“Mother of All Bubbles” Keeps Gold in Focus

Author: Frank Holmes
Date Posted: July 21, 2017 Read time: 49 min

Today I want to discuss reports that global debt levels are at all-time highs, and what this means for your investment decisions going forward.


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

global debt bubble

Today I want to discuss reports that global debt levels are at all-time highs, and what this means for your investment decisions going forward.

But first, a few comments about this past week. I recently returned from the Oxford Club’s Private Wealth Seminar, held at the historic Grand Hotel on Michigan’s Mackinac Island. The hotel, which some of you might remember as the setting for the 1980 film “Somewhere in Time,” starring Christopher Reeve and Jane Seymour, took a mere 93 days to build in the 1880s—impossible by today’s standards, especially when you consider that it boasts the world’s largest front porch at 660 feet.

While there, I had the privilege of catching up with some old friends and contacts, including Alex Green, the Oxford Club’s chief investment strategist. You might have read some of his wonderful work for Investment U, the group’s educational arm.

Alex reminded me over lunch that the difference between Democrats and Republicans, in his view, is that Democrats are for personal freedom and some economic restrictions, while Republicans are for economic freedom and some personal restrictions.

I prefer to focus on policies instead of partisan politics, but Alex has a point. I’m convinced that Donald Trump, a Republican, won the presidential election because his pledge to reform the tax code and deregulate resonated with both white-collar and blue-collar Americans who felt as if the U.S. economy was no longer working for them. U.S. corporate taxes are among the highest in the Organization for Economic Cooperation and Development (OECD), spurring large multinationals to move operations overseas, and out-of-control regulations threaten to strangle business growth.

But just as Green insinuated, the Trump administration has enacted, or has hinted at enacting, policies that rankle Americans of all political stripes, precisely because they could be used to encroach upon personal liberties.

Take Attorney General Jeff Sessions’ recent decision to strengthen the government’s ability to seize private property from suspected criminals. (The operative word here is “suspected.”) Many now are arguing this directive could be abused by police and other officials. It could, in fact, violate the Fourth Amendment, which of course protects Americans against “unreasonable searches and seizures.”

This is just one among numerous policy-making decisions that have members of both political parties, as well as independents, scratching their heads. Trump was elected to reform taxes, slash regulations and generally make business and capital formation run more smoothly. It’s unclear how private-asset seizures fit into that picture.

If this administration resolved to stay on message and on course, and worked to bring fiscal relief to everyday Americans, it might receive greater support from those who voted for Trump—and perhaps even from those who didn’t.

U.S. Dollar in Bear Market, a Boon for Gold

Since the start of the year, the five-year Treasury yield, adjusted for inflation, has risen about 150 percent. Normally this would put remarkable pressure on the price of gold—higher yields raise the opportunity cost of buying gold—but over the same period, the U.S. dollar has steadily weakened and is now officially in a bear market. Because gold is priced in dollars, this has been supportive for prices. Year-to-date, the yellow metal is up more than 8 percent.

crosscurents impacting gold treasury yeild up dollar down
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As I said, the greenback’s been on the decline for most of the year so far, but it slumped to a 13-month low against the euro this week following European Central Bank (ECB) president Mario Draghi’s remark that “monetary accommodation” would continue in the European Union (EU) until at least the end of the year.

draghi ending ecb stimulus not there yet

“We need to be persistent and patient and prudent, because we’re not there yet,” Draghi said, referring to the fact that EU inflation and wage growth have been disappointingly slow, despite the bloc’s economic recovery since the financial crisis. (Indeed, the June purchasing manager’s indexes for emerging European markets were all above the key 50 mark for the first time in recent memory.)

UBS: We’re Still Constructive on Gold

That gold is still holding at its current level—despite rising rates, despite a stock market that continues to rally—is “encouraging.”

That’s one of the key takeaways from a UBS note this week, in which the Swiss financial services firm maintains its constructive view of the yellow metal. Investor demand this year has been slower than expected, but UBS analyst Joni Teves makes the case that expectations of a good monsoon season in India this summer could help push consumption in the world’s second-largest importer of gold to a new record high by the end of the year. With India having imported a phenomenal 525 metric tons in the first half of 2017 alone, Teves writes that “we expect gold demand in India this year to be around historic averages,” which would be very supportive for prices.

