraw the U.S. from the World Trade Organization. Trump also criticized management of the yuan, reports Bloomberg, saying that China has devalued its currency in response to a recent slowdown in economic growth. Chinese authorities continue to promise to retaliate upon escalation.
  • China will slow approvals of new online games and impose additional rules that have the potential to slow growth in the world’s biggest gaming market, reports MarketWatch. Tencent, the top Chinese internet company, saw its shares drop nearly 5 percent in Hong Kong on Friday after Beijing announced plans to “limit the number of new online games and restrict the amount of time kids spend playing on electronic devices,” writes CNN Money.
  • Bloomberg reports that Ford Motor Co. is canceling plans to import a new crossover model from a plant in China. In a conference call with reporters, Kumar Galhotra, president of North America sales, said that Trump’s move to slap China-built automobiles with an additional 25 percent levy in July undermined the profitability of the Focus Active that Ford planned to begin shipping into the U.S. about a year from now. The investment on a vehicle that would have had fewer than 50,000 unit sales a year in America wasn’t worth it to Ford.

Emerging Europe



  • Russia was the best performing country this week, gaining 2.9 percent. A lack of new harsh sanctions, the rising price of crude oil and a weaker ruble benefitted Russian equites this week. Gazprom and Lukoil, two of the largest oil and gas companies, posted strong second quarter results, mostly due to higher commodity prices and lower spending.
  • The euro was the best relative performing currency this week, losing 12 basis points against the U.S. dollar. Euro-area inflation unexpectedly slowed in August. Consumer price growth came in at 2 percent for August, slightly below the 2.1 percent reading in July.
  • Energy was the best performing sector among eastern European markets this week.


  • Czech Republic was the worst performing country this week, as the Prague stock exchange closed flat. The Czech Statistical Office said this week that the economy slowed in the second quarter to a 2.4 growth rate, down from 4.2 percent in the first quarter.
  • The Turkish lira was the worst performing currency this week, losing 8.3 percent against the U.S. dollar. Fear of additional sanctions, a growing current account deficit, a high level of foreign debt and rising inflation are all putting pressure on the country’s currency.
  • Industrials was the worst performing sector among eastern European markets this week.


  • The Polish government announced the introduction of Employee Capital plans, a savings plan that resembles 401k plans in the United States. It had been discussed since 2016 and still needs to be voted on by parliament and signed by the President. These savings plans are set to launch in the second half of 2019 and will cover 11 million people. Tomasz Nowicki from Trigon Analizy believes that it will have a positive impact on the Polish stock exchange. Inflows to the Polish stock exchange should oscillate to around 7-13 billion zloty annually, depending on the amount of contributions. The largest beneficiaries should be the companies comprising the WIG20 Index.
  • The Russian government recommended again that state companies should be paying at least 50 percent of net profits in dividends. A higher dividend policy should not lead to a reduction in investment programs, in fact, higher and stable long-term dividends should make Russian assets more attractive to investors.
  • Turkey and Russia have the highest real interest rates in Europe, while Germany, Europe’s largest economy, and the United States have negative real rates. These emerging markets should be attractive to carry traders. However, the lingering possibility of additional sanctions on Russia and geopolitical uncertainty in Turkey might be keeping them away from these high real rates.

Turkey and Russia have the highest real interest rates in Europe
click to enlarge


  • According to Vladimir Tikhomirov, chief economist at BCS Financial Group, the ruble could fall to 76 per dollar by end of 2018 if the U.S. imposes hash sanctions on Russian state banks, energy companies or new sovereign dent. Additionally, GDP would contract by 0.3 percent next year. The Central Bank of Russia may hike rates by 100-150 basis points if the ruble falls sharply against the dollar.
  • Ratings agency Moody downgraded 20 Turkish financial institutions, citing there were signs of substantial increase in risk of a downside scenario. Moody’s said Turkey’s operating environment had deteriorated beyond previous expectations. The United States may impose new sanctions over the continued detention of an American pastor, which should put further pressure on the weakening economy and the lira. 

Turkish lira's slide against the dollar may continue
click to enlarge

  • Eurozone economic sentiment data released on Thursday confirms further weakness in the region. The reading fell for the eighth consecutive month in August to 111.6, versus consensus at 112, and a prior reading of 112.1. Trade tensions between the United States and Eurozone plus the threat of auto tariffs were the main reasons cited for weaker sentiment.

