The Blockchain Could Potentially Be as Disruptive as Amazon Was in the 1990s

Author: Frank Holmes
Date Posted: September 15, 2017 Read time: 48 min

A quote often attributed to St. Augustine, the early Christian theologian, is: "The world is a book, and those who do not travel read only a page

Press Release: U.S. Global Investors Reports 23% Year-Over-Year Growth in Operating Revenue for Fiscal Year 2017

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

Block chain map

A quote often attributed to St. Augustine, the early Christian theologian, is: “The world is a book, and those who do not travel read only a page.” I feel blessed to be able to travel as much as I do—not because I’m a big fan of 10-hour flights or living out of a hotel room. I feel blessed because travel allows me to meet and speak at length with some truly fascinating and successful people, from CEOs of firms both large and small, to deal lawyers, to audit partners.

Hearing varying opinions on global issues and politics has helped expand the scope and depth of my “book,” or understanding of the world. In turn, I enjoy sharing some of these thoughts with you, as regular readers of Investor Alert and Frank Talk know well.

Opinions come a dime a dozen, of course, and in today’s hyper-partisan world, it’s impossible to expect everyone to agree on all things all of the time.

Case in point: I recently polled readers on their approval of the way Donald Trump has handled his job as president so far. This isn’t a scientific poll by any stretch of the imagination, but for whatever it’s worth, a combined 56 percent of participants said they approve of the president. Amazingly, that’s roughly the percentage of Electoral College votes given to Trump in November. (The exact figure is 56.87 percent.)

Do you approve or disapprove of the way Donald Trump is handling his job as President
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Some could easily take from this poll that Frank Talk readers are huge Trump supporters—and many of them are—but that would be overlooking the fact that nearly 40 percent said they disapprove of the way he’s handled his job.

I share this because it serves as a relatively accurate cross section of the types of opinions and perspectives I come across during my travels. Some of those opinions end up informing my own thinking, some don’t—but all of them are added to my “book.”

Now with North Korea launching even more rockets over Japan, the market makes new highs. This is what I was asked most often this week on CNBC Asia, Bloomberg Radio and Fox Business. As I said then, I’m bullish because the purchasing manager’s index (PMI) is up and oil prices are down, thanks to the ingenuity of Texas fracking, which has created a global peace tax break. The weaker dollar is favorable for exports and gold.

Block chain map

Bitcoin on Sale After the China-Dimon One-Two Punch

Someone whose opinion I greatly admire, even if I don’t always agree with it, is Jamie Dimon’s. The highly-respected JPMorgan Chase CEO was asked this week at a global financial services conference in New York to share his thoughts on bitcoin—which can be as polarizing as President Trump. Some people love the cryptocurrency, some people hate it.

JP Morgan CEO Jamie Dimon

Dimon, who’s decidedly in the latter camp, didn’t mince his words.

Although he likes blockchain technology, which bitcoin is built on top of, he began by saying he would fire any JPMorgan trader who was caught trading bitcoin, which he went on to call “stupid,” “dangerous” and “a fraud.”

“You can’t have a business where people can invent a currency out of thin air,” he said.

With all due respect to Dimon, some might point out that “inventing a currency out of thin air” is how we got Federal Reserve Notes and other forms of paper money in the first place. Even he admits this:

“The first thing a nation does when it forms itself—literally the first—is forming currency.”

Bitcoin—and any of the 800 other cryptocurrencies—takes this idea to the next level, the main difference being that no third party or monetary authority controls its issuances or transactions. It’s all peer-to-peer.

Governments tend to resist anything that disrupts the status quo, which is why we saw China restrict new initial coin offerings (ICOs) last week. I suspect we’ll see a few more countries attempt to regulate ICOs in other ways, and as long as these regulations are fair and reasonable, I welcome them.

The bitcoin price was knocked down following the one-two punch of China and Dimon, falling 39 percent from its peak of $4,919 on September 1. Yesterday it lost more than $611 a unit, one of its worst days ever, but today the cryptocurrency rallied strongly again.

With its ability to validate all transactions in an immutable electronic ledger, the blockchain has the potential to be as disruptive as Amazon was in the late 1990s. When the company went public in 1997, there were serious doubts whether people would willingly give up their credit card information just to buy a book. Since then, Amazon stock is up 8,000 percent, and founder Jeff Bezos briefly overtook Bill Gates in July to become the world’s wealthiest person.

