The World Is Running out of Gold Mines–Here’s How Investors Can Play It

Author: Frank Holmes
Date Posted: October 27, 2017 Read time: 45 min

My good friend Pierre Lassonde, cofounder and chairman of Franco-Nevada, doesn't know how we'll replace the massive gold deposits of the past 130 years or so.

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

the world is running out of gold mines, here's how investors can play it

My good friend Pierre Lassonde, cofounder and chairman of Franco-Nevada, doesn’t know how we’ll replace the massive gold deposits of the past 130 years or so. Speaking with the German financial newspaper Finanz und Wirtschaft this month, Pierre says we’re seeing a significant slowdown in the number of large deposits being discovered. Legendary goldfields such as South Africa’s Witwatersrand Basin, Nevada’s Carlin Trend and Australia’s Super Pit—all nearing the end of their lifecycles—could very well be a thing of the past.

Over the medium and long-term, this could lead to a supply-demand imbalance and ultimately put strong upward pressure on the price of gold.

According to Pierre:

If you look back to the 70s, 80s and 90s, in every one of those decades, the industry found at least one 50+ million ounce gold deposit, at least ten 30+ million ounce deposits and countless 5 to 10 million ounce deposits. But if you look at the last 15 years, we found no 50 million ounce deposit, no 30 million ounce deposit and only very few 15 million ounce deposits. 

So few new large mines are being discovered today, Pierre says, mostly because companies have had to slash exploration budgets in response to lower gold prices. Earlier this year, S&P Global Market Intelligence reported that total exploration budgets for companies involved in mining nonferrous metals fell for the fourth straight year in 2016. Budgets dropped to $6.9 billion, the lowest point in 11 years. Although we’ve seen an increase in spending so far this year, it still dramatically trails the 2012 heyday.

Total nonferrous exploration budgets fell to an 11 year low in 2016
click to enlarge

And because it takes seven years on average for a new mine to begin producing—thanks to feasibility studies, project approvals and other impediments—output could recede even more rapidly in the years to come.

“It doesn’t really matter what the gold price will do in the next few years,” Pierre says. “Production is coming off, and that means the upward pressure on the gold price could be very intense.”

Have We Reached Peak Gold?

Frank Holmes standing next to Pierre Lassonde right at Mines and Money London in December 2015

What Pierre is talking about, of course, is the idea of “peak gold.” I wrote about this last year and suggested another factor that could be curtailing new discoveries—namely, the low-hanging fruit has likely already been picked. Gold is both scarce and finite—one of the main reasons why it’s so highly valued—and explorers are now having to dig deeper and venture farther into more extreme environments to find economically viable deposits.

Other factors contributing to the decline include tougher regulations and higher production costs. And unlike with the oil industry, no “fracking” method has been invented yet to extract gold from hard-to-reach areas, though Barrick—the world’s largest producer by output—has been experimenting with sensors at its Cortez project in Nevada.

Take a look at how drastically annual output has fallen in South Africa, once the world’s top gold-producing country by far. In the 1880s, it was the discovery of gold in South Africa’s prolific Witwatersrand Basin—responsible for more than 40 percent of all gold ever mined in human history, if you can believe it—that helped transform Johannesburg into one of the world’s largest and most populous cities. Today, South Africa’s economy is the most advanced and stable in Sub-Saharan Africa, all thanks to the yellow metal.

In 1970, miners dug up more than 1,000 metric tons—an unfathomably large amount. Since then, production has steadily dropped. No longer in the top spot, South Africa produced only 167.1 tons in 2016, an 83 percent plunge from the 1970 peak. Meanwhile, miners in the notorious Mponeng mine—already the world’s deepest at 2.5 miles—continue to follow veins even deeper into the earth at greater and greater expense.

