Investors Shift Back into Gold as Trump’s Honeymoon Period Ends

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

That didn’t take long.

After little more than two weeks, President Donald Trump’s honeymoon with Wall Street appears to have been put on hold—for the moment, at least—with major indices making only tepid moves since his January 20 inauguration. That includes the small-cap Russell 2000 Index, which surged in the days following Election Day on hopes that Trump’s pledge to roll back regulations and lower corporate taxes would benefit domestic small businesses the most.

click to enlarge

And therein lies part of the problem. Although the president managed to sign an executive order this week requiring the elimination of two federal regulations for every new rule that’s adopted (and today ordered a review of Dodd-Frank and former President Obama’s fiduciary rule), other campaign promises that initially excited investors—tax reform and an infrastructure spending deal among them—might have already hit a roadblock.

According to Reuters, a three-day meeting in Philadelphia between President Trump and congressional Republicans ended in a stalemate, with it looking less and less likely that tax reform will happen during Trump’s first 100 days in office—perhaps even the first 200 days. As for infrastructure, several Republicans were reportedly wary of committing to such an enormous spending package before more complete details become available.

Meanwhile, Trump’s seven-nation travel ban has received a lukewarm—and, in some cases, hostile—reception from many in the business world who have traditionally depended on foreign talent. That’s especially the case in Silicon Valley, where close to 40 percent of all workers are foreign-born, according to the 2016 Silicon Valley Index. (Around the same percentage of Fortune 500 companies were founded by immigrants or children of immigrants, including Steve Jobs, whose biological father was Syrian.) One of the more dramatic responses toward the travel ban was Uber CEO Travis Kalanick’s dropping out of Trump’s business advisory panel, following an outcry from users of the popular ride-sharing app who saw his participation with the president as an endorsement of his immigration policies.

I’ve shared with you before that the media often take Trump literally but not seriously, whereas his supporters take him seriously but not literally. I think it’s evident that the market is finally coming to terms with the fact that Trump, unlike every other politician before him, actually meant everything he said on the campaign trail, including his more protectionist and nationalist ideas.

Although I don’t necessarily agree with Trump’s plans to raise tariffs, withdraw from free-trade agreements and restrict international travel, it might be easy to some to see why he feels American companies need protecting from foreign competition. This week I’ve been attending the Harvard Business School CEO Presidents’ Seminar in Boston, and among the topics discussed is China’s ascent as an economic and corporate juggernaut. Take a look at the chart below, using data from Fortune Magazine’s annual list of the world’s 500 largest companies by revenue. Whereas the U.S. has lost ground globally over the past 20 years, China’s share of large companies has exploded, from having only three on the list in 1995 to 103 in 2015. The number of Japanese firms, meanwhile, has more than halved in that time.  

click to enlarge

I will say, while I’m on this topic, that the uncertainty and unpredictablilty surrounding Trump has given active management a strong opportunity to demonstrate its value in the investment world. Assessing the risks and implications of his actions, policies and tweets, which change daily, really requires a human touch that fund managers and analysts can provide.

Dollar Down, Gold Up

One of those implications is the U.S. dollar’s decline. Following Trump’s comment that it was “too strong” and hurt American exporters’ competitiveness, currency traders shorted the greenback, causing it to have the worst start to a year since 1987.   

click to enlarge

This, coupled with a more dovish Federal Reserve, expectations of higher inflation and growing demand for a safe haven, has helped push gold prices back above $1,200 an ounce. January, in fact, was the best month for the yellow metal since June, when Brexit anxiety and negative government bond yields sent it to as high as $1,370.

click to enlarge

Demand for gold as an investment was up a whopping 70 percent year-over-year in 2016, according to the World Gold Council. Gold ETFs had their second-best year on record. But immediately following the November election, outflows from gold ETFs and other products accelerated, eventually shedding some 193 metric tons.

But now, just two weeks into Trump’s term as president, the gold bulls are banging the drum, with several large hedge fund managers taking a contrarian bet on the precious metal.    

