No Love for Gold

Author: Frank Holmes
Date Posted: October 7, 2016 Read time: 46 min

As Hurricane Matthew batters the East Coast, I want to extend my deepest concern to all who might be in harm's way. Please take every precaution, look out for one another and listen to your local officials.

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

Hurricane swept through east coast and gold british pound

As Hurricane Matthew batters the East Coast, I want to extend my deepest concern to all who might be in harm’s way. Please take every precaution, look out for one another and listen to your local officials.

There’s no other way to say it: Gold had a bad week. On Tuesday alone, the yellow metal fell more than 3 percent, shuffling off $43, in its biggest one-day loss in three years. It broke below the psychologically important $1,300 mark and touched the 200-day moving average before rising again today.

Now Could Be Buying Opportunity Gold
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In the past, gold has surged in September and corrected in October before Diwali, the Festival of Lights, takes place in India. Consumers there are expected to take ample advantage of the gold discount’s timing, as it follows a strong monsoon season and comes just before Diwali and the wedding season, when gifts of gold are considered auspicious. The correction has been followed by a Christmas and Chinese New Year-driven rally.

Golds historical 30 year pattern
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The Love Trade in China was on hold this week, as markets in the world’s largest consumer of gold were closed in honor of Golden Week, when people celebrate the founding of the People’s Republic of China. The Asian giant has increasingly become a price-maker of gold—remember, it introduced a renminbi-denominated fix price in April—so when it’s not in the game, the shorts can easily bring the metal down. Many investors put in their trades last week, anticipating China’s closure.

Below, you can see gold edging close to negative 1 standard deviation, triggering a “buy” signal.

Gold 60 day percent change oscillator
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Goldman Sachs analysts, who normally hold a bearish outlook on the yellow metal, echoed the sentiment in a note this week, writing: “We would view a gold selloff substantially below $1,250 as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth.”

As always, I recommend a 10 percent weighting in gold, with 5 percent in bullion and coins, the other 5 percent in gold stocks. Investors might be interested in using this time to rebalance. With China open for business again next week, I expect the metal’s performance to improve.

Like gold, the British pound took a hard beating this week, plunging more than 6 percent in early Asian trading to a three decade-low against the U.S. dollar.

The British Pound Just Got Pounded
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I don’t know about you, but I find it interesting that the drop occurred mere hours after French President François Hollande told an audience that the European Union should take a “firm” stance against the U.K. for its Brexit vote, partially with the intent of discouraging other EU nations from leaving the bloc.

The Debt Hangover

This week, the International Monetary Fund (IMF) released an eye-opening report on the ticking time bomb that is global debt, warning the nations of the world that if they don’t deleverage—and soon— there could be grave consequences. At the very least, we could continue to see sluggish growth. In 2015, global debt of the nonfinancial sector, including governments, households and nonfinancial firms, stood at a mind-boggling $152 trillion, or 225 percent of world GDP, an all-time high.

Global Gross Debt All Time High
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Two-thirds of this amount, according to the IMF, comes from the private sector, which has lately gorged on cheap credit, especially since rates were slashed following the recession. This not only raises the possibility of another financial crisis, “but can also hamper growth even in its absence, as highly indebted borrowers eventually decrease their consumption and investment.”

In other words, debt plus slow growth leads to even more debt and even slower growth, creating a “vicious feedback loop” that becomes harder and harder to escape, the IMF writes.

$23,000 Gold?

In June 2015, I shared with you a thought experiment of what might happen to the price of gold if tomorrow it backed global debt 100 percent. Since it’s been more than a year since then, and because a few things have changed, I thought it might be interesting to revisit this idea.

According to the latest data from the World Gold Council (WGC), an estimated 186,700 metric tons (6.5 billion ounces) of gold have been mined in the history of the world. Based on today’s prices, this mountain of metal is worth $8 trillion.

Let’s imagine we wake up tomorrow morning and learn that all debt—all $152 trillion—were backed by gold. That means each ounce of the stuff would suddenly be valued at roughly $23,000. With one American gold eagle, then, you could buy a new family sedan and still be left with some pocket change.

