Freezing Temperatures Could Heat Up Natural Gas Prices

Author: Frank Holmes
Date Posted: November 16, 2018 Read time: 51 min

Here in San Antonio, the temperature on Wednesday hit a bone-chilling low of 27 degrees, breaking a 102-year-old record for mid-November. An out-of-state visitor, Cornerstone Macro’s Head of Portfolio Insights Stephen Gregory, speculated that the Central Texas temperature, ordinarily mild this time of year, was down more than three standard deviations.

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

Midterm Elections Gridlock Was the Best Possible Outcome

Here in San Antonio, the temperature on Wednesday hit a bone-chilling low of 27 degrees, breaking a 102-year-old record for mid-November. An out-of-state visitor, Cornerstone Macro’s Head of Portfolio Insights Stephen Gregory, speculated that the Central Texas temperature, ordinarily mild this time of year, was down more than three standard deviations. I didn’t make the calculation, but my guess would be about the same.

With temperatures so low, it’s perhaps no surprise that natural gas had one of its best days in years. Its price popped almost 18 percent on Wednesday—before falling nearly as much on Thursday. The Energy Information Administration (EIA) reported that natural gas storage in the lower 48 states was below the five-year average as of October 31. This, combined with a stronger-than-expected start to winter, prompted traders to push prices to a four-year high of $4.84 per million British thermal units (MBtu). Meanwhile, natural gas futures trading hit an all-time daily volume record of 1.2 million contracts, according to CME Group.

Natural gas prices exploded
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Freezing temperatures increase demand for heating, much of which is provided by natural gas. In January of this year, when temperatures fell below the average in many parts of the U.S., demand reached a single-day record of 150.7 billion cubic feet, according to the EIA. I can’t say we’ll beat this record again in the coming months, but forecasts for more freezing weather heading into next Thanksgiving week and beyond should support additional moves to the upside.

What kind of moves? Says Jacob Meisel, chief weather analyst at Bespoke Weather Services, the price could get to $7 or $8 per MBtus, levels we haven’t seen since 2008. “This looks like a capitulation move today, but if cold weather really takes off, the sky is the limit,” Meisel told CNBC.

Oil Selloff Steepest in Three Years, “Overdone”

Natural gas wasn’t the only commodity that broke records this week. On Tuesday, West Texas Intermediate (WTI) crude oil ended an extraordinary 12 straight days of losses, settling at a 2018 low of $55.69 per barrel, down more than 27 percent from its 2018 high in early October. Triggered by concerns of a global demand slowdown, the plunge is oil’s steepest in three years, and a stunning reversal from last month’s calls for $100-per-barrel crude.

The bears appear to have overreacted, though. “Crude-oil-position liquidations have never been this extreme, indicating the purge in WTI futures is overdone,” writes Business Intelligence strategist Mike McGlone, adding that petroleum markets have “never experienced a comparable decline over a similar period.” 

World Needs the Equivalent of Another Russia’s Worth of Crude

Again, the oil selloff halted on Tuesday, the same day the International Energy Agency (IEA) announced its estimate that U.S. shale will need to add the equivalent of Russia’s entire oil production by 2025 to prevent a global shortage. In its flagship “World Energy Outlook 2018,” the Paris-based group says that world oil consumption will increase significantly in the coming decades due to “rising petrochemicals, trucking and aviation demand.”

“U.S. shale production, which has already been expanding at record pace, would have to add more than 10 million barrels a day from today to 2025, the equivalent of adding another Russia to global supply in seven years—which would be an historically unprecedented feat,” according to the IEA.

Jets fyling high

The U.S. produced 11.7 million barrels of crude per day in the week ended November 9. That means shale producers would need to ramp up output to at least 21 million barrels in seven years, if the IEA’s estimates are accurate.

I think this would be a challenge, but a real possibility. The reason I think this is because the U.S. fracking industry continues to prove it can produce more with less. According to a recent report by the EIA, U.S. crude oil and natural gas production increased in 2017, despite there being fewer wells. This is thanks in large part to horizontal wells, which “contact more reservoir rock and therefore produce greater volumes” of oil and gas. Although more expensive to drill, horizontal wells are growing faster than traditional vertical wells. In 2017 they accounted for 13 percent of total well drills, up from only 10 percent three years earlier.

Also in the IEA’s outlook: By 2040, emerging markets, led by China and India, will account for 40 percent of global energy demand, up from 20 percent in 2000. Below, note how the European Union is expected to be displaced by India and Africa in terms of energy demand within the next couple of decades.

Emerging markets will account for 40 percent of global energy demand by 2040
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I believe only the U.S. fracking industry would be able to meet this demand. Russia and Saudi Arabia are pumping at record levels right now, but production cuts of as much as 1.4 million barrels per day are being discussed among members of the Organization of Petroleum Exporting Countries (OPEC) to firm up prices. If cuts do go into effect, U.S. producers can be expected to fill in the supply gap.