Inflationary pressures are indeed intensifying. U.S. consumer prices rose 2.1 percent in December year-over-year, their fastest pace since 2014, and inflation across the globe is beating market forecasts, with the Citi Global Inflation Surprise Index turning positive for the first time since 2012. Anything above zero indicates that actual inflation is stronger than expectations for the month.

click to enlarge

OPEC Making Good on Production Agreement

Among the commodities showing resilience right now is oil, especially on reports that the Organization of Petroleum Exporting Countries (OPEC) is 60 percent of the way to reaching its output target after agreeing to cutting production in early December for the first time since 2008.

click to enlarge

Of course, this news is tempered by analysts’ expectations that U.S. producers will export more crude than four OPEC members combined in 2017. According to Bloomberg, the U.S. could sell as much as 800,000 barrels a day overseas, which is more than Libya, Qatar, Ecuador and Gabon produced in December.

Index Summary

• The major market indices finished mix this week.  The Dow Jones Industrial Average lost 0.11 percent. The S&P 500 Stock Index rose 0.12 percent, while the Nasdaq Composite climbed 0.11 percent. The Russell 2000 small capitalization index gained 0.52 percent this week.
• The Hang Seng Composite lost 0.69 percent this week; while Taiwan was up 0.08 percent and the KOSPI fell 0.50 percent.
• The 10-year Treasury bond yield fell 1 basis point to 2.46 percent.

Domestic Equity Market

click to enlarge

Strengths

• Health care was the best performing sector of the week, increasing by 2.44 percent versus an overall increase of 0.12 percent for the S&P 500.
• Mead Johnson Nutrition was the best performing stock for the week, increasing 18.02 percent.
• Facebook had a blockbuster quarter. The social-media giant earned $1.41 a share as revenue exploded by 51 percent versus a year ago to $8.81 billion. Both monthly active users and daily active users outpaced Wall Street estimates.

Weaknesses

• Telecommunications was the worst performing sector for the week, falling 1.90 percent versus an overall increase of 0.12 percent for the S&P 500.
• Under Armour was the worst performing stock for the week, falling 28.94 percent.
• GoPro tumbled after missing big on revenue and guidance. The maker of action cameras tumbled by more than 10 percent in after-hours trading on Thursday after announcing that revenue for the crucial holiday quarter fell by 5.7 percent versus a year ago to $540.6 million. Additionally, GoPro expects first-quarter revenue of $190 million to $210 million versus the Wall Street estimate of $267.6 million.

Opportunities

• Warren Buffett revealed that he has bought $12 billion of stock for his company Berkshire Hathaway Inc. since the Republican Donald Trump beat Democrat Hillary Clinton in the November 8 U.S. presidential election.
• Short sellers are piling into Tesla. Short interest in Tesla has surged to more than 35 percent of the float, or shares available to the public, as the stock has rallied nearly 20 percent this year. This could be turn out to be an opportunity for a short squeeze if the company delivers its promised growth.
• Snap — the parent company of Snapchat — will list its stock on the New York Stock Exchange. The company’s IPO filing was released this week. The company is expected to value itself between $20 billion and $25 billion.

Threats

• Chipotle’s revenue came up a bit short. The burrito chain announced adjusted earnings per share of $0.55 and a same-store sales decline of 4.8 percent, both in line with estimates. Its revenue of $1.03 billion was a tad shy of the $1.04 billion that analysts were expecting.
• Ralph Lauren’s CEO resigned suddenly and the stock tanked. CEO Stefan Larsson stepped down after butting heads with founder Ralph Lauren. The company also reported a 12 percent drop in sales during the holiday season. The stock fell by just over 12 percent during trading.
• Apple’s revenue forecast misses. The tech giant earned $3.36 a share on revenue of $78.4 billion, both ahead of estimates. However, its revenue forecast was light, coming in at $51.5 billion to $53.5 billion, versus the Wall Street estimate of $53.8 billion.