ETPs Attracted a Record $245 Billion in the First Half of 2017

Exchange-traded products (ETPs) also had a knockout first half. As Deutsche Bank reports this week, ETPs attracted a record $245 billion in the first six months of 2017, in what has historically been the weaker half of the year. To put into perspective just how impressive this figure is, $245 billion would be the second-largest full-year record amount following 2016’s $283 billion. We could see ETP inflows climb as high as $500 billion by the end of this year, Deutsche estimates.

exchange traded porducts etps see record 245 billion in inflows in first half of year
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Of course, runaway demand for ETPs and other risk assets has contributed to muted interest in gold.

Having said that, though, BullionVault—the world’s number one online precious metals market—reported last week that private gold holdings among its users leaped to a record 38 metric tons, as of the beginning of July. That’s enough gold to make more than 10 million 18-carat wedding rings, BullionVault says, or to supply the microchips for 1.5 billion iPhones. The site points out that investor demand has lately been driven by lower prices, following three months of “light liquidation.”

Global Debt on Alert

All of what I’ve said so far pertains to the near-term. Gold’s medium- to long-term investment case, I believe, looks even brighter. Many unsettling risks loom on the horizon—not least of which is a record amount of global debt—that could potentially spell trouble for the investor who hasn’t adequately prepared with some allocation in a “safe haven.”

According to the highly-respected Institute of International Finance (IIF), global debt levels reached an astronomical $217 trillion in the first quarter of 2017—that’s 327 percent of world gross domestic product (GDP). Notice that before the financial crisis, global debt was “only” around $150 trillion, meaning we’ve added close to $120 trillion in as little as a decade. Much of the leveraging occurred in emerging markets, specifically China, which is spending big on international infrastructure projects.

total global debt stands at all time high
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It goes without saying that this is a huge risk. Some are calling this mountain of debt “the mother of all bubbles,” and we all remember how the last two bubbles ended, in 2000 (the tech or dotcom bubble) and 2007 (the housing bubble).

Paying down this debt will not be easy. As Scotiabank mentions in a note this week: “Higher interest rates are going to make the burden of refinancing the debt considerably heavier, and as more money goes into servicing the debt, it means less money is available to spend on other things, which could lead to less infrastructure spending and increased austerity.”

Add to this the fact that global pension levels are also sharply on the rise, with people living longer and population growth—and therefore workforce growth—slowing in many advanced economies. In May, the World Economic Forum (WEF) estimated that by 2050, the size of the retirement savings gap—unfunded pensions, in other words—could be as much as $400 trillion, an unimaginably large number.

The U.S. alone adds about $3 trillion every year to the pension deficit. I shared with you earlier in the month that the State of Illinois’s unfunded pensions could be as high as $250 billion, putting each Illinoisan on the hook for $56,000.

Central banks’ efforts to promote economic growth through monetary easing haven’t exactly been a raging success, nor can they continue forever. Plus, near-zero interest rates are precisely what encouraged such inflated levels of borrowing in the first place.

You can probably tell where I’m headed with all of this. Another crisis could be in the works. Savvy investors and savers might very well see this as a sign to allocate a part of their portfolios in “safe haven” assets that have historically held their value in times of economic contraction.

Gold is one such asset that’s been a good store of value in such times, and gold stocks have tended to outperform the yellow metal as production costs have fallen, according to Seabridge Gold. I always recommend a 10 percent weighting in gold—5 percent in bars and coins; 5 percent in gold stocks, mutual funds or ETFs.

Curious about investing in gold

Index Summary

  • The major market indices finished mixed this week.  The Dow Jones Industrial Average lost 0.27 percent. The S&P 500 Stock Index rose 0.54 percent, while the Nasdaq Composite climbed 1.19 percent. The Russell 2000 small capitalization index gained 0.49 percent this week.
  • The Hang Seng Composite gained 1.20 percent this week; while Taiwan was down 0.07 percent and the KOSPI rose 1.47 percent.
  • The 10-year Treasury bond yield fell 10 basis points to 2.24 percent.

Domestic Equity Market

SP 500 Economic Sectors
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  • The utility sector was the best performing sector of the week, increasing by 2.59 percent versus an overall increase of 0.54 percent for the S&P 500.
  • Vertex Pharmaceuticals was the best performing stock for the week, rising 24.5 percent.
  • The pharmaceutical company reported positive data from its Phase1 and Phase 2 trials for cystic fibrosis patients.  The results are clear and compelling with one analyst calling it, “breakthrough – quality.”  Cowen increased its price target from $105 to $200.