“It can happen but would be a small miracle,” said Fatih Birol, the IEA’s executive director.

U.S. Shale “More Profitable Than Ever”

Normally, ever greater supply would weigh on prices and weaken profitability. Based on new data, it looks as if the U.S. fracking industry has changed the game.

According to Reuters, “U.S. shale firms are more profitable than ever after a strong third quarter,” according to the agency’s analysis of 32 independent producers. “These companies are producing more efficiently, generating more cash flow and consolidating in a wave of mergers.”

Nearly a third of these 32 companies “generates more cash from operations than they spent on drilling and shareholder payouts, a group including Devon Energy, EOG Resources and Continental Resources. A year ago, there were just three companies on that list,” Reuters writes.

Thanksgiving Travel to Hit 13-Year High

On a final but related note, next week is Thanksgiving, the busiest travel season of the year in the U.S. The American Automobile Association (AAA) predicts that the number of travelers on Thanksgiving Day, by auto and air, will top 54.3 million people, an increase of almost 5 percent from last year, and the highest volume since 2005.

Similarly, Airlines for America (A4A) believes U.S. Thanksgiving air travel demand between today and November 27 will climb to an all-time high of 30.6 million passengers. “It is thanks to incredibly accessible and affordable flight options that more travelers than ever before are visiting loved ones, wrapping up year-end business or enjoying a vacation this Thanksgiving,” commented A4A Vice President and Chief Economist John Heimlich.

Thanksgiving 2018 US air travel demand estimated to rise 5 percent from last year
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While I’m on the topic of aviation, A4A also reported that U.S. airport revenues have grown faster than the consumer price index (CPI) as well as the number of air passengers and aircraft departures. From 2000 to 2017, airport revenues rose 87 percent, double the pace of U.S. inflation. Increased growth came thanks to a number of resources, from taxes and fees to the Passenger Facility Charge (PFC) and Airport & Airway Trust Fund (AATF).

US airport revenues have grown faster than flights passengers and inflation
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According to Fitch Ratings, “strong overall performance for U.S. airports should continue undeterred for the foreseeable future.” Over 90 percent of the airports Fitch currently rates have a “Stable Rating Outlook,” signifying continued stability deep into 2019.

Curious to learn more? Explore our latest slideshow, “How Do Airports Make Money?”

How do airports make money

Gold Market

This week spot gold closed at $1,221.84, up $11.99 per ounce, or 0.99 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 1.83 percent. The S&P/TSX Venture Index came in off 4.13 percent. The U.S. Trade-Weighted Dollar fell 0.47 percent.

Date Event Survey Actual Prior
Nov-13 Germany CPI YoY 2.5% 2.5% 2.5%
Nov-13 Germany ZEW Survey Current Situation 65.0 58.2 70.1
Nov-13 Germany ZEW Survey Expectations -26.0 -24.1 -24.7
Nov-13 China Retail Sales YoY 9.2% 8.6% 9.2%
Nov-14 CPI YoY 2.5% 2.5% 2.3%
Nov-15 Initial Jobless Claims 213k 216k 214k
Nov-16 Eurozone CPI Core YoY 1.1% 1.1% 1.1%
Nov-20 Housing Starts 1230k 1201k
Nov-21 Durable Goods Orders -2.2% 0.7%
Nov-21 Initial Jobless Claims 215k 216k


  • The best performing metal this week was palladium, up 5.41 percent. Palladium surged this week on bets that the Chinese auto industry will boost global demand due to tight supplies of the metal, which is used in vehicle pollution-control devices. Gold traders and analysts were bullish for the second week in a row in the Bloomberg weekly sentiment survey. Many expect the yellow metal to benefit from continued Brexit-related chaos, which leads some investors to turn to perceived safe haven assets.
  • Although gold appears to have fallen from its October rally, ETF investors and hedge funds are not showing signs of abandoning the yellow metal, writes Bloomberg. Holdings in ETFs backed by gold rose for five consecutive weeks – the longest stretch is more than a year. The iShares Physical Gold ETF attracted $156 million in inflows last week, the most since July.
  • Deals are ramping up in the precious metals space. Pan American Silver has agreed to buy Tahoe Resources for $1.1 billion in a deal that is expected to close in the first quarter of 2019. Shareholders of Tahoe Resources may elect to receive $3.40 in cash or 0.2403 Pan American shares for each Tahoe Share, reports Bloomberg. Australian gold mining companies Silver Lake Resources and Doray Minerals are set to merge, with shareholders of Doray to receive 0.6772 Silver Lake shares for each of their Doray shares. The merged group as a first quarter of 2019 production guidance of around 240,000 ounces of gold.