The Economy and Bond Market

Strengths

• Private payrolls crushed expectations in January. The measure of private hiring showed 246,000 private sector jobs were added, much higher than the 168,000 expected by economists.
• America’s service industries expanded in January at about the same pace as in the previous month, indicating resilience in the biggest part of the economy. The Institute for Supply Management’s non-manufacturing index was 56.5 last month after December’s 56.6 that matched the highest level since October 2015.
• The latest factory orders report confirms the end of the roughly year-long capital spending recession that commenced in the final quarter of 2015. The improvement in factory output came about despite a stronger dollar, higher borrowing costs and increased energy prices. Manufacturers are apparently growing optimistic with the Trump administration’s intentions to cut red tape and ease government regulations. Total U.S. factory orders advanced 1.3 percent in December, exceeding the consensus estimate of a 0.5 percent gain.

Weaknesses

• Treasuries were lower in late trading Friday after erasing gains sparked by January’s employment report, which showed a smaller than expected increase in average hourly earnings. Yields accelerated higher after San Francisco Fed President John Williams said there’s an argument for raising rates in March. The yield curve has continued to steepen, pushing the spread between 5 and 30-year bond yields above 119 basis points for the first time since mid-December.

click to enlarge

• Business activity in the Midwest fell January, with the Chicago Purchasing Manager’s Index dropping to 50.3 from a downwardly revised 53.9. Tuesday’s reading was the lowest in 11 months and has the index teetering on the edge of contraction. (Any print below 50 represents contraction.) 
• Average hourly earnings in January rose 2.5 percent from a year ago, the weakest since August.

Opportunities

• Personal spending and personal consumption expenditure (PCE) inflation met expectations. Personal spending jumped 0.5 percent from the month before and core PCE inflation increased 0.2 percent in December, both matching expectations. The continued growth in personal spending bodes well for consumer spending trends.
• The Dallas Fed Manufacturing Index hit its highest level since April 2010. The measure of Texas manufacturing came in at 22.1, well above expectations of 15.0 from economists. This could be a sign that the oil-related rout has bottomed and is turning around.
• President Donald Trump signed an executive order on Friday that establishes a framework for scaling back the Dodd-Frank financial reform law enacted in the wake of the global financial crisis. Also set for review is the U.S. Department of Labor’s fiduciary rule, which had been scheduled to take effect in April.

Threats

• Several Federal Reserve officials have recently floated the idea that the central bank will begin to shrink its $4.4 trillion balance sheet, perhaps as early as this year, in an effort to tighten monetary policy and start to reverse some crisis-era decisions. However, Ben Bernanke, the former Fed chairman, came out strongly against any deliberate Fed action on the balance sheet, saying it could cause unnecessary market turmoil.
• Trump continued his tough talk on NAFTA. Trump said the North American Free Trade Agreement has been a "catastrophe" for the U.S. and he wants to either have it changed or completely ripped up.
• Ray Dalio is getting worried about Trump’s policies. The head of Bridgewater Associates, the world’s largest hedge fund, said in a letter to clients that the firm is "increasingly concerned about the emerging policies of the Trump administration."

Gold Market

This week spot gold closed at $1,219.83, up $28.53 per ounce, or 2.39 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 5.58 percent. Junior tiered stocks underperformed seniors for the week, as the S&P/TSX Venture Index climbed just 1.19 percent. The U.S. Trade-Weighted Dollar Index finished the week down by 0.77 percent.

Strengths

• The best performing precious metal for the week was gold, followed by silver, with a 2.03 percent gain.  Nearly $1.6 billion went into the 10 precious metal-backed ETFs that have attracted the most money in January, reports Bloomberg. Frankfurt-listed Xetra-Gold drew in more than any other commodity ETF.
• The Royal Mint in London reports that coin sales are on the rise amid political turmoil, with sales to Germany more than doubling in volume last year and sales to the U.K. rising by over a quarter. Chris Howard, the director of bullion at the Royal Mint, says that coin and bar production is up 50 percent compared with a year ago. The group expects similar growth this year through expansion in the U.S. and German markets.
• Political concerns from the EU to the U.S. sent gold rebounding to a three-year high in 2016. According to the World Gold Council, purchases through exchange-traded funds helped global demand climb about 2 percent to 4,309 metric tons last year. This was driven by inflows into gold-backed ETFs of 532 tonnes, offsetting a decline in coin and jewelry demand.