If you’re curious to learn more about how blockchains work, I recommend that you watch this engaging two-minute video.

Gold Price Correlated to Money Supply Growth

In some ways, cryptocurrency more closely resembles gold. Just as there’s only so much gold that can be mined in the world, the number of bitcoins that can ever be mined is set at 21 billion. But the exact amount is irrelevant. It could have been set at 21 trillion—the point is that supply is limited and finite.


The same cannot be said of the U.S. dollar, or any fiat currency, which today is printed “out of thin air” with abandon. This has led to hyperinflation in some instances and destroyed the value of several countries’ currency, including the Zimbabwean dollar and, more recently, the Venezuelan bolivar.

I’m not suggesting we’ll see the same thing happen here in the U.S. Nevertheless, rampant money-printing has certainly contributed to many people’s dwindling trust in traditional monetary systems. A 2016 Gallup poll found that Americans’ confidence in banks is stuck below 30 percent, where it’s been since the beginning of the financial crisis nearly 10 years ago.

When more money is printed, gold has traditionally been a beneficiary, for two key reasons: 1) If the money-printing is accompanied by economic growth, greater access to capital might boost demand for luxury items, including gold (the Love Trade); and 2) If the money-printing isn’t accompanied by economic growth, inflationary pressures might prompt investors to increase their exposure to real assets, such as gold (the Fear Trade).

These were among the findings in a 2010 World Gold Council (WGC) study. Even after seven years, the findings still apply. As you can see below, the price of gold expanded over the years as more and more money was printed.


Gold price correlates with M2 money
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If we want to get really technical, the WGC estimates that for every  1 percent increase in U.S. money supply, the price of gold tends to rise 0.9 percent—nearly as much—within six months.  

According to the most recent Federal Reserve report (September 7), more than $13.67 trillion in M2, or broad money, are now in circulation. That’s up about 1 percent since the end of June, when M2 stood at $13.54 trillion.

So will the gold price climb 1 percent in response? That would amount to only $13 an ounce, but remember, there are other factors driving gold, including negative real interest rates and geopolitical uncertainty.

One final note: A former UBS metals trader was arrested and charged this week with fraud and conspiracy over his alleged role in placing “spoof” orders for precious metals futures contracts. Andre Flotron, a Swiss citizen, was arrested while visiting his girlfriend in New Jersey. Flotron began working for UBS in 1999 but was put on leave in 2014.

See Zero Hedge for more on conspiracies and convictions in court over price manipulation of precious metals. Many cryptocurrency advocates allege this is why Jamie Dimon is so aggressive in knocking down bitcoin. The enthusiasm for bitcoin has accelerated this year with South Korean and Japanese banks accepting them as a form of money.


Index Summary

  • The major market indices finished up this week.  The Dow Jones Industrial Average gained 2.16 percent. The S&P 500 Stock Index rose 1.58 percent, while the Nasdaq Composite climbed 1.39 percent. The Russell 2000 small capitalization index gained 2.31 percent this week.
  • The Hang Seng Composite gained 1.29 percent this week; while Taiwan was down 0.28 percent and the KOSPI rose 1.81 percent.
  • The 10-year Treasury bond yield rose 15 basis points to 2.2 percent.

Domestic Equity Market

SP 500 Economic Sectors
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  • Telecommunications was the best performing sector of the week, increasing by 3.89 percent versus an overall increase of 1.51 percent for the S&P 500.
  • Range Resources was the best performing stock for the week, increasing 11.82 percent.
  • Energy stocks posted their first, four-week winning streak of 2017, rallying behind the 5 percent upward move in WTI futures. Range Resources was one of the biggest beneficiaries, previously being a big laggard.


  • Utilities was the worst performing sector for the week, falling 0.40 percent versus an overall increase of 1.51 percent for the S&P 500.
  • Equifax was the worst performing stock for the week, falling 24.55 percent.
  • Regeneron Pharmaceuticals toppled to a four-month low Monday after its drug Dupixent met its key goals in a Phase 3 asthma trial, but lagged its own earlier results and Amgen’s in one patient group.