Gold Debt

Now of course this is ridiculous, but that’s part of the experiment.

There was a time when most advanced nations’ currencies were backed by physical gold (and/or silver). And because gold is limited, so too was public spending. In 1970, a year before President Richard Nixon “closed the gold window,” the U.S. owed $370 billion. Today, it owes $19.5 trillion, or more than $163,000 per American taxpayer.

Had we stayed on something resembling a gold standard, it would have been highly unlikely, if not impossible, for our debts to climb so high.

I’m not saying we should—or even can—return to such a system, despite the endorsement of Donald Trump, Ted Cruz and several other prominent politicians. It would be challenging to find a single legitimate economist who supports a gold standard in today’s incredibly complex economic environment.

Central banks, on the other hand, continue to add to their gold reserves and drive demand.

According to a Macquarie report this week, banks added 27 tonnes to their reserves in August in an effort to diversify their assets and hedge against their own policies. As we’ve been seeing lately, Russia and China were responsible for a huge percentage of the buying, with Russia saying it has no specific target amount, according to the WGC.

In a survey of 19 central bank reserve managers, the WGC found that close to 90 percent of them have plans either to increase their gold reserves or maintain them at current levels.

Investors might consider doing the same, for the very same reasons.

Join Me in Dallas!

In a couple of weeks I’ll be speaking at the MoneyShow in Dallas. This year ought to be interesting, with notable speakers such as Art Laffer, Steve Forbes, Jeff Hirsch, John Mauldin and many more. Registration is absolutely free. I hope to see you there!

Join Frank Holmes at the MoneyShow in Dallas

Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 0.37 percent. The S&P 500 Stock Index fell 0.59 percent, while the Nasdaq Composite fell 0.37 percent. The Russell 2000 small capitalization index lost 1.14 percent this week.
  • The Hang Seng Composite gained 2.31 percent this week; while Taiwan was up 1.08 percent and the KOSPI rose 0.50 percent.
  • The 10-year Treasury bond yield rose 12 basis points to 1.72 percent.

Domestic Equity Market

SP 500 Economic Sectors
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  • Financials was the best performing sector for the week, increasing by 1.52 percent versus an overall decrease of -0.58 percent for the S&P 500.
  • GAP was the best performing stock for the week, increasing 18.03 percent. The stock rallied after improvements in Old Navy’s product selection brought a sales surge to the company’s biggest chain last month.
  • Boeing got a big order from Qatar Airways. The deal is expected to be worth about $18 billion and include Boeing 777, 787 and 737 MAX planes, the BBC says.


  • Real estate was the worst performing sector for the week, falling by -5.26 percent versus an overall decrease of -0.58 percent for the S&P 500.
  • Newmont Mining was the worst performing stock for the week, falling -13.54 percent. The company’s shares got slammed as gold prices dipped well below $1,300 per ounce, the lowest since the U.K.’s Brexit vote in June. Adding to that are rising expectations of higher interest rates, a negative for gold prices.
  • Twitter shares cratered 19 percent after Salesforce CEO Marc Benioff indicated that his company is unlikely to bid for the social network. During an investor meeting on Wednesday, Benioff did not give a yes or no response around a Twitter acquisition, but "we come away thinking a deal is not likely to happen," said Cowen & Co. analyst Derrick Wood in a note on Thursday.


  • Google is going all in on the hardware business. The company unveiled the Pixel smartphone to rival the iPhone, the smart Google Home speaker to tackle Amazon’s Echo, a new Chromecast, the Google Wifi router, and the Daydream View, a virtual reality headset.
  • Pfizer is selling its global infusion therapy business to ICU Medical for $1 billion in cash and stock. Pfizer will receive $600 million in cash and nearly $400 million in newly issued shares of ICU Medical, giving the drug maker ownership of about 16.6 percent in the company.
  • Walmart upped its stake in The world’s largest retailer continues its push into China by raising its stake in, China’s second-biggest e-commerce site, to 10.8 percent from 5.9 percent, the Associated Press reports.