  • The industrial sector was the worst performing sector of the week, declining 1.01 percent versus an overall increase of 0.54 percent for the S&P 500.
  • Chipotle was the worst performing stock for the week, declining 12.76 percent.
  • Chipotle’s shares were once the best performing of the fast casual restaurant industry, but as with food, stock prices can spoil too. The company’s shares slid to a new 52-week low on broker downgrades due to concerns over a norovirus outbreak at one of the Virginia locations, along with another detrimental video about rodents living in the ceiling at another location.


  • Where is the inflation?  According to Blackrock’s strategists, “technological innovation is disrupting traditional business models putting a lid on inflation.” The longer that inflation seems to be a non-event, the better the chances are the Fed keeps interest rates low.
  • Your company’s 401k match may be getting bigger.  Company matches are on pace to become 4.7 percent of an employee’s salary this year, up from 3.7 percent last year.  The reason behind the increase? The labor force continues to stay tight. If this trend continues, and more companies start competing on benefits, the stream of capital flowing into the markets from 401ks may become substantial.
  • Historically, shipping volumes were used as an indication of economic growth. More products shipped implied companies were “moving product.”  More products sold, meant more capital changing hands (which, in the future, should eventually show up in GDP reports).  Earlier this week The Wall Street Journal highlighted the volume of cargo imports are currently at record monthly levels.


  • Labor participation in the workforce for men age 25 to 54 is lower than it was during the Great Depression.  According to a recent working paper by the National Bureau of Economic Research, video games are responsible for reducing the amount of work the younger generations of men perform over the year by nearly 30 hours. The big concern here is the growth of this behavior, and whether or not the distraction will impact workforce’s overall productivity.
  • Is a recession in the midst? Historically, when the difference between the interest rate on a 10-year Treasury note and the interest rate on a 3-month Treasury bill resulted in a negative yield, an economic recession follows.  Although we are not at that critical point yet, the spread between the 10-year Treasury has been narrowing over the past few years. If the Fed continues to tighten, it’s possible the curve may become inverted (the T-Bill yielding more than the 10-year yield) in the next few years (implying a recession could be in the cards).
  • Another indicator for an impending recession is a labor market at full strength.  Currently, the U.S. has one of the lowest unemployment rates in history.  Another indicator: frothy asset prices.  Right now, the stock market is at all-time highs.  And then there is central bank tightening. The Federal Reserve has tightened three times and other global central banks are discussing tightening too. Lastly, a pervasive sense of calm is an indicator. Many are saying, “don’t worry, the market always comes back,” while the volatility index is near all-time lows.

Frank Talk Insight for Investors

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A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

The Economy and Bond Market



  • U.S. housing starts rebounded last month, signaling positive momentum for home builders trying to meet solid buyer demand. Housing starts rose 8.3 percent in June from the prior month to a seasonally-adjusted annual rate of 1.215 million, the Commerce Department said Wednesday.

housing starts come in higher for the year
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  • The number of Americans applying for first-time unemployment benefits fell last week, reflecting the healthiest job market in more than a decade. Initial jobless claims in the period from July 9 to July 15 fell by 15,000 to a seasonally-adjusted 233,000.
  • The major U.S. stock indices closed at record highs on Wednesday helped partly by technology. The technology sector broke its previous closing high that held since March 2000. It had been the best- performing sector this year with a 22.8 percent advance.


  • German investor confidence dropped for a second month in July, according to the ZEW Center for European Economic Research. Its index of expectations, which aims to predict economic developments six months ahead, slid to 17.5 from 18.6 in June. Economists surveyed by Bloomberg predicted a decline to 18. Germany is entering a period of uncertainty as it heads toward September elections and the European Central Bank starts discussing when it might wind down euro-area monetary stimulus.
  • Sentiment among American homebuilders deteriorated to an eight-month low in July on concerns about higher material costs, according to data from the National Association of Home Builders/Wells Fargo. Builders’ Housing Market Index decreased to 64 (estimate 67) from 66 in June (revised from 67). The six-month sales outlook dropped to a five-month low of 73 from 75. The index of current sales fell to 70, the weakest since November, from 72.
  • Home property prices in Beijing fell 0.4 percent month-over-month, the first decline in more than two years, while Shanghai further declined and Shenzen stalled, pointing to significant cooling in China’s biggest real estate markets.