  • The worst performing metal this week was platinum, down just 0.91 percent, on the news that demand for diesel-powered vehicles might continue to fall as the metal is in surplus for the year. Turkey continues to sell its gold reserves in an effort to support the falling lira. The country’s reserves fell $47 million this week from the previous week, and as a whole are down 16 percent year-over-year.
  • Iran executed a gold dealer, Vahid Mazloumin, known as the “Sultan of Coins,” in a warning to merchants not to exploit the country’s financial troubles, writes Ladane Nasseri of Bloomberg. Mazloumin was sentenced to death last month after being accused of contributing to price hikes by hoarding gold and forming the largest illegal network in this area, despite not holding a permit to trade gold and foreign currency.
  • Iamgold Corp. faced trouble this week after a group of analysts’ site visit to the Rosebel gold mine in Suriname was cancelled after a strike began just before their arrival on Tuesday. On Thursday the company reported that operations have resumed and that the site visit has been rescheduled.


  • Even as gold fell two quarters in a row this year, billionaire hedge fund manager Ray Dalio has kept his positions in the yellow metal. Dalio maintained his holdings in the SPDR Gold Shares ETF of 3.9 million shares and his stake in the iShares Gold Trust of 11.3 million shares, as of the third quarter of this year according to a regulatory filing this week.
  • Although the U.S. dollar has been strengthening and interest rates are rising, gold has drawn support from inflows into ETFs backed by bullion. Holdings in ETFs have risen by around 1.6 million ounces from a one-year low hit in October, reports Bloomberg. Suki Cooper, from Standard Chartered Bank, said in a note that these inflows “suggest a more stable cushion is emerging for gold prices on the downside.”

ETF demand helping shore up gold as rates dollar rise
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  • Former Federal Reserve Chairman Alan Greenspan said in a Bloomberg TV interview this week that he’s beginning to see the first signs of inflation due to a tight labor market. Greenspan also warned that the rising U.S. debt level could undermine the current economic expansion. “The tax cut actually did get a buoyancy, and we’re still feeling some of it, but it’s nowhere near enough to offset the actual deficit,” Greenspan said. “You can’t have a tax cut without finding the revenues elsewhere, or you run into problems.”


  • Miami-based Republic Metals Corp., a bankrupt gold and silver refiner, is reportedly missing inventory worth around $100 million. The company filed for Chapter 11 protection last week, saying it discovered “a significant discrepancy in its inventory accounting,” reports Bloomberg. Republic Metals listed around $265 million in liabilities and its senior lenders are a handful of international banks. Counterparties such as jeweler Tiffany might be out a significant amount of gold and silver that was with the company for refining.
  • Billionaire hedge fund manager Paul Tudor Jones said in an interview this week that a hike in interest rates triggered by faster growth from the tax cuts might cause the credit bubble to pop. “We’re going to stress test our whole corporate credit market for the first time,” Jones said. He added that today’s levels of leverage could be systematically threatening even if policymakers respond appropriately and that stocks, bonds, currencies and real estate are all overvalued, reports Bloomberg.
  • Although many strategists predict the U.S. dollar to resume its downtrend in 2019, they are advising investors not to abandon it just yet. Valentin Marinov, head of group-of-10 currency strategy at Credit Agricole, said in an interview last week that the “king dollar” trend many have more room to run and that we “may see a gradual grind higher, even though it will fall well short of the lofty highs of late 2016, early 2017.” Kit Juckes, global fixed-income strategist at Societe Generale wrote that the dollar is overvalued and the market is positioned long, which suggests a correction is likely in 2019, but that he is “wary of jumping the gun,” reports Bloomberg.

Frank Holmes named one of Linkedin's top voices 2018

Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 2.22 percent. The S&P 500 Stock Index fell 1.61 percent, while the Nasdaq Composite fell 2.15 percent. The Russell 2000 small capitalization index lost 1.42 percent this week.
  • The Hang Seng Composite gained 2.35 percent this week; while Taiwan was down 0.33 percent and the KOSPI rose 0.30 percent.
  • The 10-year Treasury bond yield fell 11 basis points to 3.07 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
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  • Real estate was the best performing sector of the week, increasing by 0.83 percent versus an overall decrease of 1.61 percent for the S&P 500.
  • Nektar Therapeutics was the best performing stock for the week, increasing 12.38 percent.
  • Sweetgreen is the newest unicorn, writes The fast-casual salad chain announced earlier this week that it had raised $200 million in a funding round led by Fidelity Investments, pushing its valuation over the $1 billion mark.


  • Consumer discretionary was the worst performing sector for the week, decreasing by 3.78 percent versus an overall decrease of 1.61 percent for the S&P 500.
  • Pacific Gas and Electric Company (PG&E) was the worst performing stock for the week, falling 38.88 percent.
  • PG&E, California’s biggest utility provider, has seen more than half its market value wiped out since the wildfires started, reports Business Insider. The company’s stock tanked after saying last week that it experienced problems with transmission lines and substations near where the wildfires in Paradise, CA, erupted.