  • Deutsche Bank is considering raising cash. The German investment bank is looking into ways to raise cash should it be necessary because of the eventual settlement with the U.S. Department of Justice regarding its mortgage-backed securities investigation, Bloomberg reports.
  • Mylan overcharged the government for the EpiPen. The drug company classified the EpiPen allergy treatment as a generic, allowing it to have inflation protections with Medicaid that are not available to branded drugs. As of now, the Centers for Medicare & Medicaid Services are unsure exactly how much they were overcharged.
  • Shares of Booz Allen Hamilton fell by as much as 5 percent after a report that the FBI secretly arrested an NSA contractor who may be linked to the high-profile leak of the agency’s hacking tools. Harold Thomas Martin III, 51, is suspected of taking the top-secret computer code the agency had been using to break into computer systems of foreign adversaries. Edward Snowden was also a Booz Allen Hamilton contractor.

Frank Talk Insight for Investors

October 5, 2016
We Believe Congress Is About to Give this Asset Class a Huge Promotion

October 3, 2016
Did OPEC Just Cry Uncle?

September 27, 2016
How Gold Came to South Korea’s Rescue
A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

The Economy and Bond Market



  • The Institute of Supply Management’s gauge of service-sector activity rebounded in September from its weakest level in six years. The purchasing managers’ index (PMI) jumped to 57.1 from 51.4. This reassured economists that weakness in the economy’s largest sector in August was temporary. Markit Economics’ separate PMI rose to 52.3 in September from a preliminary reading of 51.9.
  • Factory orders unexpectedly rose by 0.2 percent in August month-over-month (-0.2 percent expected), suggesting that sluggish business spending on capital equipment could soon reverse course. A preliminary reading on durable goods orders showed that purchases of stuff built to last rose 0.1 percent, and reflected upward revisions to prior prints.
  • Initial jobless claims fell more than expected last week, by 5,000 to 249,000. That’s just 1,000 more than what the lowest level of this economic cycle reached in April. The four-week moving average of claims, which evens out some of the week-by-week volatility, fell by 2,500, to 253,500, the lowest level since December 8, 1973.


  • The IMF cut its U.S. growth forecast. In its latest World Economic Outlook, the IMF lowered U.S. growth for 2016 due to a weak first-half performance.
  • The U.S. economy added 156,000 net new jobs in September, with minor (7,000) downward revisions to the prior two months. This was below the consensus forecast of about 172,000.
  • Global inflation is the lowest since the financial crisis. Despite the unprecedented monetary stimulus being deployed by the world’s central banks, global inflation has fallen to its lowest level since the immediate aftermath of the financial crisis. The Organization for Economic Cooperation and Development reported that inflation for the Group of 20 nations fell to 2.1 percent in August. That’s the lowest level since October 2009. Most worrying, the biggest drops came in China and India, who are among the fastest-growing global economies.


  • Fed watching will continue next week. The probability of a December rate hike has been creeping higher to around 60 percent. The FOMC minutes on Wednesday and Janet Yellen’s speech on Friday could shed more light on the Fed’s next potential move.
  • BCA’s fixed income strategists continue to favor U.S. TIPS over nominal Treasuries. According to their TIPS valuation model, the breakeven inflation rate has not kept pace with recent increases in the price of oil, strength in the stock-to-bond total return ratio, or weakness in the trade-weighted U.S. dollar. Furthermore, the 10-year breakeven rate has not moved in tandem with the price of gold. This should favor TIPS outperformance over nominal Treasuries.
  • According to Bloomberg, foreign buyers have increased their holdings of municipal bonds by about three times what they held a decade earlier. With negative rates around the world, the risk-reward of municipal bonds continues to be attractive.