Gold Through the Ages Timeline

Leaders and Laggards

Weekly Performance
Index Close Weekly
10-Yr Treasury Bond 2.86 +0.05 +1.71%
DJIA 25,964.82 +174.47 +0.68%
Gold Futures 1,206.10 -7.20 -0.59%
Hang Seng Composite Index 3,784.54 +18.70 +0.50%
Korean KOSPI Index 2,322.88 +29.67 +1.29%
Nasdaq 8,109.54 +163.56 +2.06%
Natural Gas Futures 2.92 +0.00 +0.14%
Oil Futures 69.89 +1.17 +1.70%
Russell 2000 1,740.75 +15.08 +0.87%
S&P 500 2,901.52 +26.83 +0.93%
S&P Basic Materials 371.60 +1.20 +0.32%
S&P Energy 547.58 -0.82 -0.15%
S&P/TSX Global Gold Index 157.38 -3.88 -2.41%
S&P/TSX VENTURE COMP IDX 724.71 +13.34 +1.88%
XAU 66.24 -1.44 -2.13%


Monthly Performance
Index Close Monthly
10-Yr Treasury Bond 2.86 -0.15 -4.92%
DJIA 25,964.82 +631.00 +2.49%
Gold Futures 1,206.10 -21.50 -1.75%
Hang Seng Composite Index 3,784.54 -103.56 -2.66%
Korean KOSPI Index 2,322.88 +15.81 +0.69%
Nasdaq 8,109.54 +402.25 +5.22%
Natural Gas Futures 2.92 +0.16 +5.91%
Oil Futures 69.89 +2.23 +3.30%
Russell 2000 1,740.75 +71.49 +4.28%
S&P 500 2,901.52 +127.50 +4.60%
S&P Basic Materials 371.60 +0.86 +0.23%
S&P Energy 547.58 -14.00 -2.49%
S&P/TSX Global Gold Index 157.38 -22.36 -12.44%
S&P/TSX VENTURE COMP IDX 724.71 +23.68 +3.38%
XAU 66.24 -9.63 -12.69%


Quarterly Performance
Index Close Quarterly
10-Yr Treasury Bond 2.86 0 0%
DJIA 25,964.82 +1,548.98 +6.34%
Gold Futures 1,206.10 -111.00 -8.43%
Hang Seng Composite Index 3,784.54 -450.43 -10.64%
Korean KOSPI Index 2,322.88 -100.13 -4.13%
Nasdaq 8,109.54 +667.42 +8.97%
Natural Gas Futures 2.92 -0.03 -1.05%
Oil Futures 69.89 +2.85 +4.25%
Russell 2000 1,740.75 +107.14 +6.56%
S&P 500 2,901.52 +196.25 +7.25%
S&P Basic Materials 371.60 +8.38 +2.31%
S&P Energy 547.58 -10.77 -1.93%
S&P/TSX Global Gold Index 157.38 -32.84 -17.26%
S&P/TSX VENTURE COMP IDX 724.71 -38.39 -5.03%
XAU 66.24 -17.08 -20.50%


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):

Gazprom PJSC
China Oriental Group Co.
Covestro AG.
Tencent Holdings
Northern Star Resources
Cardinal Resources Ltd
Allegiant Gold Ltd
Oracle Crop

*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 "core" PCE price index is defined as personal consumption expenditures (PCE) prices excluding food and energy prices.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The WIG20 is a capitalization-weighted stock market index of the twenty largest companies on the Warsaw Stock Exchange.
The S&P 500 Fertilizers & Agricultural Chemicals 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/TSX Composite Gold Sub Industry Index is composed of a subset of the constituents of the S&P/TSX Composite Index that have been classified according to the Global Industry Classification Standard. The index was developed with a base value of 1000 as of 1975.
The Taiwan Weighted Index contains all Taiwan Stock Exchange issues (560 common stocks). It is a market-capitalization weighted index.
The NYSE Arca Gold BUGS Index is a modified equal dollar weighted index of companies involved in gold mining. BUGS stands for Basket of Unhedged Gold Stocks.
Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.