  • Laszlo Birinyi, the investing legend, has nailed the eight-year bull market at every turn, and sees stocks continuing to rise going forward. He thinks stock bears are ignoring the high levels of cash floating around the market right now.
  • Evercore upgraded their price target for Nvidia from $180 to $250. "[Nvidia] management believes that investors still severely underestimate the impact of AI and the size of the potential market (‘Every PC/Server will have AI in the future’)," C.J. Muse, an analyst at Evercore, wrote in a note to clients on Friday. "We are only at the cusp of AI’s growth potential and Nvidia is creating THE AI computing industry standard."
  • According to Brian Nowak, an analyst at Morgan Stanly, “80 percent (38 million) of current U.S. Prime members do not shop at Whole Foods." Given that statistic, he expects Amazon to integrate the one to two hour Prime Now offering into Whole Foods. Prime has been Amazon’s biggest advantage in the online retail space. Prime customers spend more money and make more purchases than Amazon’s non-Prime customers, and Amazon is constantly adding new features to the service. Amazon is the first choice retailer for 93 percent of Americans, according to a recent survey done by RBC.


  • Buybacks, a strategy frequently deployed in the last couple of years to boost share prices, is on the decline. Spending on buybacks, however, has slipped over the past six months. Investment-grade-rated corporations repurchased $64 billion worth of stock in the second quarter, down from $84 billion in the fourth quarter of 2016, according to data compiled by Bank of America Merrill Lynch. The decline puts added pressure on the stock market, which has become accustomed to buybacks pushing shares higher during lean times when real fundamental catalysts aren’t present. Ironically, one of the main reasons for the decrease in repurchase spending is that the lofty stock prices that have helped push the market to record highs are making it more expensive to conduct more buybacks.
  • Equifax’s unprecedented data breach, which potentially exposed 143 million American’s personal information last week, has already cost the credit agency $9.75 billion in market value, and the stock could plunge even more, Morgan Stanley says. In its updated bear case out Friday, the investment bank asks, "Where’s the floor?" and says Equifax’s stock could plunge as low as $50 a share, about one-third of where it was before the hack.
  • Oracle forecasts current-quarter adjusted profit largely below Wall Street’s estimates and indicated to slowing growth in its soaring cloud business.


The Economy and Bond Market



  • The outlook for faster U.S. inflation is at its highest since the spring. Breakeven rates, which measure the yield spread between treasuries and similar Treasury inflation protected securities, on five and 10 year notes surged after the August CPI report showed an acceleration. The index rose 0.2 percent month-over-month and matched estimates after five months of missing the mark. Core prices were up 1.7 percent year-over-year, beating estimates.

Bond markets outlook for US price growth climbs after August CPI data
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  • The U.S. Empire Manufacturing Index for the month of September showed a slight dip to 24.4 from 25.2 last month but that was much better than expectations for 18.0.
  • The NFIB Small Business Optimism Index for August increased to 105.3, above expectations of 104.8.


  • U.S. retail sales fell in August, likely impacted by Hurricane Harvey fallout on motor vehicle purchases. Retail sales dropped 0.2 percent last month, the biggest decline in six months. Data for July was revised to show sales increasing 0.3 percent instead of the previously reported 0.6 percent increase.
  • U.S. industrial output fell in August for the first time since January as Hurricane Harvey battered oil, gas and chemical plants along the Gulf Coast and a cool summer sapped utility demand in the east, the Federal Reserve said on Friday. Overall industrial production fell 0.9 percent over the month after a July increase revised upward to 0.4 percent.
  • Consumer confidence declined in September, after hitting a seven-month high in August. The consumer sentiment index, a survey of consumers by The University of Michigan, recorded 95.3 in its preliminary report for the month. Hurricanes Harvey and Irma have greatly impacted expected economic conditions in September.


  • Wednesday’s FOMC meeting will take center stage in the week ahead. The Federal Reserve is widely expected to keep rates on hold, but announce plans to unwind its balance sheet. Investors will also be looking for any changes to the Fed’s economic and interest rate forecasts.
  • In the euro area, September’s flash PMIs next Friday will give a timely update on the economy. Recent PMIs have been pointing to firm GDP growth.
  • The September preliminary U.S. Manufacturing PMI out on Friday is expected to show continued robustness.