  • Warren Buffett’s Berkshire Hathaway took a new stake in JPMorgan, raising its bet on big banks, reports CNBC. The firm bought nearly $4 billion worth of the bank’s shares and increased its holdings of other financial companies, according to a third-quarter regulatory filing.
  • Levi Strauss & Co., the blue jean giant, is reportedly planning to go public, reports Fortune. The denim apparel maker aims to make its initial public offering in the first quarter of 2019 at a valuation of about $5 billion.
  • Netflix is testing a mobile-only subscription plan that costs half the price of a standard subscription, reports Business Insider. The company is trying this out in countries like Malaysia.


  • Apple stock slid into a bear market this week, with shares down more than 20 percent, reports CNBC. Apple’s stock price dropped near $187 amid analyst downgrades and concerns about weaker demand for iPhones.
  • Traders haven’t been this worried about tech stocks for 14 years, writes Business Insider, and this nervousness could be bad news for the market. The spread between the Cboe Nasdaq Volatility Index, or VXN, which tracks the tech-heavy Nasdaq 100, and its S&P 500 counterpart, known as the VIX, is its widest since 2004.
  • Chipmaker Nvidia missed on revenue and profits in the third quarter, causing the company’s stock to fall 18 percent on Friday. The company reported adjusted earnings of $1.84 a share on revenue of $3.18 billion, missing the $1.92 and $3.24 billion that analysts were expecting, reports The Street. Its fourth-quarter revenue guidance also fell short of estimates

The Economy and Bond Market



  • U.S. retail sales rebounded sharply in October, reports Reuters, with purchases of motor vehicles and building materials rising on the back of rebuilding efforts in areas impacted by Hurricane Florence. Retail sales also increased 0.8 percent in October, according to the Commerce Department, as households purchased electronics and appliances. Retail sales rose 4.6 percent in October from a year ago.
  • In October U.S. industrial output moved up, as ramped up factory production offset declines in mining and utilities output. As reported by the Wall St. Journal, industrial production rose a seasonally adjusted 0.1 percent in October from the prior month, the Federal Reserve said Friday. From a year earlier, industrial production rose 4.1 percent in October.
  • Consumer prices in the U.S. posted the largest rise in nine months in October, reports Reuters, amid gains in the cost of gasoline and rents. This could mean steadily rising inflation that likely will keep the Fed on track to raise rates again next month, the article continues. On Wednesday, the Labor Department reported the consumer price inflation (CPI) number rose 0.3 percent last month after ticking up 0.1 percent in September. The CPI number increased 2.5 percent in the 12 months through October, and excluding volatile food and energy components, it climbed 0.2 percent, Reuters continues.


  • Mortgage applications dropped 3.2 percent last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was 22 percent lower compared with the same week one year ago, reports CNBC. “Recent volatility in the financial markets and increasing rates continue to adversely impact mortgage application activity, even as the general economic outlook remains positive,” said Joel Kan, an MBA economist.
  • There was an unexpected rise in the number of Americans filing applications for jobless aid last week, reports Reuters. However, claims for three big states were estimated due to Monday’s Veterans Day holiday, the article continues, which could have impacted the data. Claims increased 2,000 to a seasonally adjusted 216,000 for the week ended November 10, according to the Labor Department. Economists polled by Reuters had forecast claims falling to 212,000 in the latest week.
  • The cost of imported goods rose by 0.5 percent in October, reports MarketWatch. The increase in import prices over the past 12 months moved up to 3.5 percent from 3.1 percent. Higher prices for imports are detrimental to consumer spending.


  • Next Wednesday we will see the release of November’s preliminary University of Michigan Consumer Sentiment Survey. Consumers remain upbeat about the economy, so the report is likely to reflect strong sentiment.
  • November’s preliminary U.S. Manufacturing PMI will be released next Friday. This week’s industrial and manufacturing data came out strong, boding well for next week’s release.
  • We will also see November’s preliminary Markit U.S. Services PMI next Friday. With retail sales coming out strong this week, next week’s services survey is on track for a robust showing as well.


