Comparisons to 2008 Spark Gold’s Fear Trade

Author: Frank Holmes
Date Posted: January 22, 2016 Read time: 45 min

Plunging oil prices, rising market volatility, surging global debt—it’s all beginning to remind some investors of 2008. Earlier this month, billionaire former hedge fund manager George Soros warned of an impending financial crisis similar to the last major one, which sent shockwaves throughout global markets. 

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

Are we headed for another 2008? George Soros thinks so.

Plunging oil prices, rising market volatility, surging global debt—it’s all beginning to remind some investors of 2008. Earlier this month, billionaire former hedge fund manager George Soros warned of an impending financial crisis similar to the last major one, which sent shockwaves throughout global markets.     

The comparisons to 2008 have triggered gold’s Fear Trade, with many investors scrambling into safe haven assets. Jeffrey Gundlach, the legendary “bond king,” recently made a call that amid further market turmoil, the metal could spike as much as 30 percent, to $1,400 an ounce.

Making such predictions is often a fool’s game, but there’s no denying that gold demand is on the rise, both in the U.S. and abroad. For the one-month period ended January 20, gold (and silver) outperformed, comfortably beating domestic equities as well as a basket of other commodities.

Precious Metals on Top in 2016
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I’ve already shared with you the fact that gold has historically had a low correlation with equities. This point is worth reiterating: When equities have zigged, gold has zagged. And with volatility high in global markets right now, many investors are choosing to rotate a portion of their portfolios into the precious metal.

Marc Faber suggests that it might be a good time to get back into gold.

This was the advice of my friend Marc Faber, who recently warned investors in his influential “Gloom, Boom & Doom Report” newsletter that global stocks could fall an additional 40 percent on mounting liquidity and debt problems. In the event such a crisis occurs, Marc says, investing in gold—which, again, has been shown to be inversely correlated with stocks—might be one way to protect one’s wealth.

I’ve always recommended a 10 percent weighting in gold: 5 percent in physical bullion, the other 5 percent in gold stocks or mutual funds. This applies in all market conditions, good or bad.

Something else I want to draw attention to in the chart above is the extreme divergence in performance between gold and oil, which is trading at levels we haven’t seen in a long while. Declines in oil have traditionally invited enormous selloffs in other commodities, making gold’s resilience at this time all the more impressive.

China Consumed Nearly All of Global Gold Output in 2015

Investors in China appear to recognize the importance of gold in times of market uncertainty. Since June 2015, the Shanghai Composite Index has dropped close to 45 percent, prompting scores of retail investors to pivot into safe haven assets such as gold. As you can see below, 2015 was a blowout year for the Shanghai Gold Exchange (SGE), which in the past has served as a good measure of wholesale demand in China.

Physical Gold Delivered from Shanghai Gold Exchange (SGE) vs. World Mining Output
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Not only did gold deliveries climb to a record number of tonnes in 2015, they also represented more than 90 percent of the total global output of the yellow metal for the year.

The SGE has made it incredibly easy for Chinese citizens to participate in gold investing. Recently it rolled out a smartphone app, making it more convenient than ever before to open an account and begin trading.

Gold Miners Are Winners of the Currency Wars

Gold priced in the strong U.S. dollar might have netted a loss in 2015, but in many other parts of the world, prices were either stable or even made gains. For buyers of gold in non-dollar economies, it’s the local price that matters most, not the dollar. In Russia, the third-largest producer, the metal rose 12 percent—and came close to an all-time high. In South Africa, the sixth-largest, it was well above the all-time high. Investors there saw returns of greater than 20 percent in 2015.

Gold Was Positive in Non-Dollar Currencies
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This has been beneficial to many mining companies based outside the U.S. Operations are paid for in local currencies—most of which have weakened in the last year—but companies sell their production in U.S. dollars. This has helped offset the decline in gold prices since they peaked in 2011.

Canadian-based companies such as Claude Resources, Richmont and Agnico Eagle Mines are performing well, even in the gold bear market and amid high volatility.

Canadian Gold Stock Performance
click to enlarge

For the last three years, gold miners all over the globe have been thoroughly beaten up. Today, they’re heavily discounted, and there are signs that conditions are stabilizing.

