Texas Gold Investors Just Got Their Own Fort Knox

Author: Frank Holmes
Date Posted: June 8, 2018 Read time: 52 min

If you live in Texas and have any extra gold bars, coins and/or jewelry that need safekeeping, you're in luck. The Texas Bullion Depository, officially opened to the public in Austin this week

Press Release: U.S. Global Investors Continues GROW Dividends

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

Global sales of semiconductors crossed above 400 billion for fisrt time in 2017

If you live in Texas and have any extra gold bars, coins and/or jewelry lying around that need safekeeping, you’re in luck. The Texas Bullion Depository, the first of its kind in the U.S., officially opened to the public in Austin this week, putting a cap on three years of planning and construction. The private firm managing the facility, Lone Star Tangible Assets, calls it the “world’s most advanced depository.”

This is wonderful news. Because Texas is such a trend-setting state, it might encourage other states to look into creating their own depositories. It also has the potential to attract even more investors to precious metals, which I believe are crucial components of any well diversified portfolio. As I’ve shown before, gold has little to no correlation with other assets such as equities, cash and Treasuries.

That makes the yellow metal especially favorable—now more than at any time since the financial crisis. We’re in the second longest economic expansion since World War II, and some experts see another recession as soon as 2020. A new survey by the National Association for Business Economics (NABE) finds that half a panel of 45 “professional forecasters” believe the next recession could occur between the fourth quarter of 2019 and the second quarter of 2020.

Although I don’t necessarily agree with this assessment, it’s important to recognize the risks and headwinds and prepare accordingly.

“Troubled” Deutsche Has $1.7 Trillion in Assets

Among the most headline-worthy risks is the uncertain survival of Deutsche Bank. Shares of Germany’s biggest lender have plummeted following a first quarter report showing net income fell some 80 percent from a year ago, as well as news that the Federal Reserve downgraded the bank’s U.S. operations to “troubled.”

could deutsche bank be another lehman
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Many analysts are already making the dubious comparison between Deutsche and Lehman Brothers, the storied American financial services firm whose bankruptcy nearly 10 years ago set off the global financial crisis. At the time of its filing, Lehman had approximately $639 billion in assets. As of the end of last year, Deutsche controlled more than double that amount—$1.7 trillion—meaning its failure could be catastrophic to global financial markets.

Ideas are currently being floated to save the distressed bank, including a German government bailout and a merger with rival Commerzbank, but nothing is guaranteed.

Record Student Debt

Starbucks CEO Schultz debt is the greatest economic threat to the United States

Something else I’m keeping my eye on is the ever-growing mountain of government and household debt. Howard Schultz, the outgoing billionaire executive chairman of Starbucks, told CNBC this week that he considered national debt to be the greatest threat to the U.S.

“I think the greatest threat domestically to the country is this $21 trillion debt hanging over the cloud of America and future generations,” Schultz said, adding to speculation that the former Starbucks chief is considering a presidential run in 2020.

I couldn’t agree more with Schultz on this point. I should add that higher interest rates are making servicing this debt even more costly than it already is. No one is off the hook.

Household debt is also ballooning out of control, and today, student loan debt stands at more than $1.5 trillion. Student debt is now the largest form of debt in the U.S. after mortgages. It’s bigger than auto loan debt and credit card debt. Even more alarming is that an estimated 20 percent of borrowers right now are behind on their payments.

US outstanding student loan debt now stands at 1.5 trillion dollars
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Negative Interest Rates in America?

Between Deutsche and student debt, the implications are enormous. They also highlight my recommendation that investors have approximately 10 percent in gold, with half of that in physical bullion and the other half in high-quality gold mining stocks, mutual funds and ETFs.

As I said earlier, the investment case for gold is highly appealing right now. Should another recession happen anytime soon, the Federal Reserve at present would be hamstrung to offer monetary accommodation.

That’s according to a recent post by my colleague James Rickards, who writes that it’s historically taken between 3 percent and 5 percent in interest rate cuts to pull the U.S. out of a recession.

The problem with this is that the federal funds rate currently sits at 1.75 percent. You do the math.

Were a recession to strike tomorrow, the Fed would have very little wiggle room to ease monetary policy. It could cut rates exactly 1.75 percent, but then it would hit zero and “be out of bullets,” as Rickards says.

Of course, the Fed could dip rates into negative territory, which—in theory—should spur consumer spending. Better to spend your cash on that new boat, the thinking goes, than be punished for letting it sit in the bank. But there’s evidence negative rates haven’t worked as expected to prop up the economies that have experimented with them—notably Japan, Switzerland, Sweden and the eurozone.

And because there’s really no easier way to destroy wealth than with negative interest rates, I would expect gold investment demand to get a massive jolt.