Weaknesses

• The worst performing precious metal for the week was palladium, rising just 1.11 percent.  Russia’s Norilsk Nickel noted that they plan to increase production of palladium in 2017.
• Underwriters that announced a bought deal price of $7.95 per share to raise $250 million for Alamos Gold experienced a hung deal early in the week with few investors requesting allotments.  The shares were subsequently repriced to $7.25 a share to clear the order books later in the week, according to two people familiar with the offering who told Bloomberg.
• Gold Resource reports the suspension of operations for up to 48 hours this week, after an employee died in a heavy-equipment accident in the Arista mine in Mexico, reports Bloomberg. In an unrelated accident, another Arista mine worker died as a result of a ground fall event.

Opportunities

• Gold is sending a “canary in the coal mine” signal for the U.S. dollar, reports Bloomberg, and a lot of it has to do with President Trump rattling the markets. Some of the Trump administration moves this week include the following: A dust-up with Australian Prime Minister over a refugee-resettlement deal, a trade adviser to Trump saying Germany is benefitting from a “grossly undervalued” currency – sending the euro up, and Trump’s firing of the nation’s acting attorney general for criticizing his immigration travel, just to name a few. This sent investors searching for gold as a safe-haven. Joni Teves, the top LBMA forecaster with UBS, says she sees the metal rising in 2017 to an average of $1,350 an ounce.
• Argentina’s Federal government is said to be drafting a bill with state governors to attract mining investment in the country. Such a bill would reconcile federal and state legislation, reports Bloomberg. The government wants a final draft by next month to send to Congress for approval by March 1.  Some provinces have bans on certain mining processes which are more restrictive than at the federal level, and potentially some stalled projects may be able to move forward in the permitting process.
• Strategists at BMO Capital Markets think President Trump may be spending all of his political capital on his initial moves a little too fast, and burning bridges in the process. The group’s theory is that this may hinder the push through of Trump’s pro-business agenda; also lowering the probability of meaningful fiscal stimulus anytime soon, reports Bloomberg. As the Fed deals with Trump uncertainty, prices and trading volumes surged Thursday on call options, as seen in the chart below, giving holders the right to buy bullion at higher prices. Similarly, on Wednesday investors poured $413 million into the largest ETF backed by gold, recouping almost half of the money that exited last month, Bloomberg data shows.

click to enlarge

Threats

• At least 10 bills to limit protests have been introduced in recent months by Republicans in statehouses across the U.S., reports Bloomberg, with the goal of regulating public dissent as demonstrators take to the streets to protest Trump. The bills range from a possible protection in North Dakota for motorists who unintentionally kill protestors blocking roads, to a bill in North Carolina which would call for imprisoning people who taunt ex-officials. “I’ve been monitoring free speech legislation for about a dozen years now, and I’ve never seen anti-protest legislation in the states anywhere near as large as we’re seeing now,” Lee Rowland, senior staff attorney for the American Civil Liberties Union said.
• A New York federal appeals court overturned the dismissal of a lawsuit alleging traders at JPMorgan Chase & Co manipulated the silver-futures market, writes Bloomberg. In an order on Wednesday, the appeals court said that U.S. District Jude Paul Engelmayer demanded too high a level of evidence for an independent silver and gold futures trader to overcome the bank’s request for the suit to be thrown out. Similarly, the judge “engaged in impermissible fact-finding” by questioning the plaintiff’s data analysis, Bloomberg continues. JPMorgan isn’t the only Wall Street bank in this situation – many others have been pegged with allegations of silver-market manipulation for nearly a decade.  Maybe the system isn’t rigged as opinion polls have suggested?  Nah!
• Following an environmental audit, 23 mines in the Philippines have been shut down, reports Bloomberg, and five mines are under suspension. One of the companies affected by the Philippines suspension case is OceanaGold, whose Nueva Vizcaya province is the subject of a proposed suspension order citing alleged declining agricultural production. Following the news, Oceana tumbled as much as 18 percent in overnight trading in Australia, the most since February 2009, but fared better when Canadian markets opened.  B2Gold also has a mine in the region that has been subject to review.