  • The Conference Board’s U.S. leading economic indicator (LEI) is approaching zero, a level that has separated mid-cycle slowdowns from recessions. In the last thirty years, the LEI bounced off this level on four occasions: 1995, 1998, 2002 and 2012. Interestingly, each of these periods coincided with a financial shock: the Tequila crisis in 1995, the Asia/Russia/LTCM crisis in 1998, the corporate malfeasance scandals in 2002 and the U.S. fiscal cliff in 2012. In all four cases, it required a policy response to contain the financial fallout and reverse the downtrend in the LEI. Although it is hard to pinpoint a single seminal financial shock, there have been several points of concern for investors this year: China, Brexit, U.S. Libor, European Banks and U.S. politics. What is worrisome is the Fed’s consistent message that it intends to tighten policy when the LEI is as weak as it is now. The last 30 years have shown that when the annual growth in the LEI drops decisively below zero, the U.S. economy heads into a full-blown recession.

US Leading Economic Indicator Nearing Critical Point
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  • Key U.S. data releases will be the NFIB small business survey on Tuesday and retail sales on Friday. Consumer spending slowed during the summer and next week’s retail report will indicate whether this was a temporary lull or not.
  • Speaking at the Grant’s Interest Rate Observer conference in New York on Tuesday, Jeffrey Gundlach said he thought interest rates had bottomed and the narrative of rates staying lower for longer was "getting quite old." This poses a threat to bond prices.

Gold Market

This week spot gold closed at $1,255.21, down $60.54 per ounce, or 4.60 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 13.03 percent. Junior miners outperformed seniors for the week, as the S&P/TSX Venture Index fell back just 2.43 percent. The U.S. Trade-Weighted Dollar Index finished the week up 1.11 percent.







U.S. ISM Manufacturing





U.S. ADP Employment Change





U.S. Durable Goods Orders





U.S. Initial Jobless Claims





U.S. Change in Nonfarm Payrolls





Germany ZEW Survey Current Situation




Germany ZEW Survey Expectations




Germany CPI YoY




U.S. Initial Jobless Claims




U.S. PPI Final Demand YoY





  • The best performing precious metal for the week was gold. The yellow metal had a rough week as real yields spiked on Tuesday when traders were trying to decipher comments that the European Central Bank might end its bond buying program. Gold finished Friday down 4.60 percent, but still beat its precious metal counterparts.

Gold Price Looks Share Inverse Relationship With Real Rates
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  • Despite gold prices trading near three-month lows this week, a survey of gold analysts and traders show 10 bullish, three bearish and eight neutral, reports Bloomberg. Other positive news for the yellow metal this week comes from the Perth Mint, where sales were up in September to 58,811 ounces versus 14,684 ounces in August.
  • In a note from HSBC this week, the research group points out that physical emerging market buying for gold is emerging. “India’s physical gold demand is rising as indicated by the erosion of the Mumbai discount to world gold prices,” the article continues. On the domestic front, Macquarie also points to positive news for gold found in recent wage data. Headline wage growth reached its highest level, 2.65 percent year-over-year, since January 2010. Wage growth can lead to higher inflation.


  • The worst performing precious metal for the week was silver, dropping over 8 percent with the fall in gold.
  • Concerns over Deutsche Bank AG’s finances waned this week, as gold held a weekly decline, reports Bloomberg. On Friday, Agence France-Presse reported that the bank is nearing a pact to pay the U.S. Department of Justice $5.4 billion, which is less than half the initial amount requested. Another weakness for gold this week was seen in BullionVault’s Gold Investor Index (which measures the balance of client buyers against sellers), which fell to 55 versus 56 in August.
  • According to those with knowledge of provisional Finance Ministry data, India’s gold imports declined 33 percent in September to 44.6 tons, reports Bloomberg. And while many have their eyes on what the Federal Reserve will do next, Bloomberg’s David Fickling says to worry about India instead, as tolerance for higher inflation there “spells bad news for demand.” Official rates were cut to their lowest level since January 2011 this week by Reserve Bank of India Governor Urjit Patel, with no sign he was done easing. Similarly, BCA Research points out that India’s agricultural output per capita has not increased at all, meaning food and inflation will remain structurally high, negatively impacting saving and investment dynamics.