This is precisely why German investors have quietly become the world’s biggest buyers of gold. Until recently, Germany wasn’t known as a nation of gold bugs. But following the financial crisis, the European Central Bank (ECB) slashed rates, and banks began charging customers to hold their cash. Yields on German bonds went subzero. Today, the five-year bond will cost you more than 20 basis points.

For many Germans, the only reliable store of value was gold. Investors ploughed as much as $8 billion into gold coins, bars and exchange-traded commodities in 2016, the most recent year of available data. Demand for safety deposit boxes surged.

I’m curious to see if the same will happen at the Texas Bullion Depository.

Gold ETFs Have Attracted $1 Billion a Month So Far in 2018

The latest report from the World Gold Council (WGC) shows that inflows into global gold ETFs in May were mostly solid. European gold funds grew by 26 metric tons, or $1.2 billion, as geopolitical uncertainty weakened the euro against the dollar. And in Asia, gold ETFs rose by 21 metric tons, or $862 million, a phenomenal 20 percent increase from the previous month. These gains were offset somewhat by net outflows from North American funds as a strong U.S. dollar pushed the price of gold below $1,300 an ounce.

So far this year, gold ETFs have attracted nearly $5 billion, or approximately $1 billion per month.

gold ETF flows were strong in may despite subdued metal prices
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This pace can be maintained for the rest of year, I believe, especially now that it looks as if the U.S. dollar has peaked. Since its 2018 high on May 29, the greenback has already lost close to 1.5 percent. This affords gold more upside potential as we head closer to Diwali and the Indian wedding season, when gifts of gold jewelry are considered auspicious.

Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 2.77 percent. The S&P 500 Stock Index rose 1.62 percent, while the Nasdaq Composite climbed 1.21percent. The Russell 2000 small capitalization index gained 1.49 percent this week.
  • The Hang Seng Composite gained 1.27 percent this week; while Taiwan was up 1.89 percent and the KOSPI rose 0.52 percent.
  • The 10-year Treasury bond yield rose 4 basis points to 2.943 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
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  • Telecommunications was the best performing sector of the week, increasing by 3.36 percent compared to an overall increase of 1.62 percent for the S&P 500 Index.
  • Under Armour was the best performing stock for the week, increasing 15.88 percent.
  • Twitter surged after being added to the S&P 500. The company’s stock gained 5.2 percent Tuesday, hitting its best level in three years after S&P Global announced it would replace Monsanto in the large-cap index.


  • Utilities was the worst performing sector for the week, decreasing 3.18 percent.
  • Nektar Therapeutics was the worst performing stock for the week, falling 40.08 percent.
  • The world’s biggest hedge fund warned that “2019 is setting up to be a dangerous period for the economy.” Ray Dalio’s Bridgewater Associates said in a note to clients seen by Business Insider that it’s “bearish on almost all financial assets.”


  • The world’s largest producer of bitcoin mining chips, Bitmain Technologies, is considering going public. Bitmain’s founder, the cryptocurrency billionaire Jihan Wu, told Bloomberg that Bitmain is considering an initial public offering as it expands into producing hardware for artificial-intelligence computing.
  • Homes in America are selling at a record pace with the amount of time from list to sale falling to 64 days in April from 77 days a year ago, the shortest amount of time since Trulia started keeping track in 2010. This bodes well for homebuilders.
  • McDonald’s rallied after a report said it’s announcing corporate layoffs. The stock gained 4.37 percent Thursday after a Wall Street Journal report said the fast-food giant was looking to trim down its corporate structure.


  • Eastman Kodak’s bet on cryptocurrency may not be enough to help the 130-year-old imaging company manage its debt and return to its former glory. S&P Global Ratings downgraded Kodak to CCC from CCC+, citing the risk the company will need to do a distressed exchange or restructuring over the next 12 months. The ratings company said weak operating results and a lack of cash mean Kodak may not be able to refinance a loan it took out as part of a financing package to exit bankruptcy in 2013.
  • Congress could derail U.S. private equity firms’ gravy trains as they raise record amounts of money in the global market. In the name of national security, lawmakers are debating a bill that would tighten scrutiny of investments from other countries. An industry group that includes Blackstone, Apollo and Carlyle is turning up the heat on Capitol Hill to minimize any possible damage.
  • Google may face another billion-euro fine from the European Union next month over an antitrust case involving Android. A fine would reflect growing political antipathy toward big tech firms and could trigger further regulatory action.

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The Economy and Bond Market



  • U.S. service-sector activity rose in May to highest level in more than three years, helped by stronger demand and favorable economic conditions. The IHS Markit U.S. Services Business Activity Index rose 2.2 points from the prior month to 56.8 in May.
  • The U.S. trade deficit fell to a seven-month low in April as exports rose to a record high, lifted by an increase in shipments of industrial materials and soybeans. Wednesday’s report from the Commerce Department was the latest sign of robust economic growth in the second quarter. The Commerce Department said the trade gap narrowed 2.1 percent to $46.2 billion, the smallest since September. Economists polled by Reuters had forecast the trade deficit unchanged at $49 billion in April.
  • Broad economic activity picked up in May according to the ISM non-manufacturing survey, which rebounded nearly two points in May to 58.6.