  • Moody’s slashed Hartford, Connecticut’s general obligation rating two notches to Caa1 from B2 and put it on review for additional downgrades. According to the firm, the city is in a “precarious” liquidity position with debt service payments every month “compounding the possibility of default at any time.”
  • An increasing number of U.S. cities are saying it’s becoming a struggle to make ends meet. Nearly a third of those surveyed by the National League of Cities said they are less able to cover their economic needs this year than they were in 2016, the most in five years. Aging infrastructure and the cost of employee wages and benefits are the biggest drags on municipal finances, officials said.
  • August’s Leading Index out on Thursday is expected to contract from the previous month’s, pointing to a slowdown.

Gold Market


This week spot gold closed at $1,321.28, down $25.17 per ounce, or 1.87 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 4.44 percent. Junior-tiered stocks outperformed seniors for the week, as the S&P/TSX Venture Index came in higher by 0.99 percent. The U.S. Trade-Weighted Dollar finished the week slightly higher by 0.45 percent.

Date Event Survey Actual Prior
Sep-13 GE CPI YoY 1.80% 1.80% 1.80%
Sep-13 US PPI Final Demand YoY 2.50% 2.40% 1.90%
Sep-13 CH Retail Sales YoY 10.50% 10.10% 10.40%
Sep-14 US Initial Jobless Claims 300k 284k 298k
Sep-14 US CPI YoY 1.80% 1.90% 1.70%
Sep-18 EC CPI Core YoY 1.20% 1.20%


GE ZEW Survey Current Situation 86.3 86.7
Sep-19 GE ZEW Survey Expectations 12 10
Sep-19 US Housing Starts 1175k 1155k
Sep-20 US FOMC Rate Decision (Upper Bound) 1.25% 1.25%
Sep-21 US Initial Jobless Claims 300k 284k


  • The best performing precious metal for the week was gold, down slightly 1.86 percent. Jeff Christian, managing director of research consultancy CPM Group, thinks that the price of gold is headed much higher in the next three years, reports “We thought gold would find a bottom in 2015 and that by 2020 we could see gold set a new record gold price in nominal terms, above $1,700 an ounce,” Christian said.
  • According to Deutsche Bank strategist George Saravelos, it doesn’t look like the U.S. dollar will see a reversal of fortunes anytime soon, reports Business Insider. Since January, the greenback has lost around 11 percent versus a basket of peers. In a note to clients, Saravelos says there are a couple of key changes showing that the dollar is in trouble.  The first is that the market still isn’t pricing additional rate hikes and the second is that the drivers of the foreign exchange market are seeing a fundamental shift. If the dollar stays low, gold could continue to shine.
  • This week, Victoria Gold Corp. announced analytical results from its ongoing 2017 Dublin Gulch campaign, specifically the Olive zone.  Exploration drilling at Olive included 3.3 meters of 1.5 g/t gold, highlighting that additional, near-Olive gold mineralization exists at Dublin Gulch and validating the Potato Hills Trend mineralization model, according to a press release.


  • Although all of the precious metals were down this week, the worst performer was platinum, dropping 3.83 percent. Platinum investors were spooked by Impala Platinum’s annual results earlier in the week, reports Business Day, as production came in below targets. In addition, Bloomberg reports that the company’s Zimbabwe unit has authorized the handover of 24,000 hectares of land to the Zimbabwe government.
  • Gold weakened on Thursday following the announcement of better-than-expected U.S. inflation data for August, reports Kitco News. The U.S. consumer price index (CPI) rose 0.4 percent in August, led by increased gasoline and shelter costs. Gold prices plunged in an immediate reaction to the data released by the U.S. Labor Department.
  • Canadian mining company Eldorado Gold on Monday threatened to suspend a major investment in Greece in 10 days, reports the Associated Press, accusing the government of delaying permits and licenses. Eldorado is one of Greece’s largest foreign investors, but its mines in the northern part of the country have faced “vehement opposition from parts of local communities on environmental grounds, with protests often turning violent,” the article reads. The decision will take effect September 21 unless talks with the government end permit delays.