Energy and Natural Resources Market

Strengths

• Natural gas was the best performing commodity this week rallying 5.83 percent on the back of falling inventories last week. Inventories fell by 87 billion cubic feet (BCF) to 2,711 BCF. As the weather system on the Eastern seaboard shifts toward a cold front over the following week, natural gas prices may continue to move upward. A positive read-through for natural gas prices.
• The best performing sector for the week was the S&P/TSX Composite Gold Sub Industry index. The index rose 5.55 percent on the back of rallying gold prices.
• Newcrest Mining Limited, a gold and copper mining company based out of Australia, was the best performing stock this week finishing up 7.64 percent. The stock rallied on the back of rising gold prices and an operating report that indicated an increase in copper output last quarter.  

Weaknesses

• The Caixin Manufacturing PMI in China dropped for the month of January to 51 from 51.9 in December. Although the country has consistently experienced growth for the past seven months and has averaged 49.5 from 2011 to 2017, this print missed market expectations of 51.8. The key factors that contributed to the drop were a slowdown in the pace of manufacturing output and a slowdown in new orders. A negative read-through from the world’s engine of growth.
• The worst performing sector this week was the FTSE 350 Mining Index. The index fell 3.58 percent on the back of a retreat in BHP Billiton’s share price as the miner deals with a strike from one of its key assets, Escondida, the world’s largest copper mine
• The worst performing stock for the week was Fibria Celulose SA , one of the world’s largest pulp and paper companies based in Brazil. The company fell 13.35 percent on the back of a loss in the company’s fourth quarter last year.

Opportunities

• Business sentiment is turning the corner in the U.S. as the Morgan Stanley Composite Capex Plans Index climbed to 22.8 in January for a total post-election gain of more than 10 points, a reading not seen since 2011, according to Bloomberg. For the first time in over a year, both residential and non-residential investment, made positive contributions to GDP growth in the fourth quarter of 2016. A positive read-through for raw material demand.

click to enlarge

• The price of oil rallied on the back of worries surrounding U.S. sanctions on Iran, according to Reuters. In response to Tehran’s ballistic missile test, President Trump has warned that “Iran is playing with fire.” The newly elected president’s temperament is being tested by Iran and may soon be tested by Russia and China, which will add further support to the price of crude oil in response to geopolitical issues.
• On Wednesday of this week an offer put through by BHP Billiton, one of the world’s largest mining companies, to stop a strike was rejected at the company’s Escondida mine, according to the Financial Times. Escondida is the world’s largest copper mine accounting for 3,400 tonnes of output each day. As the strike continues, global supply will tighten which may further support higher copper prices in the near term. A positive read-through for copper prices

Threats

• The Peoples Bank of China has asked local banks to control their mortgage releases, according to a research report released by UBS this week. The bank’s property team is expecting tighter liquidity conditions in the Chinese property market through 2017 in attempts to cool down a heated market. The bank also stated that credit conditions in China tend to drive steel and iron ore prices by 3-6 months; a negative read-through for these industrial commodities.
• Gold had its best monthly performance since June of last year; however, the shiny metal’s rally may come into question as the U.S. Federal Reserve tightens policy and the US dollar continues to appreciate. According to Bernard Dahdah, an analyst at Natixis, a combination of factors potentially stand in the way of gold’s future as interest rates in the U.S. are on the rise and an environment of economic growth will most likely boost base metals prices but hamper the price of gold.
• According to an article in Reuters this week, long-term investors have yet to participate in the current commodity rally as they have been burnt from the previous commodity boom. There is little evidence that the surging prices are tempting pension funds and other long-term investors to allocate toward commodities. Instead, these investors are opting to invest in assets related to property, infrastructure, and shares in natural resource companies rather than the resources themselves, which may potentially threaten price stability in the near term.