  • New orders for U.S. goods fell by the most in three months in April, driven by a decline in demand for transportation equipment and aircrafts. Factory goods orders fell 0.8 percent to $494.4 billion in April from the previous month, the Commerce Department said on Monday. The decline was steeper than the 0.5 percent drop that economists had expected.
  • U.S. worker productivity rose more slowly than originally estimated in the first three months of 2018, while labor costs grew at a slightly faster pace. The productivity of nonfarm workers increased at a 0.4 percent seasonally adjusted annual rate in the first quarter, the Labor Department said Wednesday, below an initial 0.7 percent growth estimate.
  • German industrial production unexpectedly fell in April, continuing a run of poor economic news from Europe’s largest economy. The 1 percent drop in output, along with a surprise decline in factory orders reported earlier this week, indicates a moderating pace of expansion at the start of the second quarter. A separate report showed that exports fell 0.3 percent in April, while in France, industrial production also declined. A series of downbeat numbers from across Europe suggests that a slower pace of expansion may be taking hold.


  • America’s economic growth engine is gaining steam, while Europe’s is cooling down. The IHS Markit’s U.S. Composite Purchasing Managers Index, which measures manufacturing and service-related activity, advanced in May to the highest level in more than three years, while the eurozone gauge posted its weakest reading since November 2016. The last two months mark a turnaround in a trend since the end of 2016 that had favored Europe.

expansion in US manufacturing and services gathers pace while europe weakens
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  • The world’s three most powerful central banks convene next week, with the Fed setting the pace in a retreat from the era of easy money. Three meetings within 36 hours of each other are set to conclude with the Fed raising interest rates, the ECB potentially fleshing out its plan to end its bond buying program, and the BOJ maintaining its massive stimulus program.
  • Japan’s economy has moved past a rough stretch that ended a two-year run of growth, with forecasts pointing to renewed expansion as global demand regains traction. GDP shrank 0.6 percent on an annualized basis in the first quarter, according to revised data, which missed the median forecast of economists.


  • Mario Draghi is ready to end the European Central Bank’s (ECB) bond-buying program even if he puts off the decision for one more policy meeting, economists say in a Bloomberg survey. Almost a third of respondents predict the ECB president will set an end-date for purchases after next week’s gathering of the Governing Council, and 46 percent said he’ll do so at the July session. Either way, analysts are confident buying will be phased out this year. The worry is for a misstep given the latest string of disappointing economic data stemming from the eurozone.
  • Credit investors are making increasingly risky bets on new corporate bond issues, especially in the lowest ranks of investment grade, which raises the likelihood of losses and disorderly selling when the market turns, according to KKR’s Jamie Weinstein. There’s been a “big explosion” in debt sold by companies with a BBB rating, said Weinstein, who is global co-head of special situations at KKR. Asked in an interview on Bloomberg TV if the glut of issues rated just above junk could be sowing the seeds of a debt crisis, he said “it might be.” Additionally, Oaktree Capital CEO Jay Wintrob expects to see a flood of troubled credits topping $1 trillion as rising interest rates overwhelm low-quality loans and bonds. When the cycle turns it will be faster and larger than ever as “fallen angels” proliferate, Wintrob said at the Bernstein Strategic Decisions Conference. “There will be a spark that lights that fire,” he said.
  • Illinois, the worst-rated state, needs to “at least partially” move toward getting new tax revenue dedicated to funding its pensions, according to Municipal Market Analytics. “To the extent IL fails to raise fresh revenues in the coming year, it may be unable to prevent non-investment-grade ratings on its bonds,” MMA wrote in a report. “The frailty of the FY19 budget suggests that actions will need to be taken sooner rather than later.”

Gold Market

This week spot gold closed at $1,298.94, up $5.21 per ounce, or 0.40 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 0.40 percent. Junior-tiered stocks outperformed seniors for the week, as the S&P/TSX Venture Index rose  1.21 percent. The U.S. Trade-Weighted Dollar sunk lower this week by 0.64 percent, marking its second consecutive weekly decline since the end of January.