  • Short-end interest-rate traders — never sold on Federal Reserve forecasts for three quarter-point increases next year — are now losing confidence that officials will be able to pull off even two by the end of 2019. The spread between December 2018 and December 2019 Eurodollar futures has collapsed as much as 14 basis points since last Friday’s peak, and on Thursday it signaled as little as 38 basis points of tightening priced into next year. While a hike next month is still largely considered a lock, overnight index swaps show just 37 basis points of tightening expected through the central bank’s March meeting, suggesting a move at that gathering is now widely viewed as a toss-up. There are countless reasons for an expectation of a sharp pullback in next year’s Fed hike premium, from European tumult over Brexit and Italy’s budget to slumping oil prices, deteriorating credit sentiment and tech stock jitters. Yet despite the turmoil, Chairman Jerome Powell has shown little sign of backtracking on the Fed’s current policy path, potentially putting traders and officials on a collision course.

market has canceled back its pricing of fed rate increases for 2019
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  • October’s Leading Index will be released next Wednesday and is expected to drop to a gain of 0.1 percent from the previous month’s 0.5 percent. As a forward looking index, this could be a cause for concern about economic growth.
  • Investors’ attention early next week will be on the housing market, which is showing signs of a downturn as rising borrowing costs make it less affordable for Americans to take out mortgages. The slowdown has captured the attention of Fed Chairman Jerome Powell, who this week said he was monitoring the situation. Building permits and housing starts for October will be out on Tuesday, followed by existing home sales on Wednesday.

Energy and Natural Resources Market



  • Natural gas was the best performing major commodity this week rising 16.46 percent. The commodity rose for a third straight week driven by frigid U.S. conditions that may persist through late November after a storm blanketed New York with its first snowfall of the season.
  • The best performing sector this week was the S&P/TSX Diversified Metals & Mining Index. The index rose 4.84 percent after the London Metals Exchange Index posted its best week since mid-September.
  • The best performing stock for the week was Teck Resources Ltd. The Canadian miner rose 5.52 percent after the company announced it will pay a greater-than-expected dividend and also buyback C$400 million of Class B subordinate voting shares under its previously announced, normal course issuer bid program.


  • Crude oil was the worst performing commodity this week. The commodity dropped 5.62 percent after the Energy Information Administration reported a huge crude oil inventory build of 10.3 million barrels.
  • The worst performing sector this week was the S&P 1500 Oil & Gas Equipment and Services Index. The index dropped 4.79 percent after crude oil posted its sixth consecutive weekly drop, suggesting oil services activity may drop as a result. 
  • The worst performing stock for the week was Devon Energy Corp. The Oklahoma City-based oil and gas producer dropped 10.33 percent to a 52-week low after litigation concerns added to crude oil’s drop punished the stock. Bloomberg reported that a lawsuit in Texas claiming Devon didn’t pay high enough royalties to lessors is going through procedural hoops that will likely change settlement odds.


  • The dollar’s bull run has ended and it’s time to sell the currency, according to Morgan Stanley. “The U.S. dollar may weaken as credit spreads widen, equity prices fall, and sovereign bond yields also begin falling amid disinflationary pressure and falling oil prices,” Morgan Stanley’s global head of FX strategy Hans Redeker wrote in a note.

Speculators have raised bullish bets on the greenback to highest since January 2017
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  • Chinese officials outlined a series of potential concessions to the U.S. for the first time since the summer. The commitments fall short of the type of major structural reforms that Trump has been demanding, but one of the people said talks are continuing and constructive. The news lifted commodity prices as these concessions may set the stage for a productive Trump-Xi meeting at the G20 Summit later this month.
  • OPEC will do whatever it takes to keep the global oil market in balance. U.A.E. Energy Minister and OPEC President Suhail Al Mazrouei said the cartel will do whatever it takes to achieve balance in the oil market. That includes reaching a consensus at next month’s meeting around cutting production by the proposed 1.4 million barrels per day.


  • A tougher 2019 awaits the markets, Moody’s warned. Credit conditions will weaken in 2019 as global growth decelerates, rates rise, liquidity tightens and market volatility returns, said the credit rating agency. All that, against a backdrop of escalating trade, political and geopolitical risks. The year after will be even worse, said Elena Duggar, char of the Macroeconomic Board at Moody’s.
  • U.S. oil inventories swelled by 8.8 million barrels last week, API data indicated. That’s more than double the increase predicted in a survey and would be the biggest build since early 2017. U.S. crude oil production as estimated by the Energy Information Administration was also bearish in nature, showing that production for the week ending November 2 stood at 11.6 million barrels per day (bpd)—a brand new high for the United States.
  • China’s winter curbs on steel mills may be more pronounced than expected, according to people familiar with the situation. Deutsche Bank joined Barclays in saying restrictions will have a deeper impact on steel production this year than in 2017. With steel production running at a record 82.55 million tons, it does appear Chinese market participants are maximizing production ahead of the curbs, suggesting a sharp slowdown in manufacturing activity may await over the winter months.

Who wins the matchup men vs women

Emerging Europe



  • Hungary was the best performing country this week, gaining 1.9 percent. Strong economic data supported stocks trading on the Budapest stock exchange. Gross domestic product (GDP) growth was reported at 4.8 percent. The country’s central bank is expected to leave its main rate unchanged at 90 basis points next week, which is a record low.
  • The Russian ruble was the best performing currency this week, gaining 2.9 percent against the U.S. dollar. The ruble appreciated after a U.S. senator earlier this week said that lawmakers are unlikely to consider the possibility of harsher sanctions until next year.
  • Industrial was the best performing sector among eastern European markets this week.