  • In its note on precious metals this week, UBS points out that “what ultimately matters for gold are real rates rather than nominal yields.” The group admits they do expect the Fed to hike rates in December, but continue to believe the U.S. long-end real yields have room to fall further, supporting a positive view for gold. Julian Robertson from Tiger Management agrees – Bloomberg reports that Robertson is betting against fixed income amid expectations of rising interest rates.
  • If gold falls below $1,250 an ounce, Goldman Sachs believes that a “buying opportunity” will be present. The group sees potential opportunity “given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks.”
  • Despite gold’s rally fading over the last weeks, demand for miners remains. After miners cut costs, lowered debt and boosted their productivity to survive three years of falling gold prices, investors that track gold producers are “keeping the faith,” reports Bloomberg. Analysts at Credit Suisse are flagging prospects in this group for higher dividends. In a similar note, BMO technical analyst Russ Virsch writes that gold’s selloff “looks like nothing more than the late stages of a normal countertrend pullback.”


  • Bond investor Jeffrey Gundlach believes that the falling share price of Deutsche Bank shows the impact of negative-interest-rate policy in Europe on the region’s lenders, reports Bloomberg, and may help prompt central bankers to reconsider their approach. Europe’s banks have seen their value shrink around $280 billion this year, with Deutsche Bank losing nearly half of its market value. Credit Suisse has lost around 40 percent of its value this year.
  • Wayne Gordon of UBS Wealth Management pointed out in a Bloomberg TV interview this week that the ISM rebounded strongly, which “puts us on a very clear path to the Fed doing something in December. This will weigh on the gold price as we go into the end of the year.” In addition, Gordon noted weak demand out of India during a time when it should seasonally pick up. Oil’s recent rally, its biggest in five months, has also put gold in the shadows. “Gold has taken a back seat,” Bob Haberkorn of RJO Futures said, reports Bloomberg. “The production cuts from OPEC are pretty substantial new bullish news for oil. Gold is still looking for a new story.”
  • Citi analyst Nell Agate doesn’t see a rally in gold prices to end the year, reports Barron’s. Agate and her team say that stable supply from mines, along with subdued demand from Asia, should keep prices low. Even with ETFs as a source of demand, inflows appear to be stalling as of late, according the Agate. A decline in Hong Kong’s retail sales (down 10 percent this year through July) could continue, reports Bloomberg. China’s economic woes and a strong dollar (which Hong Kong’s currency is pegged to), may limit Chinese visitor spending, the article continues.

Explore the World's Top 12 Gold Producing Companies. Check out the slideshow.

Energy and Natural Resources Market


  • Natural gas was the best performing commodity for the week rising 9.3 percent. Futures prices surged to a 21-month high after weather forecasts predict unseasonably high temperatures across most of the lower 48 states. Higher temperatures would result in increased demand from gas-powered generators.
  • The best performing sector for the week was the S&P 500 Oil & Gas Equipment and Services Index. The index of oil services rose 3.3 percent for the week as oil prices extended their post-OPEC agreement rally.
  • Petroleo Brasileiro SA, Brazil’s major oil company, commonly known as Petrobras, was the best performing stock in the broader natural resource space for the week. The Rio-based company gained 12.9 percent for the week on comments made by its CEO suggesting the company has made great strides in its cost cutting program, and explaining a more favorable domestic pricing for its refined products.


  • Silver was the worst performing commodity for the week dropping 8.8 percent. The drop was silver’s worst weekly slump since 2013 as investors are increasingly convinced that the Federal Reserve will raise rates in December.
  • The worst performing sector for the week was the NYSE Arca Gold Miners Index. The index dropped 13.2 percent for the week as gold prices slumped, posting the worst weekly performance of the year.
  • The worst performing stock for the week in the broader natural resource space was Sibanye Gold Ltd. The South African gold miner dropped 19.9 percent on a weak gold tape as well as news that violent episodes took place at one of the operations involving fights among different workers’ unions.


  • September’s manufacturing PMIs bounced back to recent highs providing a positive read-through for commodity demand. A report by Macquarie Research suggests that September’s numbers should ease concern that August’s disappointing figures heralded an end to the recovery in this crucial sector for metals demand. The uptick, which now shows all but two major economies in expansionary mode, reinforces Macquarie’s confidence that the manufacturing/industrial sector globally is in recovery mode.