Managing Expectations

With the Fear Trade heating up, it’s important that we manage our expectations. The length and extent of the current bear market, which began in September 2011, might seem unprecedented to many investors. In actuality, it doesn’t veer very far from what we’ve seen in the past, according to data presented by the World Gold Council (WGC).

Current Gold Bear Market Not Far off the Mean
January 1970 – January 2016
Current Gold Bear Market Not Far off the Mean BULL MARKET Current Gold Bear Market Not Far off the Mean BEAR MARKET
Dates Length (months) Cumulative Return Dates Length (months) Cumulative Return
Jan 1970 –
Jan 1975 
61 451.4% Jan 1975 –
Sep 1976
20  -46.4%
Oct 1976 –
Feb 1980
41 721.3% Feb 1980 –
Mar 1985
61 -55.9%
Mar 1985 –
Dec 1987
33 75.8% Dec 1987 –
Mar 1993
63 -34.7%
Apr 1993 –
Feb 1996
35 27.2% Feb 1996 –
Sep 1999
43 -39.1%
Oct 1999 –
Sep 2011
144 649.6% Sep 2011 –
52 -44.1%
Average 63 385.1% Average 47 -44.0%
Median 41 451.4% Median 52 -42.7%
Source: World Gold Council, U.S. Global Investors

Reaching back to 1970, the WGC identified five bull and bear markets, with bull markets defined as periods when gold prices rose for longer than two consecutive years, bear markets as the subsequent periods when they fell for a sustained length of time. Although these lengths vary, the cumulative loss in each bear market is relatively uniform, with median returns at negative 42.7 percent.

The present bear market, at negative 44.1 percent, falls easily within the realm of normalcy.

Further, the table suggests that a turnaround in gold prices is overdue.

I’m in Vancouver now, where I’ll be speaking at the Resource Investor Conference on Sunday. In the days that follow, I’ll share with you what I see and hear from fellow investors in the resources and commodities space. Stay tuned!

Curious about the gold market? Read Frank Holmes' latest insights


Index Summary

  • The major market indices finished up this week.  The Dow Jones Industrial Average rose 0.66 percent. The S&P 500 Stock Index was up 1.41 percent, while the Nasdaq Composite climbed 2.29 percent. The Russell 2000 small capitalization index rose 1.28 percent this week.
  • The Hang Seng Composite lost 2.43 percent this week; while Taiwan was down 0.08 percent and the KOSPI fell 0.03 percent.
  • The 10-year Treasury bond yield rose 1 basis point to 2.05 percent.

Domestic Equity Market

S&P 500 Economic Sectors
click to enlarge


  • Telecommunications was the best-performing sector, increasing by 4.38 percent compared to an overall gain of 1.41 percent for the S&P 500 Index.
  • Southwestern Energy was the best-performing stock for the week, increasing 30.90 percent as investor enthusiasm returned to the sector. The company announced a huge round of layoffs, in part because it’s not currently operating any drilling rigs. That was bullish for the sector because Southwestern is one of the top natural gas producers in the country, with the implication that if Southwestern is not growing production, it will really help to more rapidly ease the sector’s supply glut.
  • According to Glenn Hutchins, chairman of North Island and co-founder of Silicon Valley private equity powerhouse Silver Lake, the wild swings in stocks are masking strong fundamentals in the U.S. economy.


  • Financials was the worst-performing sector for the week, falling 0.52 percent.
  • American Express was the worst-performing stock for the week, falling 12.48 percent. Shares tanked on Friday following an earnings miss that showed the company is still struggling.
  • According to Morgan Stanley, volatility in financial markets since the Federal Reserve last month announced its first interest-rate increase in nearly a decade is having the same effect as four additional quarter-point hikes.


  • Pharmaceutical stocks have broken from their correlation with biotech stocks, and there are signs this divergence could be sustainable. Pharmaceutical profits remain one of the few bright spots within the corporate sector. Drug demand continues to boom, as measured by consumer spending data. In a deflationary world, the ability to significantly lift selling prices warrants a premium valuation, yet the S&P Pharmaceuticals Index still trades at a large discount to its historic average relative valuation. If domestic economic disappointment continues, it will provide another catalyst for a relative valuation re-rating.
  • Exogenous forces continue to work in favor of utilities. According to BCA, relative performance is inversely correlated with the ISM Manufacturing New Orders Index, as the latter provides a good read for profit momentum in the overall corporate sector. The message is that utilities profits will continue to outperform. Moreover, the bond-to-stock (B/S) ratio is gaining traction, reflecting a loss of economic confidence. As a fixed-income proxy, utilities tend to outperform when the B/S rises. These conditions are likely to remain in place until a catalyst to reinvigorate global economic growth arrives.
  • The rebound in oil on Friday could portend a rally for energy stocks.