  • Greece was the worst performing country this week, losing 2.8 percent. Banks declined the most among stocks trading on the Athens stock exchange. MSCI announced its exclusion of three Greek banks from its index, with rebalancing set to take place at the beginning of December.
  • The Polish zloty was the worst relative performing currency this week, gaining 2 basis points against the U.S. dollar. Investor confidence weakened following a scandal surrounding the Polish Financial Supervision Authority that ended with the head, Marek Chrzanowski, resigning after accusations of bribery surfaced.
  • Information technology was the worst performing sector among eastern European markets this week.


  • GDP data in central and Eastern Europe came in surprisingly to the upside despite a sharp slowdown in the Eurozone. Poland recorded growth of 5.4 percent in the third quarter, above expectations of 4.6 percent growth. Hungary grew at 4.8 percent, above the expected 4.4 percent. On the other hand, the Czech Republic published weaker year-over-year growth in the third quarter of 2.3 percent, versus the expected 2.6 percent. Germany, the Eurozone’s strongest economy, contracted by 20 basis points in the third quarter and is growing at only 1.1 percent on an annual basis. Eurozone GDP expanded by 1.7 percent year-over-year, slowing down sharply from growth of 2.7 percent in the fourth quarter of 2017.

East European Union economies are suprisingly resilient to Euro areas slowdown
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  • Russian companies are preparing to establish a large online store. According to Morgan Stanley, starting next year investments into e-commerce will be increased, eventually boosting the e-commerce value in Russia to $52 billion by 2023, up from $19 billion in 2018. Russia could soon develop its own versions of Amazon, Facebook and Google. However, the country must first improve the process of getting goods to its customers efficiently. The Russian post office just two years ago began delivering packages to apartments in cities, as private courier services are too expensive for most consumers.
  • Poland’s budget deficit in 2019 is projected to be the lowest since 2009, according to the country’s finance minister. The government is steadily reducing its debt by taking advantage of positive economic trends. The country’s budget deficit is expected to be no more than PLN 28.5 billion ($7.6 billion) next year, while the target for the general government deficit is 1.8 percent of GDP.


  • According to Bloomberg News, private sector money is leaving Russia at the fastest pace since the 2014 Crimea crisis due to the growing threat of new U.S. sanctions. More than $42 billion left the country in the first 10 months of this year and the central bank forecasts the number to rise to $66 billion for the whole year. Assets are also leaving Russia due to debt repayments, oligarchs buying foreign companies and Russians buying U.S. dollars.
  • The Russian economy expanded just 1.3 percent in the third quarter from a year ago, after gaining 1.9 percent in the previous three months. President Vladimir Putin pledged after his re-election in March to accelerate growth to a level that exceeds the global growth average of 3.7 percent. This could be harder to accomplish due to sanctions and financial isolations. However, Russia has been preparing for financial isolation and is expected to record a budget surplus this year and next. 

Russias defense measures against US penalties are hurting the economy
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  • Eurozone consumer confidence data will come out next week and Bloomberg analysts expect a weaker reading. Talks surrounding Italian debt, Brexit and trade wars are putting pressure on perceptions of future growth in the euro area.

China Region



  • China was the best performing country in the region this week, up 3.09 percent. UBS raised the nation’s stocks to overweight status. In addition, emerging market stocks gained on signs of progress in resolving the U.S.-China trade spat.
  • Telecommunications was the best performing sector this week, up 4.92 percent.
  • The world’s best performing sovereign notes so far this year have been China’s government bonds, reports Bloomberg, and may have even further to advance. China watchers attribute a the possibility of a further rally to a number of things including securities being supported by more monetary easing and stronger safe haven demand (amid lingering trade tensions), record corporate bond defaults and dropping stocks, the article reads.


  • Thailand was the worst performing country in the region this week, down 2.01 percent.
  • Energy was the worst performing sector this week, down 2.66 percent.
  • China’s new yuan loans and aggregate financing numbers both clocked in below analysts’ anticipated prints, and both numbers declined from the prior month’s readings. Analysts were looking for 905 billion in new loans; instead, they got just under 700. On the aggregate side of things, analysts were looking for 1.300 trillion; instead, they got a little over 700 billion. 


  • Slow but steady, “more a crawl than a sprint,” is how one Bloomberg News report this week described the ongoing opening of China’s financial services industry. The long-term outlook for foreign growth in that industry, and for possible boosts in foreign market share, has Bloomberg Economics projecting up to $32 billion in possible profits for foreign firms in China by the year 2030.