South Africa's gold output has been in steady decline for more than 45 years
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Australia could soon be seeing a similar downturn over the next four decades. A first-of-its-kind study conducted by MinEx Consulting and released this month, shows that Australia’s gold production is expected to see a significant drop between now and 2057. By then, all but four of the 71 currently operating mines in the country will be exhausted. Most of these will close in the next couple of decades. Any additional production will be dependent on new exploration success, which will become increasingly difficult if companies don’t invest in exploration and if the Australian government doesn’t relax rules in the mining space.

MinEx estimates that “for the Australian gold industry to maintain production at current levels in the longer term, it will either need to double the amount spent on exploration or double its discovery performance.”

To be fair, large discoveries haven’t disappeared entirely. Back in March it was reported that Shandong Gold Group, China’s second-largest producer, uncovered a deposit in eastern China containing between 380 and 550 metric tons of the yellow metal. If true, this would make it the country’s largest ever by amount. The mine has an estimated lifespan of 40 years once operations begin.

In addition, Kitco reports this month that Toronto-based Seabridge Gold recently stumbled upon a significant goldfield in northern British Columbia. The find appeared, coincidentally, after a glacier retreated. It’s estimated to contain a whopping 780 metric tons.

“There’s no question that as glaciers retreat, more ground will become available for exploration and more discoveries could be made in that part of the world,” Seabridge CEO Rudi Fronk told Kitco.

The company already has the permits to begin mining.

Seabridge gold is up 15 percent for the three month period
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Exploration Budgets Jumped

Gold represents over half of global annual commodities exploration budgets


As I said earlier, we just saw an encouraging spike in the amount spent on exploration. According to S&P Global Market Intelligence, exploration budgets increased in the 12-month period as of September for the first time since 2012. Budgets jumped 14 percent year-over-year to $7.95 billion, with gold explorers leading the way. During this period, gold companies spent around $4 billion on exploration, which is roughly half the value of all nonferrous metals mining budgets.

But because exploration is getting more expensive for reasons addressed earlier, senior producers might very well decide instead to acquire smaller firms with proven, profitable projects.

This could create a lot of value for investors, so I would keep my eyes on juniors that look like targets for takeover. Dealmaking in the Australian mining industry, for example, is showing some growth this year compared to last, according to a September report by accounting firm BDO. Last year, Goldcorp finalized its deal to acquire Vancouver-based junior Kaminak Gold, and in May of this year, El Dorado announced it was taking over Integra Gold for C$590 million. I expect to see even more deals in the coming months.

In the meantime, I agree with my friend Pierre’s “absolute rule” that investors should hold between 5 and 10 percent gold in your portfolio. I would also add gold stocks to the mix, especially overlooked and undervalued names, and rebalance once and twice a year.

U.S. Global Investors Recognized for Best Retail Communication

Gold represents over half of global annual commodities exploration budgets


On a final note, I’m very pleased to share with you that U.S. Global Investors was recognized this week at the Mutual Fund Education Alliance’s (MFEA) STAR Awards in Chicago. Our firm walked away with three awards, one for best newsletter for advisors, one for our Gold’s Love Trade whitepaper and one for best overall retail communications.

This is truly a great honor, and I would like to thank the MFEA and its judges for recognizing the long hours, hard work and innovation that our crack investments and marketing teams put into making our market commentary among the very best on the internet.

You can see the full list of winners by clicking here. Congratulations to all!





How well do you know your S and P 500 index

Index Summary

  • The major market indices finished mixed this week.  The Dow Jones Industrial Average gained 0.45 percent. The S&P 500 Stock Index rose 0.23 percent, while the Nasdaq Composite climbed 1.09 percent. The Russell 2000 small capitalization index lost 0.06 percent this week.
  • The Hang Seng Composite lost 0.34 percent this week; while Taiwan was down 0.18 percent and the KOSPI rose 0.28 percent.
  • The 10-year Treasury bond yield rose 3 basis points to 2.41 percent.

Domestic Equity Market

SP 500 Economic Sectors
click to enlarge


  • Information technology was the best performing sector of the week, increasing 2.87 percent compared to an overall increase of 0.21 percent for the S&P 500 Index.
  • Align Technology was the best performing stock for the week, increasing 17.45 percent.
  • Caterpillar beat Wall Street’s profit and sales estimates, driven by strong demand for its construction equipment in North America and China. Additionally, it raised its full-year forecasts.