September PMIs Global Manufacturing Resumes Upswing
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  • The recent slump in gold should be seen as a buying opportunity if gold drops any further according to Goldman Sachs. The bank’s research suggests that a window of opportunity may open for investors to add gold holdings as the fundamentals for owning have not changed. In the group’s opinion, substantial downside risks to global growth remain, and the market is likely to remain concerned about the ability of central banks to respond to any shocks to the economy.
  • Consensus is building as producers and analysts see copper leaping more than 40 percent through 2020. A Bloomberg study shows demand may exceed supply already in 2017 as demand growth outpaces the 2016 oversupply. However, the bull case suggests that supply growth will stagnate after 2016, with no visible major capacity additions in the 2017-2020 period; a period that should see continued demand growth for copper-intensive electric vehicles and renewable energy projects.


  • Last month’s OPEC agreement may not result in higher oil prices. A Reuters poll showed oil analysts are not convinced of OPEC’s proposal to cut output as doubts run high over the implementation of the agreement. Morgan Stanley analysts were “pessimistic” due to OPEC member’s documented reluctance to adhere to individual output caps.
  • Similarly, Goldman Sachs believes the post-OPEC crude rally will stall as a “wall of supply” hits the market. Nigeria, Libya and resilient U.S. shale production will ramp up as prices consolidate around $50 a barrel. The resulting negative feedback loop, in which every price upswing results in additional supplies coming to market, suggests a rally back to $100 a barrel is off the cards for the next number of years.
  • The U.S. auto market has peaked, says Goldman Sachs in reaction to recent data. The bank is downgrading its view on the entire sector as it anticipates lower production and negative pricing pressure in response to September data showing negative sales growth. The downgrade carries negative read-through for steel, aluminum and platinum group metals as major inputs in the auto market supply chain.

China Region



  • The Nikkei Taiwan Manufacturing PMI rose to 52.2, the metric’s highest reading in two years, and beat analysts’ expectations for a 51.8 print.

Nikkei Taiwan Manufacturing PMI Reaches Two Year High September
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  • Singapore’s Manufacturing PMI rose back into slight expansionary territory, coming in at 50.1, ahead of analysts’ expectations for a rise to 49.9 in September from August’s contractionary print of 49.8.
  • The Nikkei Philippines Manufacturing PMI soared to 57.5 for the September period, coming in well ahead of expectations for a 55.3 print and marking the index’s highest level in 2016.


  • Thailand’s Manufacturing PMI for September came in at another contractionary print, 48.8, missing expectations for a 49.8 print.
  • Late last week China released its official September Manufacturing PMI (50.5 expected; 50.4 actual, a slight miss) as well as Non-Manufacturing PMI (August print was 53.5; September up to 53.7). Investors are still awaiting Caixin’s China Services PMI (last print 52.1), which should come out this evening. China had a relatively quiet week for data, as it was closed for “Golden Week” celebrations.
  • China did, however, release its foreign exchange reserves data, which came in essentially in line. The reserve level of just under $3.17 trillion ever-so-slightly missed consensus expectations for $3.18 trillion but none-the-less marks the lowest reserve number since early 2011.


  • Indonesia’s President Joko Widodo has turned to Alibaba’s founder Jack Ma for guidance in regards to the country’s rising online consumer potential, reports Bloomberg. According to McKinsey & Co., Indonesia has an e-commerce market with the potential to become one of the fastest-growing in the world, the article continues. It is part of a digital economy adding $150 billion a year to GDP by 2025.
  • Over the weekend, China’s yuan joined the International Monetary Fund’s basket of reserve currencies. The yuan takes its place in the SDR basket alongside the U.S. dollar, the euro, the yen and the British pound sterling. The inclusion marks a milestone for the government’s campaign for recognition as a global economic power, notes Fortune.
  • Despite a 2.5 million-unit global recall of the Galaxy Note 7, Samsung announced Friday that it expects operating profit to rise, reports the Wall Street Journal. The South Korean smartphone maker sees third-quarter operating profit up 5.5 percent compared to a year ago.