  • Alamos Gold announced its friendly acquisition of Richmont Mines, whereby Alamos will acquire all of the issued and outstanding shares of Richmont. The arrangement further enhances Alamos’ position as a leading intermediate gold producer, reports Bloomberg. The acquisition provides Alamos with a high-quality, free cash flowing mine in a world class jurisdiction. In other company news, Centerra Gold has reached a comprehensive settlement with the government of Kyrgyz Republic, where the company agreed to make a one-time lump sum payment totaling $57 million. The company will continue to work closely with the government to expeditiously satisfy the strategic agreement. U.S. Global’s gold portfolio manager Ralph Aldis is doing his own boots-on-the-ground review of another company this week, Klondex Mines. The photo below shows a large gold bearing quartz vein in the company’s Hollister Mine, specifically from the Gloria Vein.
  • After China outlawed new initial coin offerings last week, the Asian nation said it will ban the trading of bitcoin and other virtual currencies on domestic exchanges, reports Bloomberg. While dealing another large blow to the cryptocurrency market, this could mean a rush to gold as investors move back to the yellow metal as a store of value. In addition, the People’s Bank of China has done trial runs of its own prototype cryptocurrency, the article continues, taking it a step closer to being the first major central bank to issue digital money.
  •  Amid a recent rally in the price of gold, many metal producers are seeking acquisitions. Shandong Gold Group, one of the biggest Chinese miners of the metal, is considering bids for EMR Capital’s Indonesian gold and silver mine, reports Bloomberg. China Gold International is also exploring a possible bid. EMR Capital is a resources-focused private equity firm, and its sale of the Martabe mine could fetch as much as $1.5 billion, the article continues.


  • Rising gold prices, along with government measures to enforce India’s jewelry industry, are stifling demand in the world’s second-largest bullion market, reports Bloomberg. Typically buying explodes at the start of the traditional festival season of Diwali, but as bullion climbs nearly 10 percent on the Indian market this year, paired with global tensions and reduced chances of a further hike in U.S. rates, the demand outlook has soured, the article continues.

Golds price rally comes just before Indias peak buyi9ng festival Diwali
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  • According to Bloomberg, the U.S. is poised to experience its first annual decline in solar-panel installations, as a drop in rooftop demand slows growth in the world’s second-biggest market. Possibly adding to the decline is a trade complaint that could prompt President Trump to impose tariffs on imported panels. Imposing tariffs would mean “installations would significantly drop,” the article continues.
  • An ex-trader with UBS Group has been arrested and charged with fraud and conspiracy over his suspected role in manipulating the price of precious metals, reports Bloomberg. Andre Flotron, a Swiss citizen, is the second person publicly charged in the U.S. investigation into the fixing of gold, silver, platinum and palladium prices, and could face up to 25 years in prison. “Flotron’s arrest extends the Justice Department’s examination of whether bank traders conspired to rig interest-rate benchmarks and manipulate currency exchanges from 2008 to 2013,” the article reads.

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Energy and Natural Resources Market



  • Crude oil was the best performing major commodity this week rising 5.05 percent. The commodity breached technical resistance levels after the International Energy Agency (IEA) suggested the global demand outlook may be brighter than initially expected.
  • The best performing sector this week was the S&P 1500 Oil & Gas Explorers and Developers Index. The index of major producers rose 6.82 percent as the outlook for prices improves and they rebound from the storm that brought the U.S. energy hub on the Gulf Coast to a standstill.
  • San Juan Basin Royalty, a Texan trust that collects royalties from overriding interests in oil and gas properties in the San Juan basin of New Mexico, was the best performing stock in the broader resource market this week. The stock rallied 12.84 percent nearing a 52-week high, tracking oil and natural gas prices, both of which posted their best weekly advance in at least two months. 


  • Copper was the worst performing major commodity this week dropping 2.93 percent. The metal headed for its lowest close in almost a month, after data showed slowing growth in Chinese factory output, fixed asset investment and home sales, hurting the demand outlook.
  • The worst performing sector this week was the TSX Diversified Metals and Mining Index. The index fell 8.25 percent following a sharp drop in copper and industrial metals prices on the back of weaker macro data out of China.
  • The worst performing stock for the week was Fresnillo PLC. The Mexican silver and gold producer dropped 11.10 percent in response to weaker precious metals prices. Fresnillo was amongst a slew of London listed precious metals companies which were affected by outsized momentum selling relative to its North American and Australian peers.


  • The IEA has revised upwards its growth estimate for crude oil to 1.6 million barrels per day. The Agency cites stronger-than-expected OECD demand growth, particularly in Europe and the U.S. Despite acknowledging that hurricanes Harvey and Irma may slow U.S. oil demand growth in the third quarter of 2017, the IEA revised its demand projections upwards for the third consecutive month.