Date Event Survey Actual Prior
Jun-4 Durable Goods Orders -1.7%
Jun-7 Initial Jobless Claims 220k 222k 223k
Jun-12 Germany ZEW Survey Current Situation 86.0 87.4
Jun-12 Germany ZEW Survey Expectations -12.7 -8.2
Jun-12 CPI YoY 2.7% 2.5%
Jun-13 PPI Final Demand YoY 2.9% 2.6%
Jun-13 FOMC Rate Decision (Upper Bound) 2.0% 1.75%
Jun-13 China Retail Sales YoY 9.6% 9.4%
Jun-14 Germany CPI YoY 2.2% 2.2%
Jun-14 ECB Main Refinancing Rate 0.000% 0.000%
Jun-14 Initial Jobless Claims 222k 222k
Jun-15 Eurozone CPI Core YoY 1.1% 1.1%


  • The best performing metal this week was silver, up 2.24 percent. A majority of gold traders were either bullish or neutral on bullion this week after being mostly bullish last week due to political uncertainty in Europe, according to the weekly Bloomberg survey. India saw a third straight session of high gold prices due to continued buying by local jewelers with prices hovering around $1,300 internationally.
  • Silver saw five straight days of gains, and holdings in ETFs climbed 0.7 percent in two days, leading to the metal outperforming gold. This week saw the biggest weekly gain for silver since April 20, and demand is rising 2 percent year-over-year, according to Bloomberg. Adrian Ash, director of research at BullionVault, said, “With precious metals looking so boring across the spectrum, silver has the most attractive volatility outlook. There’s a lot more gas left in the tank for silver as funds are likely to all switch to net-long positions in the coming weeks.”

silver outshining gold price raio to mean revert after hitting highest since 2016
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  • European gold-backed ETFs added 25.6 tons of gold last month, joining Asian ETFs in recording inflows for the month, according to the World Gold Council (WGC). Juan Carlos Artigas, director of investment research at the WGC, said that “political turmoil in Italy has helped drive a second consecutive month of inflows into European gold ETFs, reversing declines from earlier this year.”


  • The worst performing metal this week was platinum, up 0.35 percent. Indian gold imports have declined for the fifth straight month and shrank 39 percent in the month of May. India is the world’s second largest consumer of gold, and summer is historically a weaker period for demand. Perth Mint gold coin and bar sales declined to 14,800 ounces in May, the lowest level since April 2017 and down from 15,161 ounces in April.
  • Gold is at its cheapest relative to copper this year, which points to signs that investor optimism on global economic growth is slowing demand for bullion as a safe-haven asset, writes Bloomberg. The yellow metal is also headed for its first quarterly loss in a year. Commodity ETFs saw big outflows of funds this week, led by precious metals ETFs that saw $1.02 billion in redemptions. This is up significantly compared to the previous week’s withdrawal of $379 million.
  • Bloomberg reports that Odey Asset Management has asked the U.K. securities regulator to stop Barrick Gold from voting on a deal they are negotiating for Acacia Mining, of which Barrick is a majority shareholder. Odey believes that it would be a conflict of interest for Barrick to vote on the deal, since it is currently working to resolve a dispute with the Tanzanian government. BlackRock, which is Acacia’s biggest minority shareholder, also asked Barrick to recuse themselves from any vote on the deal. Barrick responded that it does intend to exercise its rights to vote.


  • According to Bart Melek, global head of commodity strategy at TD Securities, gold is set to shrug off its two straight months of declines and rise to $1,400 per ounce in 2019 on dollar weakness. Melek said that “as we move into 2019, the U.S. dollar will weaken, which is a very powerful fuel for the gold complex.”
  • The dollar could be entering a corrective phase, according to Brown Brothers Harriman (BHH), due to its inability to rally on the back on a constructive jobs report and a re-pricing of the trajectory of Federal Reserve policy. BHH also writes that current U.S. trade practices and the weaponization of access to dollar funding could spark a change in the dollar’s status as a reserve currency and that the U.S. is moving away from the very multilateral trade system that they helped create.
  • Fed rate hikes might not affect gold as much as we think. Bullion falls before a decision and rises after a decision has been announced, which is good for gold considering that the market has priced another round of tightening next week, writes Eddie van der Walt of Bloomberg. Gold equities might be safer than gold itself given that the Philadelphia Stock Exchange Gold and Silver Index, which includes the biggest gold miners, has outperformed physical gold in the month of May by nearly 400 basis points.


  • Torsten Slok, chief international economist at Deutsche Bank, says the danger of newly implemented tariffs could be serious if it hurts business confidence and causes executives to put off capital spending and other investment decisions. Ten auto executives met with President Trump last month to discuss several issues, and just weeks after the Commerce Department began investigating whether or not imported cars threaten U.S national security and are now considering tariffs of as much as 25 percent. Brian Smith, Hyundai Motor America’s chief operating officer, said in an interview that “the scary thing is there seems to be a lot of conversation around import-based companies and not even much realization that there’s a huge amount of vehicles produced here by international companies.”
  • CreditSights strategists Glenn Reynolds and Kevin Chun wrote in a note this week that the ratio between U.S. junk-bond yields and their high-grade counterparts have reached levels that “hearken back to the high risk appetite days of October 1997 and June 2007,” just before market downturns. CreditSights worries that event risks such as global trade and Italian political instability could cause things to worsen.
  • China decided last week to scale back its subsidies on solar energy, due to massive increases in adoption.  Installed capacity surged from 3.1 gigawatts (GW) in 2011 to 135.6 GW in 2017. According to Bloomberg New Energy Finance (BNEF), China’s national renewable subsidy fund had a deficiency of an estimated $19 billion at the end of 2017. This could be a headwind to silver consumption since it is used in the process of creating solar panels.