China Region

Strengths

• The official China Manufacturing PMI came in at 51.3, slightly ahead of expectations for 51.2 (and down slightly from 51.4 in December). The Caixin Manufacturing PMI at 51.0 did miss expectations for 51.8 print (and was down from 51.9 in December). However, the export order index of the Caixin manufacturing PMI outperformed in January, Bloomberg reports, highlighting the export order index’s rise to the highest level since 2014.
• The Nikkei Indonesia Manufacturing PMI rose from a contractionary 49.0 to a mildly expansionary level of 50.4 for the January period.
• Both exports and imports came in higher than expected in Korea, as year-over-year exports rose 11.2 percent for the January period—ahead of expectations for a 9.0 percent print—and year-over-year imports rose 18.6 percent, well ahead of expectations for a rise of only 10.1 percent.

Weaknesses

• The Nikkei Philippines Manufacturing PMI for the January period came in at 52.7, and, while still expansionary, represents something of a stumble from the December result of  55.7.  Separately, the Philippines’ anti-mining Environment Secretary Gina Lopez announced “a stand for social justice” in a press briefing in which it was made clear that some 23 mines will be closed and another 5 suspended.  President Rodrigo Duterte announced his support for the measures.
• The Nikkei Taiwan Manufacturing PMI came in at 55.6, down from 56.22 in December.
• Malaysia’s January period Nikkei Manufacturing PMI print of 48.6 continues to languish in contractionary territory, though it rose from the prior month’s showing of 47.1.

Opportunities

• Included within India’s budget announcement this week is an allotment for a record 3.96 trillion rupees (roughly $59 billion) in infrastructure spending.
• Early next week we get Indonesian GDP readings for the fourth quarter.  From an initial baseline of 4.8 percent Indonesian officials have raised expectations to more than 4.9 percent, and present survey data are looking for a level of just over 5.0 percent.  Indeed we shall see.
• The ongoing Regional Comprehensive Economic Partnership (RCEP) talks will continue in Japan this month as many of the region’s nations consider viable trade-deal alternatives to the stillborn Trans-Pacific Partnership.  Notably, the RCEP would not require steps to protect labor rights or boost environmental standards—setting something of a “lower bar,” if you will. It is also notable that China is a driving force behind these talks, a significant change from TPP, from which China remained conspicuously absent.

Threats

• As noted above, the high levels of the export order index of the Caixin China Manufacturing PMI remains positive—but one must also consider the downside of higher export levels, namely, that in the event of a trade spat with the United States, such exports could drop rapidly and with negative effects.  Details on U.S.-China trade policy in the new Trump administration remain forthcoming.
• Continuing the issue of trade, Indonesia’s finance minister Chatib Basri stated this week that while it is still quite early in the new U.S. administration and while policies are still being set, he nonetheless remains concerned that new U.S. policies could damage trade within the region, either directly or via ripple effects.  Exports have risen in recent years in Indonesia, climbing almost 16 percent in 2016.  All countries in the region will be keen to discuss the RCEP further, but Indonesia has arguably less to lose in the event of a U.S. trade disruption than other countries in the region like Vietnam and the Philippines.

click to enlarge

• At the end of last week, Thailand raised its levy on jet fuel, increasing the tax 20-fold and bringing it in line with other fuels.  The move, Bloomberg News argues, may add to additional challenges facing Thai airlines, including increasing competition and an FAA-safety-rating downgrade from the end of 2015. 

Emerging Europe

Strengths

• Turkey was the best performing country this week, gaining 5.4 percent. Investors might be buying Turkish equites with an expectation that the worst is over after Fitch downgraded the country and now all three rating agencies rate it below investment grade. The Executive Presidency referendum is still on the agenda for the beginning of April.
• The Turkish lira was the best performing currency this week, gaining 4.9 percent against the U.S. dollar. The lira strengthened over the past few days, but many analysts believe that its recovery won’t last without a sharp rate hike. The UBS team predicts the lira to weaken by another 5 percent by the end of next month and is far from being undervalued.
• The real estate sector was the best performing sector among eastern European markets this week.