The IEA raises 2017 oil demand growth forecast three months in a row
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  • India’s August gold imports are said to have surged 92 percent year-on-year. The South Asian nation imported 41.2 metric tons of gold in August, nearly doubling the 21.5 metric tons imported in the same month last year. The growth in demand for gold coincides with reports of higher inflation in food and fuel products which drove India’s inflation to 3.24 percent in August from 1.88 percent in July.
  • U.S. gasoline inventories drop the most since at least 1990 as the nation recovers from the effects of hurricanes Harvey and Irma. The Department of Energy, in its weekly inventory report, showed a shocking draw of 8.4 million barrels from commercial gasoline inventories. The largest inventory draw since 1990 was fueled by lower refinery output as well as a spike in gasoline demand.


  • Chinese macro data for August published this week has disappointed macro analysts. Industrial output grew by 6 percent in August, far below the 6.6 percent increase expected by economists and bucking the trend shown in recent PMI surveys. Fixed asset investment rose 7.8 percent, also below consensus expectations for an 8.2 percent rise. Both industrial metals and base metals dropped on the announcement, suggesting the current price momentum may continue to fade as fundamentals do not support further strength.
  • China’s yuan fixing is back in focus after the central bank fixed the currency at a weaker-than-expected level for the third day in a row Wednesday. The removal of a reserve requirement rule on the trading of foreign-exchange forwards, are fueling bets that authorities want to limit gains after the onshore yuan surged more than 4 percent against the dollar in the three months through September 7. A weaker yuan increases the domestic price of imported iron ore and copper, and slows down demand for these raw commodities.
  • OPEC’s crude output may continue to rise as Nigeria says it will resist any attempts to curb its oil production when it meets with OPEC and Russia later this month, according to a Financial Times story. The African producer, which has been absent from the OPEC supply cut agreement as it struggled to recover production following a series of terrorist attacks on its infrastructure, said it will not join any supply agreement at least until March 2018, posing a threat to the cartel’s efforts to cut global supplies and boost crude prices toward $60 a barrel.

China Region



  • The Philippines is the best performing country in the region this week, up 1.97 percent. Moody’s Investors Service forecast that Philippine economic growth will exceed 6 percent until next year. The group added that conflict in the south, along with a deadly drug war, pose a rising risk but are unlikely to derail the economy.  Moody’s cites the government’s focus on infrastructure, buoyant private sector investment and the recovery in external demand as helping the Philippine markets. The country is now Morgan Stanley’s top choice in Southeast Asia.
  • The Malaysian ringgit was the best performing currency in the region this week, up 26 basis points.
  • Information technology was the best performing sector this week, up 4.35 percent.


  • Singapore was the worst performing country in the region this week, down 59 basis points.
  • The Chinese renminbi was the worst performing currency in the region this week, down 86 basis points. China’s policy makers are pushing back against a surge in the yuan by lifting rules that made betting against the currency expensive. Effective Monday, financial institutions will no longer need to set aside cash when buying foreign exchange for clients through currency forwards, the official Financial News reported, citing a People’s Bank of China notice. This new measure may decelerate the recent surge in the yuan and as a result may be beneficial for exporters. However, this measure may be negative for commodities importers.
  • Telecommunications was the worst performing sector this week, down 1.19 percent.


  • According to Markit Economics, China’s Caixin Services PMI rose to 52.7 in August, the highest improvement since May 2017, while the Caixin Manufacturing PMI came in at a six-month high of 51.6. The country’s official manufacturing PMI came in above expectations at 51.7. China’s manufacturing sector has been posting solid growth thanks to domestic infrastructure spending and a recovery in exports, reports CNBC.

Chinas August purchasing managers index data
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  • Inflationary pressure emanating from the factory to the world is proving more resilient than economists anticipated. China’s producer price inflation (PPI) accelerated to 6.3 percent in August from a year earlier, exceeding all but one of 38 estimates in Bloomberg’s survey of economists. The surprise strength gives support for global inflation spanning from metals to fuel and shows the effects of resilient domestic demand and reduced supplies of some commodities. China’s nominal GDP growth year-over-year has a high correlation to China PPI year-over-year.
  • Bloomberg reports that China’s consumer and household confidence is the highest since 1996. The consumer confidence index climbed to 114.6 in July, up from 100 in May. Per capita disposable income rose 7.3 percent year-over-year in the first half.