  • Traders in the Treasury futures market are growing more convinced that U.S. yields will be lower for longer, no matter what the Federal Reserve says. The benchmark 10-year Treasury yield tumbled five basis points to 2.26 percent on Tuesday, touching the lowest level since June 29. The view gained traction Tuesday after Senate Republicans failed to muster enough support for health-care reform, casting doubt on whether President Trump will have better luck with fiscal stimulus. This is coupled with another round of below-forecast inflation data last week that has traders questioning whether the U.S. economic outlook is strong enough for the Fed to raise its benchmark rate again this year, as policy makers forecast.
  • U.S. real GDP increased at an annual rate of 1.4 percent in the first quarter of 2017, and Bloomberg analysts predict annual GDP of 2.6 percent in the second quarter. Second quarter GDP data will be released next week, on July 28.
  • As expected, ECB policy was left unchanged. Draghi reiterated pledges to increase volume or the duration of the quantitative easing program if the outlook in Europe worsens. He did not discuss tapering at his time, but said that it could be discussed later in the fall. The euro appreciated against the dollar, breaking out to a fresh 23-month high.


  • The U.K. housing market will cool this year as uncertainty around Brexit hits the economy, according to PricewaterhouseCoopers LLP. Home-price inflation will slow to 3.7 percent from 7 percent in 2016, and London will be the most severely impacted, PwC said in a report published Tuesday. The changes reflect the wider economic picture as inflation and Brexit take their toll on consumer spending and investment.
  • High-level economic talks between the U.S. and China ended Wednesday without any concrete agreement or future agenda, leaving the Trump administration’s efforts to recast trade ties with Beijing in limbo. The failure to take specific steps to close America’s $347 billion trade deficit with China—70 percent of the U.S. global imbalance—raises pressure on the Trump administration to consider shifting from its embrace of cooperation with Beijing toward more confrontation.
  • According to Bloomberg Intelligence, a rapidly increasing number of company executives are discussing artificial intelligence during earnings calls and investor presentations, which could be a precursor for labor-disruptive technologies not only in manufacturing but also across the service sector. With the U.S. now arguably at, or very close to, full employment, wages should rise more steadily, which in turn will increase labor costs. This, combined with technological advances over the past decade, may cause automated systems to look far more attractive.

Gold Market


This week spot gold closed at $1,254.81, up $26.11 per ounce, or 2.13 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 2.56 percent. Junior-tiered stocks underperformed seniors for the week, as the S&P/TSX Venture Index rose just 0.45 percent. The U.S. Trade-Weighted Dollar Index was crushed lower this week by 1.27 percent.

Date Event Survey Actual Prior
Jul-16 China Retail Sales YoY 10.6% 11.0% 10.7%
Jul-17 Eurozone CPI Core YoY 1.1% 1.1% 1.1%
Jul-18 Germany ZEW Survey Current Situation 88.0 86.4 88.0
Jul-18 Germany ZEW Survey Expectation 18.0 17.5 18.6
Jul-19 Housing Starts 1160k 1215k 1122k
Jul-20 ECB Main Refinancing Rate 0.000% 0.000% 0.000%
Jul-20 Initial Jobless Claims 245k 233k 248k
Jul-25 Conf. Board Consumer Confidence 116.0 118.9
Jul-26 New Home Sales 615K 610k
Jul-26 FOMC Rate Decision (Upper Bound) 1.25% 1.25%
Jul-27 Hong Kong Exports YoY 8.0% 4.0%
Jul-27 Durable Goods Orders 3.1% -0.8%
Jul-27 Initial Jobless Claims 240K 233k
Jul-28 Germany CPI YoY 1.5% 1.6%
Jul-28 GDP Annualized QoQ 2.5% 1.4%


  • The best performing precious metal for the week was silver, up 3.34 percent as investors loaded up on ETFs that purchase the physical metal, perhaps speculating that silver would outperform gold if the latter rallied.  Gold traders and analysts remained bullish this week, for the fifth week, as the European Central Bank keeps its stimulus going, reports Bloomberg. In addition, as the dollar slumps amid an investigation into President Trump, gold heads for the first back-to-back weekly advance since early June, another Bloomberg article reads.
  • Gold bulls are keeping their faith in the metal, reports Bloomberg, as the equity rally pares the yellow metal’s gains. Gold bulls have pointed to slow inflation and Fed concerns that asset prices look “somewhat rich.” Similarly, a Bank of America Merrill Lynch survey shows fund managers are growing hesitant to buy U.S. equities. Jason Mayer of Sprott Asset Management says that the non-stop bull market has led to a lot of complacency where managers aren’t hedging. “Once that tide turns, that could prove to be bullish for gold and precious metals,” Mayer said.
  • After President Trump’s economic revitalization agenda once again faltered, the U.S. dollar fell to an 11-month low this week, reports Bloomberg. Opposition to Trump’s health-care reform bill, along with European shares dropping amid earnings disappointments, sent gold to its highest level this month.