Bloomberg economics projects lucrative gains in market share for foreign firms
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  • Chinese shoppers now crave “experiences” with their bags, reads one Bloomberg headline this week. That statement comes from Louis Vuitton chairman for south and Southeast Asia, Australia and the Middle East, Ravi Thakran. According to Thakran, this shift mirrors a trend in Europe and the U.S., where consumers are increasingly interested in spending on entertainment and in the provenance of the luxury goods they buy. “The younger the customer, the greater the interest in shopping experiences,” Thakran explains.
  • Officials are blaming a “challenging external environment,” aka the trade war, for China posting its weakest growth in a decade, reports Bloomberg. However, despite the headlines, the macro-level impact of U.S. tariffs on China is tiny, the article reasons. China’s export growth has been strong and is set to record its best rate in 10 years, despite the trade war and largely thanks to U.S. strength. According to Business Insider, however, after being engaged in a trade war since July, U.S. President Donald Trump is now discussing the possibility of a trade deal with the Asian nation.


  • Trade war concerns will continue to remain a threat for the foreseeable future until some sort of truce or resolution on U.S.-China trade relations.
  • This week Taiwanese will vote whether the self-ruled island should compete in the next Summer Olympics under the name “Taiwan,” reports the South China Morning Post. According to the article, this is a “highlight controversial referendum that would not only provoke Beijing but also put the island’s government in a political dilemma if passed.” The question comes down to whether the island should compete in the 2020 Games in Tokyo under that name rather than “Chinese Taipei,” which has been used since 1981.
  • Bloomberg News noted this week that the People’s Bank of China (PBOC) removed its pledge to have "market supply and demand" play a bigger role in deciding the yuan rate. The line was cut from its third-quarter monetary report for the first time in five years.

Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended November 16 was Nasdacoin, up 568.24 percent.
  • Shell and BP are among a group of firms planning to launch a blockchain platform to automate and modernize commodities trading by the end of 2018, reports Coindesk. The news was revealed by the group building the platform, VAKT Global, on Monday during a digital commodities summit put on by S&P Global Platts.
  • CIMB Group, a Malaysian bank, joined Ripple’s blockchain-based payments network known as RippleNet this week, reports Seeking Alpha. This will speed cross-border payments, according to Coindesk, and will facilitate “instant” remittances through corridors such as Australia, the U.S., U.K. and Hong Kong, CIMB Group noted.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended November 16 was Olive, down 83.69 percent.
  • Bitcoin fell to its lowest level in over a year, dropping below $6,000 mid-week, reports Bloomberg. This 15 percent drop was the biggest since February, with other digital coins slumping as well. Ether, Litecoin and XRP, for example, fell more than 17 percent, the article continues.
  • According to court documents, attorneys for Ripple Labs and its affiliated defendants filed to move a combined class-action lawsuit to the U.S. District Court from its previous venue, reports Coindesk. This ongoing legal battle between XRP investors and payments startup Ripple is argued to match the requirements for a case to be brought before the higher, federal court, according to the defendants.


  • According to remarks made by Christine Lagarde on Wednesday at the Singapore Fintech Festival, the International Monetary Fund (IMF) thinks it’s time for global central banks to explore the idea of a state-backed digital currency, reports MarketWatch. “I believe we should consider the possibility to issue digital currency,” Lagarde said. “There may be a role for the state to supply money to the digital economy.”
  • A new company called Coinmine is working toward a way for everyday people to get involved in supporting cryptocurrency infrastructure, reports Coindesk. The startup revealed its first product on Wednesday, the Coinmine One, which is “a hardware device aimed at crypto enthusiasts who would like to earn rewards for mining blockchains – without the need to learn a new technical skill,” the article reads.
  • According to a press release issued on Wednesday, the New York State Department of Financial Services (DFS) granted a virtual currency license to the New York Digital Investment Group (NYDIG). This will allow NYDIG to offer liquidity and asset management services to New York residents, Coindesk reports.


  • Is corporate America’s blockchain and crypto fever over? Analysis of FactSet corrected transcripts taken from S&P 500 company earnings calls and analyst presentations shows this could be the case. As seen in the charts below, Axios reports that mentions of blockchain, bitcoin and cryptocurrency during presentations have fallen significantly over the last few quarters.

mentions of blockchain and cryptocurrency
click to enlarge

  • A verified Twitter account owned by Google is the latest to be hacked in order to host a cryptocurrency “giveaway” scam, reports Coindesk. The tweet attempted to scam users by offering a fake giveaway, prompting them to “send from 0.1 to 2 BTC to the address below and get from 1 to 20 BTC back,” the article continues.
  • After the mid-week drop in the price of bitcoin, many advocates are now asking how low it will go from here, particularly after a brief period of tranquility, reports Bloomberg. In addition, Thursday’s split of Bitcoin Cash into two cryptocurrencies has caused some concern about a possible miner exodus. The two digital currencies will go by the names of Bitcoin ABC (core Bitcoin Cash) and Bitcoin SV (Satoshi’s Vision), reports MarketWatch. “A hard fork is when developers and miners no longer agree on a proposed change to the software, despite operating on the same blockchain,” the article reads.