  • North Korea threatened to inflict the “greatest pain and suffering” on the U.S. should the United Nations Security Council impose fresh sanctions against the country over its latest nuclear test. The U.S. is pushing China to exert more influence on North Korea. China is concerned about any moves that could bring about the collapse of the North Korean regime, a scenario that would likely lead to greater regional instability and potentially put a U.S.-backed Seoul government on its northeastern border. China is facing a delicate balancing act here, but it did vote in favor of UN sanctions on Korea that left out an oil embargo.  China has also taken some bilateral moves, such as not buying North Korean coal.
  • China’s relations with the U.S. remain in flux.  The U.S. just rejected a China-led purchase of U.S. chipmaker Lattice on national security grounds.  Chinese officials warned that blocking sensitive investments should not be used as a protectionist tool.  Trade will likely be an ongoing sticking point in bilateral relations.
  • Disappointing China data released Thursday: investment, industrial output and retail sales in August point to a second-half slowdown. During the first eight months of this year, investment in fixed assets in urban areas such as factories and highways grew at the slowest pace in almost 18 years, up 7.8 percent from a year ago, according to the National Bureau of Statistics (NBS).Meanwhile, industrial output in August registered the weakest growth of this year, up 6 percent from a year ago, the NBS said. Retail sales rose 10.1 percent from the same month in 2016, the smallest gain in six months.

Emerging Europe



  • The Czech Republic was the best performing country this week, gaining 2.9 percent. Czech National Bank’s Chief Economist Tomas Holub said that rising inflation may prompt the central bank to hike rates further this year.  The bank’s main rate was raised by 20 basis points from the record low of 0.5 basis points at the last meeting in August. The Czech Republic is the first European country to raise rates.
  • The Russian ruble was the best relative performing currency this week, losing 40 basis points against the U.S. dollar. Historically, the correlation between the ruble and Brent crude oil is high. In the past five days the price of Brent increased by 3 percent.
  • Energy was the best performing sector among eastern European markets this week.


  • Greece was the worst performing country this week, losing 3.3 percent. The third review may take longer to complete. Until now, the government has targeted December for the completion of the review. The official’s comments indicate that more time will be needed to complete a total of 113 prior actions, 95 of which have been completed by Christmas, wrote Alex Boulougouris from Wood & Company.
  • The Hungarian forint was the worst performing currency this week, losing 1.6 percent against the U.S. dollar. European currencies fell while the dollar gained on increased expectations of rate hikes in U.S. later this year. 
  • Consumer staples was the worst performing sector among eastern European markets this week.


  • Germany will go to the polls on September 24 in a federal election. Angela Merkel’s Christian Democratic Union Party (CDU) is leading in the polls. Record-high employment, rising real wages and low borrowing costs will continue to support consumer spending and economic growth. 
  • Turkey’s economy had a strong second quarter and growth is set to be even quicker in the third quarter, according to Capital Economics. Second quarter GDP was reported at 5.1 percent, exports and fixed investment were the main drivers of the economy.
  • The Russian central bank resumed monetary easing, cutting its main rate by 50 basis points from 9.0 percent to 8.5 percent, after inflation fell to a record low. Central bank’s governor, Elvira Nabiullina, has said the key rate can reach its nominal equilibrium level of 6.5 to 7 percent once inflation is stable at 4 percent for one to two years. Many analysts expect more cuts to follow.


  • Russian equities are underperforming emerging markets after a strong 2016. In 2016, the MSCI emerging markets index rose 11.5 percent while the MSCI Russia index gained 56 percent. This year, the MSCI emerging markets index is up 30 percent, while Russia is slightly down. This underperformance should continue, says Win Thin from the BBH Global Currency Strategy Team, as the group’s emerging markets equity model has Russia in an underweight position. The correlation between Russian stocks and oil prices has fallen near 0.10, well below 0.70 seen in 2015 and 2016.

Russian equities are underperforming emerging markets year to date
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  • Putin is conducting a military exercise that is alarming officials across Europe. Russia sent thousands of troops into Belarus to defend against an imaginary invasion from the west. Belarus says only 12,700 troops are involved, a level just below the 13,000 that would trigger compulsory international monitoring. Germany and Poland put the real total at more than 100,000. Putin may be using this military move as an excuse to deploy more weaponry and personnel along Russia’s borders and keep them there, according to a presidential spokeswoman in Vilnius.
  • Reuters cited Fitch analyst Ed Parker, who said the stability of Italy’s government remains a source of risk for the euro zone. He added its biggest concern in Italy, is that we might not get a stable government. Furthermore, he highlighted that we can’t completely discount the bigger downside risk of a euro-sceptic party being part of a coalition.