  • The only negatively performing precious metal for the week was palladium, off 1.62 percent.  Hedge funds and money managers seem to be losing their faith in gold, along with other precious metals, reports Bloomberg. Before posting its first weekly gain in six weeks, the net-long position in gold fell to the lowest in 17 months for the week ended July 11. Money managers are hitting the exit as they brace for monetary tightening in the U.S. and Western Europe, the article continues, and aren’t waiting around for signs that the Fed may change its rate trajectory.
  • U.K. Royal Mint sales dropped in the second quarter by 62 percent compared with the previous three months, reports Bloomberg. Sales are down 41 percent from a year earlier. And according to data on the Swiss Federal Customs Administration’s website, Swiss gold exports declined 169.5 tons in May. Month-over-month exports to India also fell, but exports to China and Hong Kong both rose.
  • Jaguar Mining previously had seen its 2017 gold production output at 100,000 ounces, but the company cut its forecast to 95,000-105,000 ounces, reports Bloomberg. Positive news, however, came after its decision to leave Turmalina at Level 9 and commence development and mining of Level 10 in Orebody A. Turmalina saw significantly stronger production in June versus April following this decision, the article continues.


  • Scotia Mining Sales notes that as silver has gotten cheap again, particularly when looking at the widening gold-silver ratio, investors have been piling into silver ETFs (while dropping out of gold ETFs). Interestingly enough, there seems to be a bearish outlook in the futures market, where hedge funds are now holding the first net short silver position seen in two years, the group writes. The risk of higher U.S. interest rates should drive silver prices lower, is the reasoning behind this. However, if the Fed “blinks” and silver prices rebound, they will rebound quickly and violently, Scotia continues.

silver etf holdings are on the rise as gold etf holdings slow down
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  • Klondex Mines reported record, second-quarter operating results for its Nevada and Canadian operations this week, producing 66,629 gold equivalent ounces (GEOs), an increase of 94 percent from the first quarter. In the press release, the company also stated that it remains on track to meet its annual production guidance of 210,000 to 225,000 GEOs, up 36 percent from 2016. “As expected, the operating results for the second quarter were the best in the company’s history,” President and CEO Paul Huet said.
  • Roxgold Inc. announced an updated mineral resource estimate (MRE) and complete drilling results from its first half Infill and Extension drilling program at the Bagassi South deposit. The Bagassi South deposit is located less than two kilometers from Roxgold’s flagship underground gold mine at the 55 Zone. According to a press release, highlights of the estimate are as follows: 1) Indicated MRE of 352,000 tonnes at 16.6 grams of gold per tonne (g/t Au) for 188,000 ounces and 2) Inferred MRE of 130,000 tonnes at 16.6 g/t Au for approximately 69,000 ounces of gold. In other company news, Columbus Gold Corp. announced its intention to spin out its mineral projects in the U.S. into a separate publicly traded company to be named Allegiant Gold Ltd. The plan of arrangement would see shareholders of Columbus receive one share of Allegiant for every five shares of Columbus. This should unlock the value for their North American assets.


  • As Global Mining Research points out in a note this week, over the last few years there have been a number of companies that haven’t mined to their Life of Mine (LOM) plans. In particular, stripping requirements haven’t been met. One of the most well-known examples of this recently is Detour Gold, the research group points out, but clarifies that it certainly not the only one. Deferring the waste removal puts the company at risk for greater waste removal requirements in the future, which is obviously not a source of revenue.
  • Due to Goldcorp’s failure to properly consult with affected indigenous peoples on its proposed Coffee Gold project, the Yukon Socio-Economic Assessment Board decided to stop its assessment of the project, reports Seeking Alpha. This means the project’s timeline could be in jeopardy, along with costs associated with the project. This decision points to deeper troubles at Goldcorp in relation to the company’s Canadian operations, the article continues.
  • Special Counsel Robert Mueller is taking a wide-angle approach to his probe regarding President Donald Trump’s campaign and Russia in last year’s election. He is now looking into other Trump business transactions, despite the President’s caution not to do so. “The roots of Mueller’s follow-the-money investigation lie in a wide-ranging money laundering probe launched by then-Manhattan U.S. Attorney Preet Bharara last year,” the Bloomberg article reads.