  • Biotechnology stocks have exhibited all of the characteristics of a mania. The forces that propelled the group higher are now reversing. Speculation is rapidly being reined in, warning that the flows into biotech stocks are drying up. Margin debt has peaked, reinforcing that momentum is starting to evaporate. Biotech IPOs are also disappointing. If share prices continue to fall, expected returns will follow suit, warning against expecting further capital inflows. As a result, biotech stocks are likely to remain under pressure.
  • While bank stocks are attractively priced, the odds of a policy mistake are high and rising, underscoring that investors should be focused on the risks of a deflationary fallout from Federal Reserve interest rate hikes rather than potential net interest margin relief. Leading indicators of credit quality have rolled over, suggesting that loan losses are likely to accelerate in the coming quarters. That might not be fully offset by either faster loan growth or a steeper yield curve. Consequently, bank stock relative performance is likely to remain challenged.
  • The technology sector has been resilient among deep cyclical sectors, but trouble is brewing. The corporate sector is likely to adopt a more defensive spending mindset because margins are being squeezed by rising labor and capital costs as well as deflation in selling prices. The lack of new order growth for tech goods and export contraction confirms a poor revenue outlook. Only consumer spending on tech is showing any signs of a pickup, but hefty inventories suggest that this is not sufficient to produce a recovery in output growth. Technology capacity is growing much faster than technology industrial production, a highly deflationary dynamic. All of this implies that historically stretched technology sector profit margins are at risk of a squeeze, jeopardizing earnings.

Uncover the Patterns in Commodity Returns

The Economy and Bond Market



  • The Philadelphia Fed Business Outlook Survey was better than expected, rising to -3.5 in January from -10.2 in December. This suggests more modest contraction than consensus had been expecting at -5.9. The ISM adjusted general business conditions index increased to 49.1 from 46.5, still in contractionary territory but closer to the 50 breakeven level.
  • Housing starts were up 10.6 percent year-over-year in 2015, suggesting a robust pace of homebuilding growth.
  • Existing home sales popped higher in December, surging 14.7 percent month-over-month to a seasonally adjusted annual rate of 5.46 million. This surpassed expectations of 5.20 million.


  • The European Central Bank (ECB) kept interest rates unchanged, and ECB president Mario Draghi strongly hinted that additional monetary easing is likely at the March meeting of the Governing Council. Downside risks have increased amid emerging market uncertainty and geopolitical risks while euro-area inflation dynamics continue to be weaker than expected.
  • While oil bounced on Friday, it plunged to a 13-year low during the week.
  • Amid concerns that the U.S. economy is losing steam, new applications for unemployment benefits rose 293,000 in the week ended January 16. The four-week moving average rose to 285,000, the highest number since April. 


  • Speaking at the World Economic Forum in Davos, Chinese Vice President Li Yuanchao said that China’s markets are not yet mature and that the government would boost regulation in an effort to limit volatility. Also in Davos, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said his government is prepared to intervene again to stave off any large liquidity problems that could lead to systemic risks. 
  • The University of Michigan Consumer Sentiment Index is released next Friday. With the one-month reading above the three-month moving average, a print that reassures markets about consumers’ confidence in the economy is expected.
  • Global bond yields will likely remain under downward pressure at least until oil prices—perhaps longer if global growth momentum deteriorates further. That suggests maintaining an overall above-benchmark duration stance and overweighting bond markets where central banks appear too hawkish relative to domestic growth and inflation conditions (the U.S. and U.K.) and those with economies that are heavily exposed to weak energy prices (Canada).


  • Currently there’s a big gap between the core inflation readings. Not only is the level different, but so too is the underlying trend. This isn’t the first time a gap has opened up, but historically it does not last. The gap is mostly explained by different weighting methodologies for the two indices. Housing has a larger weight in the consumer price index (CPI), and housing inflation is currently above the average core inflation rate. Thus, the core CPI is being pulled higher than core personal consumption expenditures (PCE) by this factor. Outside of housing, it is the core services sector that has a divergence in inflation rates (goods inflation in the CPI and PCE are almost identical). This is mainly due to different calculation methods for the medical care component. The Federal Reserve has for many years argued that core PCE is a better measure of underlying inflation trends. With this measure still stuck at 1.3 percent, and inflation expectations still very suppressed, the Fed is still far away from its inflation goals.