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Leaders and Laggards

Weekly Performance
Index Close Weekly
Russell 2000 1,431.71 +32.28 +2.31%
S&P Basic Materials 351.43 +8.40 +2.45%
Nasdaq 6,448.47 +88.28 +1.39%
Hang Seng Composite Index 3,852.52 +48.97 +1.29%
S&P 500 2,500.23 +38.80 +1.58%
Gold Futures 1,325.30 -25.90 -1.92%
Korean KOSPI Index 2,386.07 +42.35 +1.81%
DJIA 22,268.34 +470.55 +2.16%
S&P/TSX Global Gold Index 200.83 -7.86 -3.77%
SS&P/TSX Venture Index 779.66 +7.67 +0.99%
XAU 88.38 -3.27 -3.57%
S&P Energy 487.76 +16.33 +3.46%
Oil Futures 49.89 +2.41 +5.08%
10-Yr Treasury Bond 2.20 +0.15 +7.21%
Natural Gas Futures 3.02 +0.13 +4.64%


Monthly Performance
Index Close Monthly
Korean KOSPI Index 2,386.07 +37.81 +1.61%
Hang Seng Composite Index 3,852.52 +116.95 +3.13%
Nasdaq 6,448.47 +103.36 +1.63%
XAU 88.38 +3.79 +4.48%
S&P/TSX Global Gold Index 200.83 +1.87 +0.94%
Gold Futures 1,325.30 +42.40 +3.31%
S&P 500 2,500.23 +32.12 +1.30%
S&P Basic Materials 351.43 +10.24 +3.00%
DJIA 22,268.34 +243.47 +1.11%
Russell 2000 1,431.71 +48.18 +3.48%
SS&P/TSX Venture Index 779.66 +10.17 +1.32%
Oil Futures 49.89 +3.11 +6.65%
S&P Energy 487.76 +26.58 +5.76%
Natural Gas Futures 3.02 +0.13 +4.64%
10-Yr Treasury Bond 2.20 -0.02 -1.03%


Quarterly Performance
Index Close Quarterly
Korean KOSPI Index 2,386.07 +24.24 +1.03%
Hang Seng Composite Index 3,852.52 +369.18 +10.60%
Nasdaq 6,448.47 +296.71 +4.82%
Natural Gas Futures 3.02 -0.01 -0.43%
Gold Futures 1,325.30 +61.90 +4.90%
S&P 500 2,500.23 +67.08 +2.76%
S&P Basic Materials 351.43 +12.18 +3.59%
S&P/TSX Global Gold Index 200.83 +2.88 +1.45%
XAU 88.38 +8.67 +10.88%
DJIA 22,268.34 +884.06 +4.13%
Russell 2000 1,431.71 +24.98 +1.78%
SS&P/TSX Venture Index 779.66 +3.75 +0.48%
S&P Energy 487.76 -1.19 -0.24%
Oil Futures 49.89 +5.15 +11.51%
10-Yr Treasury Bond 2.20 +0.05 +2.23%


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.

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 06/30/2017:

Centerra Gold Inc.
Eldorado Gold Corp.
Klondex Mines
Range Energy Resources
Richmont Mines Inc.
Victoria Gold Corp.

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 MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
The MSCI Russia 10/40 Index is calculated from the MSCI Russia Index, a market capitalization-weighted index designed to measure equity market performance in Russia. MSCI 10/40 Equity Indices are calculated with a base level of 100 as of December 31, 1998.
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.
M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.
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 Producer Price Index (PPI) measures prices received by producers at the first commercial sale. The index measures goods at three stages of production: finished, intermediate and crude.
Free Cash Flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.
The S&P 1500 Supercomposite Oil & Gas Exploration & Production Index is a capitalization-weighted index comprised of stocks whose primary function is exploring for natural gas and oil resources on land or at sea. The S&P/TSX Composite Diversified Metals & Mining Sub Industry Index is a subset of the constituents of the S&P/TSX Composite Index.
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 Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy. The Empire State Manufacturing Index is an index based on the monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. The index summarizes general business conditions in New York State.
The National Federation of Independent Business’s (NFIB) Index of business optimism is based on responses from 1221 member firms.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.