Weaknesses

• Russia was the worst performing country this week, losing 1.7 percent. Despite strong economic data being published, Russian equities underperformed with the biggest losses noticed in Tatneft, Transneft and Severstal. Brent crude oil appreciated 2.3 percent.
• The Czech kurona was the worst performing currency this week, losing 75 basis points against the U.S. dollar. The Czech central bank won’t rush to exit its Swiss-style currency cap and sticks to its mid-2017 time frame for the move, even as it forecasts higher inflation for this year.
• The energy sector was the worst performing sector among eastern European markets this week.

Opportunities

• Eurozone Manufacturing PMI hit a new 69-month high, reaching 55.2 in January, mainly driven by strong readings in France and Germany. The chart below shows the eurozone, German and France PMI well above the 50 mark, which separates growth from contraction.

click to enlarge

• Russia’s gross domestic product contracted 0.2 percent last year, beating forecast estimates for a 0.5 percent drop and edging closer to exiting its longest recession in almost two decades. Industrial production rose an average 0.5 percent last year, after dropping 3.4 percent in 2015. Russia’s Manufacturing PMI rose to the highest level in almost six years in January. The country estimated 0.6 percent GDP in 2017.
• The U.S. Treasury Department amended former President Obama’s most recent slate of Russian sanctions to allow U.S. technology companies to export products to Russia. American companies will be allowed to seek licenses from Russia’s Federal Security Service (FSB) to export its goods as long as the products are not used in Crimea and do not violate pre-existing sanctions. FSB was one of several entities sanctioned by Obama in December related to Russian hacking into the Democratic political organization.

Threats

• European Union President, Donald Tusk, listed the Trump administration as a threat alongside China, Russia, terrorists and radical Islam, saying that the new American administration makes the eurozone’s future highly unpredictable. If the EU doesn’t come together, it will come apart. It is a really difficult moment, he said.
• The Romanian government issued an emergency decree decriminalizing abuse-of-office offenses that resulted in less than 200,000 lei ($48,000) of damage. Europe’s second poorest nation ranks fourth worst for graft in the EU, and in the past two years alone sent more than 1,000 people to trail for the abuse of the office seeking to recover more than 1 billion euros. In the biggest street protests since the fall of Communist rule in 1898, Romanians demand the resignation of government officials.
• Reports suggest that Greece has not completed much more than a third of the measures that were agreed upon in order to release the next aid tranche from the 86 billion euros package. According to Marc Chandler from Brown Brothers Harriman & Co. the official creditors expect Greece to hit its fiscal target, but the problem is 2018, when the primary surplus (budget balance before debt servicing) needs to increase to 3.5 percent of GDP versus estimated 2.3 percent in 2016.

Leaders and Laggards

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.

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

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 12/31/2016:
Alamos Gold Inc. – Class A
BHP Billiton Ltd.
OceanaGold Corp
MMC Norilsk Nickel PJSC
Severstal PJSC

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

The Morgan Stanley Composite Capex Plans Index is a three month moving average of a population-weighted composite compiled from monthly regional Federal Reserve Bank surveys measuring 6-month capex plans and tends to lead growth in equipment investment by 3 months.
A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).
The Citi Global Inflation Surprise Index measure price surprises relative to market expectations. Readings below zero indicate that actual inflation is below market expectations, where readings above zero indicate that inflation is above expectations.
The FTSE 350 Mining Index is a capitalization-weighted index of all stocks designed to measure the performance of the mining sector of the FTSE 350 Index. The index was developed with a base value of 1000 as of December 31, 1985.
The S&P/TSX Composite Gold Sub Industry Index is composed of a subset of the constituents of the S&P/TSX Composite Index that have been classified according to the Global Industry Classification Standard. The index was developed with a base value of 1000 as of 1975.
The Caixin China PMI is a composite indicator designed to provide an overall view of activity in the manufacturing sector and acts as a leading indicator for the whole economy.
The ISM Nonmanufacturing index based on surveys of more than 400 non-manufacturing firms’ purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non-Manufacturing Index tracks economic data, like the ISM Non-Manufacturing Business Activity Index. A composite diffusion index is created based on the data from these surveys that monitors economic conditions of the nation.
The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity.
The PCE Deflator is a nation-wide indicator of the average increase in prices for all domestic personal consumption.