  • Chinese Premier Li Keqiang will visit Macau next week, but some casino players and investors in the city fear the effect of his upcoming trip. According to South China Morning Post, analysts believe his appearance could threaten the city’s nascent, yet fragile recent recovery. Various reports have suggested Li’s visit will “scare off high-rollers in October, and possibly break the city’s winning streak in gaming revenue.”
  • Mixed messages from the Philippine Department of Foreign Affairs, (first expressing that “America has failed us,” followed shortly after with a message praising the U.S.), shows just how chaotic things are in the country, reports Bloomberg, specifically within President Duerte’s universe. “There appears to have been no prior policy preparation, deliberation and inter-agency coordination or even warning,” Malcom Cook, senior fellow at ISEAS-Yusof Ishak Institute said. “This leads to constant need for other members of the administration to clarify, deny, and reinterpret these statements.”
  • China H-shares are experiencing price swings that are “wilder” than their mainland counterparts, reports Bloomberg, as mainland investors increasingly target the city’s stocks. The city’s equity market drew in a record number of inflows via a link with Shanghai. Increased speculative trading adds to the risks for institutional investors already trying to navigate a Chinese slowdown, Brexit and high U.S. borrowing costs, the article continues.

Emerging Europe



  • Hungary was the best relative performing country this week, gaining 2.8 percent. Last weekend, Hungary held a referendum on the European Union’s migrant quota system. Nearly 98 percent supported the government’s proposal to reject the EU quota system, but the turnout was low, implying that the outcome is not binding for the government.
  • The Russian ruble was the best performing currency this week, gaining 1.08 percent against the U.S. dollar. The ruble strength was supported by the rising price of oil, extending its best performance in emerging markets since OPEC’s deal to cut production. Brent crude oil gained 2.78 percent in a week.
  • Health care was the best performing sector among Eastern European markets this week.


  • Russia was the worst relative performing country this week, gaining 10 basis points. The Russian ruble appreciated with the uptrend in the price of oil, but local equities did not. Russian President Vladimir Putin suspended a nuclear pact signed in 2010 by Russians and the U.S., while the U.S. broke off diplomatic talks with Russia to end the war in Syria.
  • The Turkish lira was the worst performing currency this week, losing 1.75 percent against the U.S. dollar. Turkey’s Prime Minister released the government’s medium-term program in which the 2016 and 2017 growth forecast was cut to 3.2 percent and 4.4 percent. GDP growth was 4 percent in 2015. The Central Bank of Turkey will most likely cut its benchmark rate further at the next meeting later this month.
  • The real estate sector was the worst performing sector among Eastern European markets this week.


  • FTSE Russell put Romania on the watch list for a potential upgrade to the status of emerging markets in the short or medium term. According to the London-based index provider, Romania met all the criteria necessary to be promoted to a superior category back in March, with the exception of liquidity criterion. Romania’s inclusion to the watch list is a result of improving capital markets, presenting an opportunity for future money flow.
  • The International Monetary Fund released its global economic forecasts, saying that the greatest acceleration in growth next year versus the current year is expected to come from Brazil, Greece and Russia. The IMF also pointed out that 2016 is the year in which emerging markets growth finally rebounds after six years of declining growth versus developed markets.

Developed Emerging Markets GDP Growth Year Over Year Growth Differential
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  • Russian inflation declined for a third month to 6.4 percent in September, the slowest in two-and-a-half years, compared to 6.9 percent in August. Declining inflation may give the central bank a green light for more rate cuts in the future. Median estimates from a survey of Bloomberg economists predict that the current 10-percent benchmark rate will decline to 8 percent by year end.


  • Prime Minister of Great Britain Theresa May said that the U.K. will formally notify Brussels of its intentions to leave the European Union by the end on March. She also announced that the U.K. intends to take full control of its immigration policies after the exit. According to the European Union, countries that want to have full access to the bloc’s internal market have to accept EU workers and EU rules. The British pound sold off, losing 4 percent against the U.S. dollar and trading below its post-Brexit level.
  • Turkey’s president continues to consolidate power into his hands. Purges of Turkey’s institutions continue, which so far have included the military, police, the media and education. This week the government shut down two television channels and a radio station, and suspended another 12,801 police officers. The emergency rule was extended by another three months.
  • Eurozone’s Composite PMI, a reading of the manufacturing and service sectors, came in at the worst rate of expansion for the year, falling from 52.9 in August to 52.6 in September. The decline was led by Germany, Europe’s largest economy, where the composite PMI reading fell to a 16-month low and the service sector had the worst quarter in three years.