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Gold, World War II and Operation Fish
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Inflationary Tariffs Could Supercharge Gold
A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended June 8 was EJOY, which gained 196.82 percent. On Monday, Ripple Labs announced a donation of $50 million to 17 universities in order to support blockchain research and innovation, reports Coinsquare. “Now is the perfect time to support research and study blockchain, cryptocurrency and digital payments at universities around the world,” Ripple said in a statement.
  • Apple co-founder Steve Wozniak is backing fellow business tycoon Jack Dorsey when it comes to calling for bitcoin to be the world’s single currency, reports MarketWatch. Wozniak believes that the mathematical nature and lack of human intervention makes a good case for the adoption of bitcoin.
  • During a Bloomberg Invest conference, Galaxy Digital’s Michael Novogratz told attendees that he sees institutional investors gradually entering the digital currency space, reports Seeking Alpha. Noted in a separate SA article, Coinbase confirmed it is acquiring Keystone Capital, part of a set of deals to track it toward operating a regulated broker-dealer given approvals. This would allow it to offer blockchain-based securities under SEC oversight, it says.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended June 8 was Swisscoin, which lost 54.22 percent.
  • Bitfinex, one of the largest cryptocurrency exchanges, suffered a so-called denial-of-service attack this week, reports Bloomberg. Bitcoin dropped as much as 2.2 percent for the day, as the attack prevented users from accessing the exchange. The good news, however, is the exchange resumed normal operations, reversing losses, and it gained less than 1 percent on Wednesday. “The attack only impacted trading operations, and user accounts and their associated funds/account balances were not at risk at any point during the attack,” Kasper Rasmussen, head of marketing, said in an email.

bitcoin erases losses after bitfinex goes back online
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  • Although David Siegel, co-founder of hedge fund giant Two Sigma, sees promise in blockchain technology, he is no fan of cryptocurrencies, reports Fortune.com. According to Siegel, the influx of investments in cryptocurrencies is a symptom of a larger problem: investors storing their money, rather than putting it to work in innovative projects. He also stated, “I guess I’m a little skeptical that [cryptocurrencies] are going to hold value the way that people expect that they will.”


  • On Monday the U.S. Securities and Exchange Commission (SEC) announced the appointment of Valerie Szczepanik to run a division specializing in digital assets and innovation, reports MarketWatch. “In this newly created position, Ms. Szczepanik will coordinate efforts across all SEC Divisions and Offices regarding the application of U.S. securities laws to emerging digital asset technologies and innovations, including Initial Coin Offerings and cryptocurrencies,” the SEC said in a press release.
  • Around 500,000 citizens within Florida’s Seminole County will be able to pay their property taxes with bitcoin or bitcoin cash, starting next month, reports TrustNodes.com. Joel Greenberg, recently elected Tax Collector for the county, said that residents will also be able to pay for IDs or license plates with the digital currency. “The aim of my tenure in office is to make our customer experience faster, smarter and more efficient, and to bring government from the 18th century into the 21st century and one way is the addition of cryptocurrency to our payment options,” Greenberg said.
  • Tom Lee of Fundstrat Global Advisors appeared on CNBC early this week to discuss the sluggish price performance of cryptocurrencies in recent months. Anchor Melissa Lee wanted Lee to explain the huge drop off in Google searches for the term “bitcoin.” Keeping his bullish position on the space, Lee explained that Google searches are not the leading indicator for bitcoin, but instead, act as a “coincident indicator.” Viewing online searches, Lee says, should not be looked to as a price indicator.


  • Short seller Jim Chanos, who predicted the fall of Enron, told the Institute for New Economic Thinking that bitcoin would fail in a crisis, reports Bloomberg. “For those who believe that you need to own digital currency as a store of value in the worst-case scenario, that’s exactly the case in which digital currency will work the least,” he explained.
  • According to cybersecurity company Carbon Black, around $1.1 billion worth of cryptocurrencies have been stolen in the first half of this year. In a study released this week, the company says there are 12,000 marketplaces and 34,000 offerings related to crypto theft for hackers to choose from in accessing the dark web to steal cryptos. Carbon Black strategist Rock McElroy told CNBC that “it’s surprising just how easy it is without any tech skill to commit cybercrimes like ransomware.”
  • Quebec, the Canadian province known for its cheap hydroelectric power, has stopped approving new cryptocurrency mining projects in order to create new rules for mining firms looking to open in the area, reports Coindesk. Hydro Quebec, the state-owned power producer, aims to limit available power for miners to just 500 megawatts (MW) in total, far below the 17,000 MW that miners have requested. The new regulations aim to choose only the best mining projects for approval, since there is not enough power to supply all proposed facilities.