Curious about investing in gold

Energy and Natural Resources Market



  • Thermal coal was the best performing commodity this week, rising 3.8 percent. The move came after unconfirmed reports stated that Andrew Wheeler, a top coal industry lobbyist, is likely to be named number two official at the Environmental Protection Agency (EPA).
  • The best performing sector this week was the Bloomberg Global Coal Producers Index. The index rose 5.4 percent on the back of strong Chinese steel mill demand reflected in record steel output for the month of June, followed by positive momentum in coal prices triggered by the potential for a top coal lobbyist to join the high ranks of the EPA.
  • Braskem SA, a major Brazilian petrochemical refiner, was the best performing stock this week finishing up 9.2 percent. The company rallied after Morgan Stanley raised its recommendation to overweight citing widening margins on the back of a weaker Brazilian real, strong free cash flow generation, as well as a valuation that trails its petrochemical peers.  


  • Lumber was the worst performing commodity this week dropping 4.0 percent. The commodity was the best performer the previous week after a severe wildfire threatened sawmills operations in British Columbia, Canada. This week, tempered U.S. housing data weighed on the commodity in spite of continuing risks of greater wildfires on the Canadian west coast.
  • The worst performing sector this week was the FTSE 350 Mining Index. The index fell 1.6 percent on the back of a single stock, Acacia Mining which dropped 19.3 percent. The company discontinued its dividend and lowered guidance as a result of a spat with the Tanzanian government that resulted in a ban on exports of its gold and copper concentrates.
  • The worst performing stock for the week was GAMESA. The Spanish renewable energy supplier dropped 5.8 percent after announcing it will shut down its Tillsonfurg, Ontario factory as a result of weaker-than-expected wind mill demand in North American markets.


  • Gold rallied above its 50-, and 100-day moving averages this week, setting up for what could prove to be a strong technical move to $1,300 as the U.S. dollar continues to weaken. In fact, when looked at in the context of the weak U.S. dollar, gold fares even better; the chart below shows the tight inverse correlation between gold and the U.S. dollar, which going by the chart, suggests gold could move as high as $1,350 an ounce.

us dollar level suggests gold could go higher
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  • China’s economy expanded 6.9 percent in the second quarter, significantly ahead of the government’s target of 6.7 percent. With two consecutive quarters of 6.9 percent growth, China’s GDP is on track for its first year-on-year growth acceleration since 2010.
  • Property investment was one of the key drivers behind China’s strong GDP beat, providing a positive read-through for steel and industrial metals demand. Property investment grew 8.5 percent year-on-year, showing a marked acceleration from the previous growth rates of 6.9 percent.


  • OPEC July output is set to exceed 33 million barrels per day (bpd), according to tanker tracking data. If sustained until month-end, the volumes would represent a sizeable increase over the 32.4 million bpd average for the first half of the year.
  • The Energy Information Administration (EIA) suggests U.S. shale output is likely to increase by greater than 100 thousand bpd next month, according to its recent drilling productivity report. The increase in volumes is expected to drive total U.S. shale output to 5.59 million bpd, the highest level in all of 2017. These improvements, together with OPEC output reaching its highest of the year threaten to derail the nascent recovery in oil prices.>
  • China reported record amounts of steel and aluminum production in June. Reports out of Beijing suggest mills around the country rapidly increased output to profit from rallying commodity prices into quarter-end. The rapid output growth suggests China has been unable to meet its promise of cracking down on marginal mills to help rebalance the global steel market. Markets reacted negatively to the news fearing that China, the world’s top steel exporter, may resort to dumping to alleviate its oversupply.

China Region



  • South Korea’s Korea Stock Exchange Index (KOSPI) finished the week up 1.47 percent, beating out Hong Kong’s Hang Seng Composite Index (HSCI) and the Philippines’ PCOMP Index by 10 and 15 basis points, respectively.
  • Information technology finished the week as the top sector in the HSCI.  Tech rose 4.16 percent in the last five trading days despite a few hiccups late in the week for some of the most recent dominant performers.
  • China’s second quarter GDP growth rate came in at a steady 6.9 percent, ahead of consensus estimates for a 6.8 percent growth rate and even with the first quarter’s 6.9 percent print.  Retail sales, fixed asset investment, and industrial production also came in ahead of estimates for China this week.


  • Consumer services constituted the worst performing sector in the HSCI for the week, falling 81 basis points and making the sector the only one to finish the week in the red.
  • Vietnam’s Ho Chi Minh Stock Index dropped 1.79 percent in the last week, while Indonesia’s Jakarta Composite (JCI) Index declined 1.14 percent.
  • Both imports and exports missed in Indonesia for the June period.  Imports came in down 17.21 percent year-over-year, shy of expectations for a 9.25 percent increase and down from the prior period’s 24.03 percent, while exports fell 11.82 percent, missing estimates for a gain of 7.28 percent and the prior month’s pace of 24.08 percent growth.