Diverging U.S. Inflation Gauges
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  • Policy spotlight will shift next week to central bank meetings: the Fed on Wednesday and the Bank of Japan on Friday. The Fed will likely acknowledge recent financial market moves, but will remain largely untroubled since financial stress indices remain below historic averages. It’s expected the Fed will raise rates another 25 basis points.
  • In the U.S., rising wage costs amid falling sales are putting pressure on profit margins. The employment cost index, the Fed’s favored indicators for wage growth, will be released on Friday.

Gold Market

This week spot gold closed at $1,098.00, up $9.12 per ounce, or 0.84 percent.  Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 0.49 percent.  Junior miners underperformed seniors for the week as the S&P/TSX Venture Index traded down 1.08 percent.  The U.S. Trade-Weighted Dollar Index gained 0.58 percent this past week.

Date Event Survey Actual Prior
Jan-18 China Retail Sales YoY 11.3% 11.1% 11.2%
Jan-19 Germany CPI YoY 0.3% 0.3% 0.9%
Jan-19 Eurozone CPI Core YoY 0.9% 0.9% 0.9%
Jan-19 Germany ZEW Survey Current Situation 53.1 59.7 55.0
Jan-19 Germany ZEW Survey Expectations 7.9 10.2 16.1
Jan-20 U.S. Housing Starts 1200k 1149k 1173k
Jan-20 U.S. CPI YoY 0.8% 0.7% 0.5%
Jan-21 Eurozone ECB Main Refinancing Rate 0.050% 0.050% 0.050%
Jan-21 U.S. Initial Jobless Claims 280k 293k 284k
Jan-26 Hong Kong Exports YoY
Jan-26 U.S. Consumer Confidence Index 96.5 96.5
Jan-27 U.S. New Home Sales 500k 490k
Jan-27 U.S. FOMC Rate Decision 0.50% 0.50%
Jan-28 Germany CPI YoY 0.4% 0.3%
Jan-28 U.S. Initial Jobless Claims 281k 293k
Jan-28 U.S. Durable Goods Orders -0.5% 0.0%
Jan-29 Eurozone CPI Core YoY 0.9% 0.9%
Jan-29 U.S. GDP Annualized QoQ 0.8% 2.0%


  • The best performing precious metal for the week was spot gold, up 0.84 percent. Gold held its ground, despite a second half of the week surge in the broader equity markets.
  • Gold climbed higher as the week progressed on the back of global market turmoil spurring demand for the safe haven asset, reports Bloomberg. Weaker-than-expected Chinese economic data in December added to market uncertainty, with Citigroup even raising its forecast for gold prices in 2016.
  • Data released from the Russian central bank on Thursday implies that the country added around 208 metric tonnes to its official gold reserves in 2015. This number is 21 percent higher than the 186.6 metric tonnes reported in 2014, according to a Platts news article this week.


  • The worst performing precious metal for the week was platinum, still up 0.21 percent, but likely weaker due to the slack Chinese data that set the tone for trading action.
  • Greece’s top administrative court announced the annulment of the government’s decision in 2015 to revoke Eldorado Gold’s mining license. Although this news is positive for Eldorado, the root of the issue still exists. It seems the real problem here is the Greek’s belief that they own the land where the mining project is planned, along with all the gold in it, and they don’t seem keen on letting a private company exploit the state’s assets.
  • A prolonged gold slump has forced Barrick Gold Corp. to revise its price assumptions for 2016, Bloomberg reports. The company announced it may book as much as $3 billion in impairment charges, though this should come as no surprise during a challenging commodity market. In contrast to this news, Barrick became Canada’s most valuable gold miner last week for the first time in 19 months, and taking the mantle from Goldcorp as their largest gold company by market capitalization.