Energy and Natural Resources Market



  • Copper was the best performing major commodity this week, rising 6.41 percent. The commodity rallied after warnings of supply disruptions during wage negotiations at Chile’s Escondida mine. The red metal rose to a three-year high, breaking above key technical levels.
  • The best performing sector this week was S&P Metals & Mining Select Industry Index. The group rose 5.78 percent, tracking copper’s best weekly advance in at least one year.
  • The best performing stock for the week was Sandfire Resources. The Australian base metal producer rose 9.82 percent to an all-time high after the company benefited from surging copper prices and a positive assay result from drilling at its recently signed exploration agreement with Auris Minerals.


  • Natural gas was the worst performing commodity this week. The commodity dropped 2.03 percent after inventories rose more than expected.
  • The worst performing sector this week was oil and gas refining and marketing. The group dropped 2.94 percent after U.S. gasoline inventories defied seasonal trends by posting a substantial 4.6 million barrel build, contrary to the expected draws of the heavy driving season between Memorial Day weekend and the 4th of July.
  • The worst performing stock for the week was Fresnillo. The precious metals producer dropped 6.64 after local newspapers in Mexico suggest the company may face local community objections to a proposed mine expansion.


  • China remains optimistic on progress of Sino-U.S. trade talks. According to press releases earlier in the week, the two administrations have achieved concrete progress in the fields of agriculture and energy. Experts have viewed the recent statements as a reflection of China’s desire to resolve trade disputes diplomatically.
  • Steel futures in China climbed to the highest level in three months as the world’s biggest producer increases the scope of its environmental checks on industrial facilities. In addition, steel inventories have resumed their decline, thus reinforcing the price rebound.
  • Copper hit a four-year high as supply risks fuel bullish bets. “From a technical perspective, the copper price broke out of its sideways trend at the beginning of the week and rose, which appears to have triggered technical follow-up buying,” Commerzbank said in a report.

Copper prices rally to four year high
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  • Solar stocks underperformed the energy sector as sector specialists expect new China plans may dim views on demand growth. China’s National Energy Administration (NEA) released its solar management plan, which shows the policy update is far more bearish on solar demand growth than initially expected, owing to lower subsidies than those traditionally applied to these projects.  
  • The U.S. is said to have asked OPEC for an additional one million barrels per day output hike in order to keep crude prices and inflation in check. The rare request came after U.S. retail gasoline prices surged to their highest in more than three years and President Donald Trump publicly complained about OPEC policy. It also follows Washington’s decision to reimpose sanctions on Iran’s crude exports that had previously displaced about one million barrels a day.
  • Economic growth in the eurozone cooled in the first quarter to its weakest pace since mid-2016, according to figures released on Thursday that confirm earlier estimates. The weaker growth narrative is consistent with the slowing purchasing manager’s index (PMI) readings, which have a high degree of correlation with commodity demand.

China Region



  • China’s purchasing manager’s index (PMI) remains strong.  China’s Caixin Services reading came in right in line with analysts’ expectations at 52.9. This means that China’s overall Caixin PMI situation was about in line, even as (if you will recall) the official PMI readings last week actually beat expectations.

China may purchsaing manager index data
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  • Taiwan’s exports number for the May measurement period beat expectations, coming in at a 14.2 percent year-over-year growth rate. This is better than the anticipated 12.0 percent pace.  Imports also came in higher, at 12.0 percent and ahead of an anticipated 9.0 percent pace.
  • China’s imports and exports both came in higher than expectations this week, as exports rose 12.6 percent year-over-year for the May period, thus beating 11.1 percent expectations. Meanwhile, exports climbed 26.0 percent, well ahead of analysts’ anticipated 18.0 percent pace.


  • Energy was the weakest sector in the Hang Seng Composite Index over the last week, falling 1.77 percent in that time.
  • The Nikkei Hong Kong Manufacturing PMI came in weaker than the prior month’s reading, clocking in at only 47.8, down from April’s 49.1.
  • While China’s Foreign Reserves number clocked in a little better than expected at $3.111 trillion, the number was actually down from last month’s $3.125 trillion, due at least in part to a weaker yuan of late.  The weaker number is thus not a major surprise, and again, actually beat expectations, so don’t read too much into it—just be aware that it constitutes the second month of declines in absolute numbers of reserves.