  • A combination of a growing population in Asian urban areas together with more efficient transport systems will give a rising number of people greater access to more airports. The chart below shows urbanization rates in key Asian countries growing, which is likely to boost Asia’s long-term air travel demand growth.

airports in developing asia to get boost from population shift
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  • According to a plan issued by the State Council, “China aims to make the artificial intelligence industry a ‘new, important’ driver of economic expansion by 2020,” reports Bloomberg.  Late Thursday, policy makers on the cabinet announced that they want to be global leaders in the space, with the AI industry generating more than 400 billion yuan of output per year by 2025.
  • China is facing less pressure from capital outflows, according to data released by its currency regulator Thursday.  China’s banks sold a net $93.8 billion of foreign exchange to clients in the first six months of 2017, writes ChinaDaily.com, down 46 percent year-on-year.  Economists say the situation may continue to improve in the second half of the year, the article continues.


  • The United States is banning its citizens from traveling to North Korea, starting 30 days from July 27th.  The announcement comes in the wake of the tragic imprisonment and death of student Otto Warmbier, North Korea’s recent test launches, and what the Trump administration is branding as disappointing efforts from the Chinese to rein in their rogue East Asian neighbors.
  • On July 19, U.S. Commerce Secretary Wilbur Ross opened economic talks by “scolding China over its trade surplus,” reports Bloomberg.  China and the U.S. have hit some rough patches since Trump became President and some U.S. firms could be at risk if a trade war breaks out.  Trump has considered restricting imports of Chinese steel and aluminum, a move that could prompt retaliation from Chinese President Xi Jinping, the article continues.
  • Finally, Canadian singer Justin Bieber will not be invited to perform in Beijing, media reports suggest.  The reason cited, per the Beijing Municipal Bureau of Culture, is apparently “bad behavior.” 

Emerging Europe



  • Romania was the best performing country this week, gaining 2.98 percent. Shares of Electrica advanced as much as 7 percent after the company agreed to acquire minority stakes in its subsidiaries from Fondul Proprietatea. This transaction has been long awaited and should benefit both companies, according to Wood & Company research team.
  • The Hungarian forint was the best performing currency this week, gaining 1.89 percent against the dollar.
  • The real estate sector was the best performing sector among eastern European markets this week.


  • Russia was the worst performing country this week, losing 1.81 percent. Oil prices fell Friday morning on renewed concerns about oversupply. OPEC officials are about to start meetings in Russia this weekend with counterparts from non-OPEC countries that have participated in this year’s output cuts. Delegates are supposed to discuss the possibility of including two previously exempted OPEC members, Nigeria and Libya, into the deal. But traders are becoming skeptical that meetings will produce any significant changes.
  • The Russian ruble was the worst performing currency this week, losing 58 basis points against the dollar.
  • The consumer staples sector was the worst performing sector among eastern European markets this week.


  • Local-currency bonds in Poland and Germany have advanced this month, pushing yields lower in the face of growing concern that the European Central Bank (ECB) will start reducing its monthly bond buying program. Polish and Hungarian bond yields on average are four times higher than those offered in Germany, which is attractive to investors still looking for a good carry trade.

economic resilience cuts bond yield premium amid ecb taper talk
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  • Kepler Cheuvreux wrote in European Investment Notes that last week marked the beginning of our “late show.” The note stated that this is the summer rally in equities markets that promises to be the last of the series that began early last year. From here the company sees a 5-10 percent advance for major European indices.
  • The recent recession in Russia has created a space for a cyclical recovery. Potential growth is still very weak, but prospects for the second half of this year and next year are stronger than many think, according to research by Emerging Europe Economist. Inflation has fallen sharply, easing the pressure on real incomes and consumer spending. Inflation will stay low, allowing the central bank to loosen monetary policy and support the recovery.


  • The top three credit rating agencies, Standard & Poor’s, Fitch and Moody’s all withdrew from Russian domestic ratings, refusing to comply with the registration drawn up in 2014 when they downgraded Russia after the annexation of Crimea, according to Reuters. ACRA, a new Kremlin-backed rating agency promoted by the central bank, and Expert RA are the only agencies able to assess Russian debt. Investors may be skeptical to believe that the domestic-produced ratings would be of the same standards as international ones.
  • The administration of former U.S. president Barack Obama expelled 35 Russian diplomats and seized their properties last year in December. Now Moscow threatens to expel U.S. diplomats saying that too many American spies operated in Moscow under diplomatic cover. Despite the seemingly friendly meeting between the Russian president and Donald Trump last week, the US-Russia relationship is delicate.
  • The European Commission, the EU’s regulatory arm, may impose sanctions on Poland for its judicial overhaul. If Article 7 of the EU treaty is triggered, Poland could lose its voting rights in the 28-nation bloc. This dispute with the European Commission over breaking the rule of law may deepen and political noise may put pressure on equities. The Warsaw stock exchange is one of the best performing emerging Europe markets, gaining 21 percent year to date.