How government policies affect golds fear trade

Leaders and Laggards

Weekly Performance
Index Close Weekly
S&P/TSX Global Gold Index 165.71 +3.77 +2.33%
Gold Futures 1,222.20 +13.60 +1.13%
Natural Gas Futures 4.37 +0.65 +17.45%
S&P/TSX VENTURE COMP IDX 624.51 -26.91 -4.13%
10-Yr Treasury Bond 3.07 -0.11 -3.52%
Nasdaq 7,247.87 -159.03 -2.15%
Oil Futures 56.79 -3.40 -5.65%
Hang Seng Composite Index 3,531.19 +80.97 +2.35%
S&P 500 2,736.27 -44.74 -1.61%
DJIA 25,413.22 -576.08 -2.22%
Korean KOSPI Index 2,092.40 +6.31 +0.30%
Russell 2000 1,527.53 -21.96 -1.42%
S&P Energy 495.03 -10.65 -2.11%
S&P Basic Materials 345.15 +1.29 +0.38%
XAU 66.08 +1.92 +2.99%


Monthly Performance
Index Close Monthly
Natural Gas Futures 4.37 +1.05 +31.57%
S&P/TSX Global Gold Index 165.71 -3.49 -2.06%
10-Yr Treasury Bond 3.07 -0.14 -4.21%
Oil Futures 56.79 -12.96 -18.58%
Gold Futures 1,222.20 -5.20 -0.42%
S&P 500 2,736.27 -37.75 -1.36%
S&P Energy 495.03 -41.98 -7.82%
Hang Seng Composite Index 3,531.19 +124.17 +3.64%
DJIA 25,413.22 -293.46 -1.14%
Korean KOSPI Index 2,092.40 -75.11 -3.47%
Nasdaq 7,247.87 -394.83 -5.17%
S&P Basic Materials 345.15 +6.05 +1.78%
Russell 2000 1,527.53 -62.07 -3.90%
S&P/TSX VENTURE COMP IDX 624.51 -68.61 -9.90%
XAU 66.08 -3.78 -5.41%


Quarterly Performance
Index Close Quarterly
Natural Gas Futures 4.37 +1.46 +50.21%
10-Yr Treasury Bond 3.07 +0.20 +7.12%
DJIA 25,413.22 -145.51 -0.57%
Oil Futures 56.79 -8.67 -13.24%
S&P 500 2,736.27 -104.42 -3.68%
Gold Futures 1,222.20 +38.20 +3.23%
S&P Energy 495.03 -37.82 -7.10%
Nasdaq 7,247.87 -558.65 -7.16%
Korean KOSPI Index 2,092.40 -148.40 -6.62%
S&P Basic Materials 345.15 -18.30 -5.04%
Russell 2000 1,527.53 -158.22 -9.39%
Hang Seng Composite Index 3,531.19 -140.47 -3.83%
S&P/TSX Global Gold Index 165.71 +10.67 +6.88%
S&P/TSX VENTURE COMP IDX 624.51 -48.66 -7.23%
XAU 66.08 +1.81 +2.82%


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 (09/30/2018):

Royal Dutch Shell
Pan American Silver Corp
Silver Lake Resources Ltd
SPDR Gold Shares
Teck Resources Ltd.


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

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index.
Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The Bloomberg Dollar Spot Index (BBDXY) tracks the performance of a basket of 10 leading global currencies versus the U.S. Dollar. The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance.
Cash flow is the total amount of money being transferred into and out of a business, especially as affecting liquidity.
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 Conference Board index of leading economic indicators is an index published monthly by the Conference Board used to predict the direction of the economy’s movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy.
There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.
S&P/TSX Capped Diversified Metals and Mining Index is an index of companies engaged in diversified production or extraction of metals and minerals.
The S&P 1500 Supercomposite Oil & Gas Equipment & Services Index is a capitalization-weighted index comprised of stocks whose primary function is equipment and services for natural gas and oil resources.
The London Metals Exchange Index (LMEX) is an index on the six designated LME primary metals contracts denominated in US dollars. Weightings of the six metals are derived from global production volume and trade liquidity averaged over the preceding five-year period. The index value is calculated as the sum of the prices for the three qualifying months multiplies by the corresponding weights, multiplied by a constant.
The CBOE Volatility Index, known by its ticker symbol lVIX, is a popular measure of the stock market’s expectation of volatility implied by S&P 500 index options, calculated and published by the Chicago Board Options Exchange (CBOE).