  • The upcoming North Korea summit remains a major potential opportunity, as does any thaw or firm progress in U.S.-China trade relations.
  • Tencent Holdings Ltd. (700 HK) and automaker Geely Automobile Holdings Ltd. (175 HK) are collectively purchasing a 49 percent stake in Bullet Train Network Technology Co., which is the Wi-Fi unit of China’s state-owned bullet-train operator.  The investment comes as the state seeks broadened ownership structures and private investors for some of its state-owned companies and subsidiaries.  Chinese policy-makers have already announced plans to expand the high-speed rail grid to 30,000 kilometers from 25,000 kilometers by the end of the decade, according to Bloomberg News.
  • The World Cup draws nigh, but only South Korea qualified from the Asia-ex-Japan crowd.  There remains a lot of growth potential for the beautiful game in Asia.  So if you need a team (in this bizarre World Cup, even teams like Italy, the Netherlands, and the United States failed to qualify), and you love Asia-ex-Japan, then consider rooting for South Korea!  Some of the most storied winners of the past are expected to come out strong again this year (think Brazil, Germany, Spain, France, and Argentina as favorites to win the Cup), and South Korea will face some extremely tough competition to advance beyond the group stage: the round-robin group stage involves squaring up against not only the defending champion Germany but also Mexico and Sweden.  Good luck to South Korea in the upcoming FIFA 2018 World Cup!


  • As much as the North Korea summit and the issue of U.S.-China trade relations remain relevant opportunities, so too they can quickly sour to threats—whether real or perceived, it ought to be added—should things go awry.
  • China’s Shanghai Composite is trading just a hair off its 52 week lows.
  • Indonesia’s foreign exchange reserves declined to the lowest level in 14 months, Bloomberg reports, after the country’s central bank tapped it to buffer the rupiah from an EM selloff.  Indonesia’s central bank has already put the possibility of further hikes on the table.

Emerging Europe



  • Hungary was the best performing country this week, gaining 2.2 percent. Strong economic data supported equites trading on the Budapest exchange. Gross domestic product (GDP), for the end of the first quarter, was confirmed at 4.4 percent. Industrial production picked up in April, and May inflation spiked to 2.8 percent from the prior reading of 2.3 percent.
  • The Turkish lira was the best performing currency this week, gaining 4.2 percent against the dollar. The Central Bank of the Republic of Turkey unexpectedly hiked rates 125 basis points. The big question now is whether more orthodox policymaking lasts beyond this month’s elections.
  • The health care sector was the best performing among eastern European markets this week.


  • Turkey was the worst performing country this week, losing 3.3 percent. Despite the lira appreciating against the dollar, equites trading on the Istanbul exchange sold off.  Moody downgraded 17 Turkish banks and placed them on review for further downgrade.
  • The Russian ruble was the worst performing currency this week, losing 23 basis points against the dollar. Brent crude oil was down 50 basis points, closing at $76.41 per barrel. The Central Bank of Russia will meet next week and decide on its key policy rate. Russian inflation has been reported at 2.4 percent, despite sharp ruble depreciation in the month of April after U.S. imposed new sanctions on Russia. The Emerging Europe Economics research team predicts the rate to be cut to 6 percent by year-end. The key rate stands at 7.25 percent.

stable inflation will allow central bank of russia to cut policy rate even further
click to enlarge

  • Consumer staples was the worst performing sector among eastern European markets this week.


  • The German finance minister, Olaf Scholz, endorsed Chancellor Angela Merkel’s plan to create European investment system that could invest in financially weaker eurozone member states. The fund size has not been announced yet, but it could be in the low tens of billions of euros. The Netherlands, one of the largest per capita contributors to the European Union budget, opposes any increase in European spending.
  • Central and Eastern Europe’s industrial real estate is booming, according to the Wall Street Journal. Warehouses and distribution facilities are being added in countries like Poland and the Czech Republic, due to the low cost of construction and cheap labor. Rents for modern industrial space in Poznan, Poland are about 3.5 euros ($4.09) a square meter compared with 5 euros a square meter in Berlin, just 170 miles to the west. Amazon.com operates five centers in Poland along its border with Germany and plans further expansion.
  • President Vladimir Putin wants Russia to become a top-five global economy by 2024, with economic growth rates exceeding those of most countries and inflation at a level not above 4 percent. To accomplish this, the government will focus on technology innovation and digitalization for the next couple of years. Already, several of Russia’s largest technology companies have teamed up in order to transform the Russian online market. Yandex has partnered with Sberbank to further develop the already existing Yandex, an online market platform, which has the potential to become the Russian “Amazon”.