Leaders and Laggards


Weekly Performance
Index Close Weekly
XAU 83.63 +2.83 +3.50%
Gold Futures 1,261.00 +26.50 +2.15%
S&P/TSX Global Gold Index 192.26 +3.91 +2.08%
Korean KOSPI Index 2,450.06 +35.43 +1.47%
Hang Seng Composite Index 3,671.13 +49.62 +1.37%
Nasdaq 6,387.75 +75.29 +1.19%
S&P 500 2,472.54 +13.27 +0.54%
Russell 2000 1,435.84 +7.02 +0.49%
SS&P/TSX Venture Index 760.88 +3.36 +0.44%
S&P Basic Materials 346.24 -0.07 -0.02%
DJIA 21,580.07 -57.67 -0.27%
S&P Energy 479.45 -2.33 -0.48%
Natural Gas Futures 2.95 -0.03 -0.87%
Oil Futures 45.73 -0.81 -1.74%
10-Yr Treasury Bond 2.24 -0.10 -4.11%


Monthly Performance
Index Close Monthly
Oil Futures 45.73 +3.20 +7.52%
Hang Seng Composite Index 3,671.13 +170.54 +4.87%
XAU 83.63 +3.44 +4.29%
Korean KOSPI Index 2,450.06 +92.53 +3.92%
10-Yr Treasury Bond 2.24 +0.07 +3.37%
S&P Basic Materials 346.24 +9.88 +2.94%
Russell 2000 1,435.84 +36.58 +2.61%
Nasdaq 6,387.75 +153.80 +2.47%
Natural Gas Futures 2.95 +0.06 +2.11%
S&P Energy 479.45 +7.57 +1.60%
S&P 500 2,472.54 +36.93 +1.52%
DJIA 21,580.07 +170.04 +0.79%
Gold Futures 1,261.00 +8.10 +0.65%
SS&P/TSX Venture Index 760.88 -10.92 -1.41%
S&P/TSX Global Gold Index 192.26 -8.58 -4.27%


Quarterly Performance
Index Close Quarterly
Korean KOSPI Index 2,450.06 +285.02 +13.16%
Hang Seng Composite Index 3,671.13 +364.24 +11.01%
Nasdaq 6,387.75 +477.23 +8.07%
S&P Basic Materials 346.24 +18.87 +5.76%
S&P 500 2,472.54 +123.85 +5.27%
DJIA 21,580.07 +1,032.31 +5.02%
Russell 2000 1,435.84 +55.98 +4.06%
10-Yr Treasury Bond 2.24 -0.01 -0.53%
Gold Futures 1,261.00 -37.90 -2.92%
XAU 83.63 -3.21 -3.70%
S&P Energy 479.45 -19.08 -3.83%
Natural Gas Futures 2.95 -0.15 -4.74%
SS&P/TSX Venture Index 760.88 -64.04 -7.76%
Oil Futures 45.73 -3.89 -7.84%
S&P/TSX Global Gold Index 192.26 -25.35 -11.65%


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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 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 06/30/2017:
Acacia Mining PLC
Braskem SA
Columbus Gold Corp
Gamesa Corp Tecnologica SA
Jaguar Mining
Klondex Mines
OTP Bank
Seabridge Gold

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.

ZEW Germany Expectation of Economic Growth is a survey on the question of economic growth in six months. The NAHB Housing Market Index is derived from a monthly survey, and gauges builder perceptions of current single-family home sales and sales expectations for the next six months, as well as rating traffic of prospective buyers. Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. The Philippine Stock Exchange PSEi Index is composed of stocks representative of the industrial, properties, services, holding firms, financial and mining & oil sectors of the Philippines Stock Exchange. The Jakarta Stock Price Index is a modified capitalization-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange. The Vietnam Stock Index or VN-Index is a capitalization-weighted index of all the companies listed on the Ho Chi Minh City Stock Exchange. The Bloomberg Global Coal Producers Index is a capitalization-weighted index comprised of companies from the coal production industry. 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.