  • As a supply crunch takes hold this year, we could see the price of gold rise substantially. Thomson Reuters reports that global gold production is expected to fall 3 percent in 2016. This would end a seven-year streak of rising gold supplies (which peaked in 2015 at 3,155 tonnes), according to a Business Insider article.
  • Citigroup has raised their gold price forecast to $1,070 per ounce for 2016, up 7.5 percent, according to a January 19 report from the group. Citi analysts cite “ongoing global macro concerns” lending support this quarter, along with a “modestly more benign U.S. dollar outlook.”
  • Canadian gold companies (that have labor costs in Canadian dollars and revenue in U.S. dollars) should profit from the rising U.S. dollar, according to a Bloomberg interview with 1832 Asset Management’s Robert Cohen. As you can see in the chart below, Canadian-based gold companies like Claude Resources, Richmont and Agnico Eagle are performing well during this gold bear market.

Canadian Gold Stock Performance
click to enlarge


  • Last year marked the fifth consecutive year of negative returns and underperformance for gold stocks versus the S&P, reports Goldman Sachs. Gold miners (GDX) were down 25 percent in 2015. Goldman doesn’t expect any positive catalysts for gold over the next 12 months, but says one key indicator will be the Federal Reserve’s pace of future rate hikes.
  • Wal-Mart finished 2015 down 30 percent, yet another sign of U.S. economy weakness. The store recently announced 269 store closures, with at least 10,000 employees being laid off. ZeroHedge uses Wal-Mart’s woes as evidence of the U.S. being “at the center of the global economic meltdown” – this might be a good time to own gold.
  • Price action in the North American gold stocks lagged behind the performance of bullion most of the past week.  It was as if someone was forced to exit their gold equity exposure (or a large player was overcome with frustration and told the street to just get them out of their position now), as gold stocks started the year strong but are now losing momentum.  Sales desk noted that Canadian generalists were seeing a pickup in shareholder redemptions.

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Energy and Natural Resources Market



  • U.S. refiners continue to profit from lower crude prices and strong gasoline demand. In between discussions of U.S. vehicle miles traveled rebounding 4.3 percent in November, and crude inventories continuing to build, Valero Energy surprised the market by raising its dividend 20 percent as favorable crack spreads support profit growth.
  • The best-performing sector for the week was the Canadian TSX Oil and Gas Producers Index. The sector rebounded from deeply oversold levels after oil posted its first weekly gain of the year.
  • The best-performing stock for the week in the broader natural resource space was Norilsk Nickel, a major Russian nickel and palladium miner. The stock rose 12 percent, supported by the best weekly performance of nickel since at least October 2014, as well as news of a favorable legal ruling for its chairman and largest stockholder.


  • U.S. crude and products inventory numbers reported a larger-than-expected build. Crude oil stockpiles increased by 4 million barrels to 486.5 million barrels, compared to expectations of more than 2.7 million barrels. The rise in inventories does not come as a surprise given that U.S. crude production has increased in recent weeks to 9.23 million barrels per day.
  • The worst-performing sector for the week was the S&P Railroads Index. The sector dropped over 4 percent as investors remain concerned the weakness in energy prices will result in further cuts to rail volumes, leading to declines in profitability for the sector.
  • The worst-performing stock for the week in the S&P Global Natural Resource Index was First Quantum. Despite rising copper prices, the Canadian miner underperformed as analysts became concerned the company could be forced to raise fresh capital at bottom-of-the-cycle prices to shore up its debt-laden balance sheet.


  • Oil could be poised for a rally as seasonal factors kick in. The five- and 15-year seasonality for oil shows a pretty consistent bottoming pattern in late January, giving rise to a bullish trade that generally lasts into May or June. Over the last five years, WTI crude has returned an average 3.3 percent in February and 5.6 percent in April, its two best months according to seasonality.

West Texas Crude Oil Historical Patterns
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  • Mario Draghi said the European Central Bank (ECB) may bolster stimulus in March, easing concerns over global growth and pushing industrial metals higher. Copper rallied 3 percent for the five-day period, posting its best week-on-week return since October. Unfortunately, the announcement was underscored by the Eurozone Purchasing Manager’s Index (PMI) falling to an 11-month low.
  • Steelmakers may continue to see relief after official numbers show China’s steel production shrank 2.3 percent in 2015, the first decline since 1991. Policy makers have facilitated the closures as demand weakened and producers struggled with overcapacity. The news is favorable for other steelmakers as supply cuts bring the market closer to a supply-demand balance.