  • The euro rebounded to a two-week high on Thursday on bets that the European Central Bank (ECB) may signal a stimulus unwind during next week’s meeting on June 14th. It looks as if the ECB is determined to press on with normalization despite the political uncertainty in Italy. If the debate on whether to end QE will not take place next week during the ECB meeting, the euro and equites could fall.
  • Bloomberg cited an official in the French president’s office, who said France won’t sign a joint G7 statement without major concessions from the U.S. The official added President Emmanuel Macron has signaled that progress was needed on tariffs, the Iran nuclear agreement and the Paris climate accord before he is willing to sign a joint statement. The report highlighted that Macron has concluded that the other members of the G7—the U.K., Germany, Japan, France, Italy and Canada—must stand up to the U.S.
  • Russia’s central bank warned that more than two in five of the country lenders would have a capital shortfall if the price of oil declined to $25 a barrel. More than 40 percent of Russian banks lost their licenses between 2014 and 2017, when the price of oil corrected sharply. Even now, the central bank continues to clean the Russian banking sector, closing 27 more lenders this year through the end of April. Out of 534 Russian lenders, 224 will be in trouble if oil falls abruptly. Brent oil closed at $76 on Friday.

Explore the many uses of gold slideshow

Leaders and Laggards

Weekly Performance
Index Close Weekly
Russell 2000 1,672.49 +24.51 +1.49%
S&P Basic Materials 379.64 +10.82 +2.93%
Nasdaq 7,645.51 +91.18 +1.21%
Hang Seng Composite Index 4,285.67 +53.59 +1.27%
S&P 500 2,779.03 +44.41 +1.62%
Gold Futures 1,303.00 +3.70 +0.28%
Korean KOSPI Index 2,451.58 +12.62 +0.52%
DJIA 25,316.53 +681.32 +2.77%
S&P/TSX Global Gold Index 189.01 -0.08 -0.04%
SS&P/TSX Venture Index 775.22 +9.28 +1.21%
XAU 82.93 -0.11 -0.13%
S&P Energy 565.02 +3.65 +0.65%
Oil Futures 65.65 -0.16 -0.24%
10-Yr Treasury Bond 2.94 +0.04 +1.38%
Natural Gas Futures 2.90 -0.06 -2.03%


Monthly Performance
Index Close Monthly
Korean KOSPI Index 2,451.58 +7.60 +0.31%
Hang Seng Composite Index 4,285.67 +67.83 +1.61%
Nasdaq 7,645.51 +305.61 +4.16%
XAU 82.93 +0.55 +0.67%
S&P/TSX Global Gold Index 189.01 -2.22 -1.16%
Gold Futures 1,303.00 -16.30 -1.24%
S&P 500 2,779.03 +81.24 +3.01%
S&P Basic Materials 379.64 +13.74 +3.76%
DJIA 25,316.53 +773.99 +3.15%
Russell 2000 1,672.49 +76.44 +4.79%
SS&P/TSX Venture Index 775.22 +1.17 +0.15%
Oil Futures 65.65 -5.49 -7.72%
S&P Energy 565.02 +3.73 +0.66%
Natural Gas Futures 2.90 +0.17 +6.03%
10-Yr Treasury Bond 2.94 -0.06 -2.06%


Quarterly Performance
Index Close Quarterly
Korean KOSPI Index 2,451.58 -7.87 -0.32%
Hang Seng Composite Index 4,285.67 -12.67 -0.29%
Nasdaq 7,645.51 +84.70 +1.12%
Natural Gas Futures 2.90 +0.17 +6.22%
Gold Futures 1,303.00 -32.80 -2.46%
S&P 500 2,779.03 -7.54 -0.27%
S&P Basic Materials 379.64 -3.47 -0.91%
S&P/TSX Global Gold Index 189.01 +8.96 +4.98%
XAU 82.93 +4.03 +5.11%
DJIA 25,316.53 -19.21 -0.08%
Russell 2000 1,672.49 +75.35 +4.72%
SS&P/TSX Venture Index 775.22 -53.68 -6.48%
S&P Energy 565.02 +62.84 +12.51%
Oil Futures 65.65 +3.61 +5.82%
10-Yr Treasury Bond 2.94 +0.05 +1.66%


U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission ("SEC"). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC.

This commentary should not be considered a solicitation or offering of any investment product.

Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2018):

Aurelius Minerals Inc
Sandfire Resources NL
Tencent Holdings Ltd.
Geely Automobile Holdings Ltd
Barrick Gold Corp.
Acacia Mining PLC
Sberbank of Russia PJSC

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

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

The S&P Metals & Mining Select Industry Index represents the metals and mining sub-industry portion of the S&P Total Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, American Stock Exchange, NASDAQ National Market and the NASDAQ Small Cap exchanges. The Metals & Mining Index is an equal weighted market cap index.

The S&P 1500 Oil & Gas Refining & Marketing Index is a capitalization-weighted index.

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

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 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 Caixin China General Services PMI (Purchasing Managers’ Index) is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private service sector companies. The index tracks variables such as sales, employment, inventories and prices.

The Caixin China Manufacturing PMI (Purchasing Managers’ Index) is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private manufacturing sector companies.

The Philadelphia Gold and Silver Index is an index of thirty precious metal mining companies that is traded on the Philadelphia Stock Exchange.