Eurozone Composite PMI For September
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Leaders and Laggards


Weekly Performance
Index Close Weekly
DJIA 18,240.49 -67.66 -0.37%
S&P 500 2,155.54 -12.73 -0.59%
S&P Energy 520.28 -0.07 -0.01%
S&P Basic Materials 294.22 -5.65 -1.88%
Nasdaq 5,292.41 -19.60 -0.37%
Russell 2000 1,237.36 -14.29 -1.14%
Hang Seng Composite Index 3,209.70 +72.56 +2.31%
Korean KOSPI Index 2,053.80 +10.17 +0.50%
S&P/TSX Global Gold Index 207.28 -30.00 -12.64%
XAU 81.32 -12.68 -13.49%
Gold Futures 1,257.40 -59.70 -4.53%
Oil Futures 49.69 +1.45 +3.01%
Natural Gas Futures 3.19 +0.28 +9.77%
10-Yr Treasury Bond 1.72 +0.13 +8.09%


Monthly Performance
Index Close Monthly
DJIA 18,308.15 -92.73 -0.50%
S&P 500 2,168.27 -2.68 -0.12%
S&P Energy 520.35 +14.90 +2.95%
S&P Basic Materials 299.87 -4.51 -1.48%
Nasdaq 5,312.00 +98.78 +1.89%
Russell 2000 1,251.65 +11.74 +0.95%
Hang Seng Composite Index 3,137.14 +36.41 +1.17%
Korean KOSPI Index 2,043.63 +8.98 +0.44%
S&P/TSX Global Gold Index 237.17 +8.69 +3.80%
XAU 94.00 +3.83 +4.25%
Gold Futures 1,320.30 +8.90 +0.68%
Oil Futures 47.97 +3.27 +7.32%
Natural Gas Futures 2.91 +0.02 +0.87%
10-Yr Treasury Bond 1.60 +0.02 +1.01%


Quarterly Performance
Index Close Quarterly
DJIA 18,308.15 +358.78 +2.00%
S&P 500 2,168.27 +65.32 +3.11%
S&P Energy 520.35 +5.56 +1.08%
S&P Basic Materials 299.87 +9.08 +3.12%
Nasdaq 5,312.00 +449.44 +9.24%
Russell 2000 1,251.65 +94.88 +8.20%
Hang Seng Composite Index 3,137.14 +322.12 +11.44%
Korean KOSPI Index 2,043.63 +56.31 +2.83%
S&P/TSX Global Gold Index 237.17 -15.46 -6.12%
XAU 94.00 -8.50 -8.29%
Gold Futures 1,320.30 -25.70 -1.91%
Oil Futures 47.97 -1.02 -2.08%
Natural Gas Futures 2.91 -0.08 -2.51%
10-Yr Treasury Bond 1.60 +0.15 +10.52%


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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 06/30/2016:
Boeing Co
Newmont Mining Corp.
Sibanye Gold Ltd

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 Nikkei Manufacturing Purchasing Managers’ Index, reported by Markit Economics, measures the performance of the manufacturing sector and is derived from a survey of manufacturing companies.
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.
The Eurozone Composite Purchasing Managers’ Index (PMI) is calculated combining the results from the manufacturing and services sector surveys conducted for a number of countries in the euro area.
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).
"FTSE Russell" is a trading name of FTSE International Limited (“FTSE”) and Frank Russell Company (“Russell”) and their respective subsidiary undertakings, which are members of the London Stock Exchange Group plc group.
Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global 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 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 Caixin China Services PMI is a composite indicator designed to provide an overall view of activity in the manufacturing sector and acts as an leading indicator for the whole economy.