  • Another major miner has warned the market it might book a multibillion-dollar impairment charge this quarter. Following BHP Billiton’s $7.2 billion write-down on the value of its U.S. shale assets, Barrick Gold, the world’s largest gold producer, said it might write-down $3 billion in goodwill and asset impairments as lower gold prices force it to revise its price assumptions. With global commodity prices having fallen dramatically over the past three years, there is a latent risk of more write-downs across the natural resources space.
  • Moody’s has placed 175 energy and mining companies under review for possible credit downgrades after it lowered its price forecasts for commodities. Among those at risk are Europe’s three largest oil producers, Royal Dutch Shell, Total and BP, as well as mining industry leaders Barrick Gold and Alcoa.
  • Prices for nitrogen fertilizer, one of the key revenue drivers across the fertilizer space, dropped to its lowest level since December 2008. The weakening Chinese yuan is partly to blame as currency effects continue to lower breakeven points for Chinese producers, allowing global prices to fall further.

China Region



  • Thailand was a top performer for the week, with the Stock Exchange of Thailand (SET) Index up 1.78 percent.
  • Taiwan’s peaceful vote last Saturday resulted in the historic but anticipated election of the island’s first female president (with 56 percent of the vote), as the Democratic Progressive Party’s Tsai Ing-wen was swept to victory alongside a large DPP majority (60 percent) in Taiwan’s parliament. The former ruling party, the Kuomintang (KMT), maintained close ties to mainland China, and, while the DPP officially supports independence from China, Tsai and the DPP have pledged to maintain relations.
  • The Malaysian ringgit sprang higher at the close of the week, finishing up 2.27 percent as oil rallied up off new 52 week lows.  Malaysia is the region’s only net energy exporting country. 


  • A number of Chinese data were weaker than expected this week.  The most important reading was China’s year-over-year GDP print for the fourth quarter, which came in at 6.8 percent, missing analysts’ expectations for a 6.9 percent growth rate.  China’s Foreign Direct Investment (FDI) for December also missed, falling 5.8 percent year-over-year—well short of expectations for a rise of 3.1 percent—and fixed asset investment (FAI) missed too, rising only 10.0 percent year-over-year versus expectations for a rise of 10.2 percent.  December readings in Industrial Production and Retail Sales also missed year-over-year.
  • S&P lowered its 2016 outlook for China’s full year GDP growth rate to 6.3 percent from 6.8 percent, listing the pace of Chinese growth as one of its global growth concerns.
  • Once again this week, investors employed the Hong Kong dollar as a proxy to express bearish sentiment toward the Chinese yuan, and while the Hong Kong dollar actually finished well within its trading band of 7.75 to 7.85, at just under 7.79 and essentially flat for the week, the week’s quiet finish masks some of the volatility that has weighed upon Hong Kong markets of late.

Hong Kong Dollar Jumps Dramatically
click to enlarge


  • China’s president Xi Jinping spoke at a ceremony for the Asian Infrastructure Investment Bank (AIIB) last weekend, which officially opened for business with capital of some $100 billion (USD). The China-initiated AIIB counts among its many founding member countries such regional U.S. allies as Australia and South Korea. The U.S. and Japan are notable absences from the fast-growing membership list of what some see as a rival to World Bank and IMF, but the AIIB seeks to support the development of infrastructure in the Asia-Pacific region.  Together with China’s “One Belt, One Road” strategy, the AIIB should help to bolster construction projects in railways, ports, and other trade links throughout the region. 
  • Even as China announced that it set aside some $4.6 billion dollars to wind down hundreds of coal mines, the East Asian economic behemoth continues to create new opportunities in alternative energy.
  • Chinese New Year begins in just over two weeks, and may bring some pause to negative sentiment and frenzied selling of late, as well as offer incentive to the Chinese government to intervene in a convincing capacity sooner rather than later, before mainland markets close the second week of February for the lengthy holiday.


  • Weaker Chinese data this week was somewhat disconcerting for global investors.
  • Stability in the Chinese currency markets remains a top concern for investors.  Recent fluctuations in the renminbi and, as something of a proxy of late, the Hong Kong dollar, demonstrate the bearish sentiment toward the yuan, which the People’s Bank of China (PBOC) has thus far managed to suppress verbally and in the open markets.  In early February, investors may get a look at how potentially costly such market action has been year-to-date, when the monthly datum showing the amount of China’s foreign exchange reserves will be released.
  • While global markets did rally into the end of the week, investor sentiment remains somewhat fragile in the wake of the fresh 52-week lows made by a number of major indices this week.

Emerging Europe



  • Russia was the best performing market this week, gaining 6.82 percent. The ruble rallied on Friday, from a record low mid-week, after crude oil rose and Bank of Russia Governor Elvira Nabiullina said the bank has tools to act “proactively” and prevent threats to financial stability.
  • The Turkish lira was the best performing currency this week, gaining 1.56 percent against the dollar. The lira fell after the Central Bank left the rate unchanged at 7.5 percent but recovered later in the week. World Bank revised up Turkey’s 2015 growth to 4.2 percent.
  • The consumer staples sectors was the best performing sector among Eastern European markets this week.


  • Greece and Hungary were the worst performing markets this week, losing 4.32 and 2.2 percent respectively. 
  • The euro was the worst performing currency this week, losing 1.09 percent against the dollar. The euro tumbled the most in two weeks after European Central Bank (ECB) President Mario Draghi said the ECB will act to support the markets.
  • The financial sector was the worst performing sector among Eastern European markets this week.


  • ZEW’s gauge for current condition in Germany rose to 59.7 from 55 in December despite ZEW’s index of investor and analyst expectations falling to 10.2 from 16.1 in December. This is a reminder that the German economy is healthy enough at the start of the year to withstand a slowdown in China. Full employment and low inflation are among the many domestic factors helping Germany to weather a slowdown in China and international trade. Looking forward, economists surveyed by Bloomberg predict that the German economy will grow slightly faster in 2016 (1.8 percent) than in 2015 (1.7 percent).

ZEW Current Situation Surprisingly Improves in January
click to enlarge

  • ECB Chief Mario Draghi indicated on Thursday that ECB is ready to add more stimulus as soon as March to help reach its inflation goals. European stocks posted the biggest two day gains after the ECB announcement on increased investor confidence that central banks will act to support markets.


  • Standard & Poor’s last Friday downgraded Poland’s debt one notch to BBB+, Poland’s first rating cut in 20 years.  The agency cited that the new government’s push to exert greater control over the state threatened the independence of key institutions, most importantly the central bank. The yields on 10-year zloty bonds jumped as high as 3.21 percent and the zloty declined the most since September 2011 after the downgrade.
  • In addition to the above downgrade, Poland’s current president Andrej Duda proposed a draft law last week to convert $42 billion in foreign-currency loans into zloty. Current central bank governor Marek Belka said  this proposal is a recipe for a banking crisis that could weaken lending and economic growth as it further weakens the banking industry at a time when lenders are facing the new levy of 0.44 percent on bank assets beginning next  month. The Warsaw WIG Banking Index of 15 lenders has dropped 11.5 percent this year.
  • The International Monetary Fund cut its global growth outlook on Tuesday to 3.4 percent from 3.6 percent, highlighting a slowdown in emerging markets and risks tied to the Federal Reserve’s gradual exit from ultralow interest rates. It now expects Russia’s economy to shrink 1 percent in 2016, compared with an expected contraction of 0.6 percent in October.
  • Crude oil touched 26.55 per barrel this week. This drop in the price of oil this year is putting pressure on Russia’s economy, which gets about half its budget revenue from oil and gas sales.  The ruble weakened as much as 5.3percent to 85.99 per dollar on Thursday which was compounded when The Bank of Russia Governor Elvira Nabiullina said the ruble is trading at fundamental levels.
  • The Eurozone Manufacturing PMI fell to 52.3 from 53.2. The market had expected a smaller decline. The Service PMI also slipped to 53.6 from 54.2, while the Bloomberg consensus called for an unchanged reading. The combined reading fell to 53.5 from 54.3, which is the lowest since last February.

Can You Guess Which Movies Feature Gold? Take Our Quiz!

Leaders and Laggards

Weekly Performance
Index Close Weekly
DJIA 16,093.51 +105.43 +0.66%
S&P 500 1,906.90 +26.57 +1.41%
S&P Energy 417.03 +7.83 +1.91%
S&P Basic Materials 242.90 +1.76 +0.73%
Nasdaq 4,591.18 +102.76 +2.29%
Russell 2000 1,020.66 +12.93 +1.28%
Hang Seng Composite Index 2,600.34 -64.70 -2.43%
Korean KOSPI Index 1,879.43 +0.56 +0.03%
S&P/TSX Canadian Gold Index 127.30 -4.24 -3.22%
XAU 40.92 -0.50 -1.21%
Gold Futures 1,096.30 +5.60 +0.51%
Oil Futures 32.19 +2.77 +9.42%
Natural Gas Futures 2.14 +0.04 +1.86%
10-Yr Treasury Bond 2.05 +0.02 +0.83%


Monthly Performance
Index Close Monthly
DJIA 16,093.51 -1,509.10 -8.57%
S&P 500 1,906.90 -157.39 -7.62%
S&P Energy 417.03 -45.85 -9.91%
S&P Basic Materials 242.90 -35.96 -12.90%
Nasdaq 4,591.18 -454.75 -9.01%
Russell 2000 1,020.66 -132.16 -11.46%
Hang Seng Composite Index 2,600.34 -434.99 -14.33%
Korean KOSPI Index 1,879.43 -119.79 -5.99%
S&P/TSX Canadian Gold Index 127.30 -5.33 -4.02%
XAU 40.92 -5.79 -12.40%
Gold Futures 1,096.30 +28.00 +2.62%
Oil Futures 32.19 -5.31 -14.16%
Natural Gas Futures 2.14 +0.16 +7.87%
10-Yr Treasury Bond 2.05 -0.20 -8.92%


Quarterly Performance
Index Close Quarterly
DJIA 16,093.51 -1,553.19 -8.80%
S&P 500 1,906.90 -168.25 -8.11%
S&P Energy 417.03 -87.82 -17.40%
S&P Basic Materials 242.90 -39.69 -14.05%
Nasdaq 4,591.18 -440.68 -8.76%
Russell 2000 1,020.66 -145.40 -12.47%
Hang Seng Composite Index 2,600.34 -580.21 -18.24%
Korean KOSPI Index 1,879.43 -160.97 -7.89%
S&P/TSX Canadian Gold Index 127.30 -19.59 -13.34%
XAU 40.92 -15.38 -27.32%
Gold Futures 1,096.30 -67.30 -5.78%
Oil Futures 32.19 -12.41 -27.83%
Natural Gas Futures 2.14 -0.15 -6.43%
10-Yr Treasury Bond 2.05 -0.04 -1.68%

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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.

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned above were held by one or more accounts managed by U.S. Global Investors as of 9/30/2015:
Agnico Eagle Mines Ltd.
American Express
Barrick Gold Corp.
Claude Resources Inc.
Eldorado Gold
First Quantum
Market Vectors Gold Miners ETF (GDX)
Richmont Mines Inc.
Valero Energy

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 Thomson Reuters/CoreCommodity CRB Index (TR/CC – CRB Index), formerly known as the Thomson Reuters Equal Weight Commodity Index, is the CRB index in its original equal weight form from 1957.The CRB index has undergone periodic updates as commodity markets have evolved and consists of 19 commodities.

The S&P Pharmaceuticals Select Industry Index represents the pharmaceuticals sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Pharmaceuticals Index is an equal weighted market cap index.

The ISM New Orders Index is prepared by the Institute of Supply Management and is an indicator of the levels of new orders from customers.

The Philadelphia Federal Index is a regional federal-reserve-bank index measuring changes in business growth. The index is constructed from a survey of participants who voluntarily answer questions regarding the direction of change in their overall business activities. The survey is a measure of regional manufacturing growth. When the index is above 0 it indicates factory-sector growth, and when below 0 indicates contraction. Also known as the "Business Outlook Survey".

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.

S&P/TSX Equal Weight Oil & Gas Index provides investors with a portfolio of securities involved in the oil and gas industry.

The Bangkok SET Index is a capitalization-weighted index of all the stocks traded on the Stock Exchange of Thailand.

The S&P Supercomposite Railroads Index is a capitalization weighted index. The index is comprised of the stocks in the railroads sub-industry.

The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified, liquid and investable equity exposure across 3 primary commodity-related sectors: Agribusiness, Energy, and Metals & Mining.

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.

ZEW Germany Expectation of Economic Growth is a survey on the question of economic growth in six months.

The Warsaw Stock Exchange Banking Index is a subindex of the Warsaw Stock Exchange Index (WIG) that includes banks only.