  • Telecommunications was the worst performing sector for the week, falling 3.14 percent compared to an overall increase of 0.21 percent for the S&P 500.
  • Celgene was the worst performing stock for the week, falling 19.09 percent.
  • Chipotle shares fell 15 percent to a five-year low after the company reported earnings that were weaker than expected. The company also lowered its outlook for the year after hurricanes and a data breach negatively impacted its business last quarter.


  • T-Mobile beat on both the top and bottom lines, and raised the lower end of its expected range of customer additions for the year. The company said it is open to various strategic options and has acknowledged interest in talking with Sprint about a merger.
  • Tesla is in talks with Shanghai’s municipal government to set up a factory in the region. China has not yet allowed foreign automakers to establish wholly owned factories in the country, the world’s largest auto market.
  • Cisco is buying software maker BroadSoft for about $1.9 billion. The move comes as part of an effort to further expand its reach in both software and cloud services.


  • Analysts at Morgan Stanley said hospitals are already feeling the repercussions of uncertainty surrounding the Affordable Care Act. In a research note, they showed evidence demonstrating there is a correlation between the percentage of uninsured Americans and bad debt at hospitals. In the third quarter of 2017, the percentage of uninsured Americans hit its highest rate since 2014.
  • Advanced Micro Devices (AMD) announced it is expecting a big drop in revenue. The company said that for the fourth quarter of 2017,  it expects revenue to decrease approximately 15 percent sequentially.
  • AT&T lost a record amount of pay-TV subscribers as it announced it lost 385,000 pay-TV subscribers during the third quarter because of increased competition, stricter credit standards and hurricane disruptions.

uncover the patterns in commodity returns

The Economy and Bond Market



  • The U.S. economy grew faster than analysts had expected in the third quarter of 2017, with the Bureau of Economic Analysis saying America’s real gross domestic product increased at 3 percent, above the forecasted growth of 2.6 percent and demonstrating resilience in the face of debilitating hurricanes.
  • October’s preliminary U.S. Manufacturing purchasing managers’ index (PMI) data came in at 54.5, beating expectations of 53.4.
  • The European Central Bank (ECB) said it will further taper its bond-buying program, but extended quantitative easing until at least September 2018. From January, the ECB will reduce its bond-buying to €30 billion per month, down from €60 billion per month. The decision reflects a stronger European economy.


  • Spanish Prime Minister Mariano Rajoy fired the cabinet of the Catalan government and dissolved its Parliament just hours after Catalan lawmakers voted to declare independence from Spain. Rajoy has also called for elections in the Catalan region to be held on December 21, 2017.
  • U.S. wholesale inventories came in at 0.3 percent month-over-month, weaker than the forecasted 0.4 percent.
  • The Richmond Fed Manufacturing Index was reported at 12, falling short of expectations for a reading of 17.


  • According to Barclays, investors should consider callable municipal bonds due to their shorter effective durations relative to bullets, considering the Federal Reserve’s projected policy path. Callable municipal bonds exhibit slightly lower duration and higher yield when compared to bullet bonds with similar ratings.
  • The House passed the Senate’s budget resolution on Thursday by a vote of 216 to 212. It was the last procedural step before the GOP can move to fast-track tax-reform legislation that’s expected to be unveiled next week.
  • With the Fed clinging to the Phillips curve framework, evidence of a tight labor market and accelerating wages will be needed to keep the FOMC on track to raise rates in December.


  • The 10-year Treasury yield closed above 2.4 percent for the first time since May on Tuesday after a survey of Senate Republicans appeared to show support for perceived hawk John Taylor to lead the Federal Reserve. Just before yields touched session highs, DoubleLine Capital CIO Jeffrey Gundlach tweeted, “The moment of truth has arrived for secular bond bull market!” A break higher for the yield is being closely watched by traders.

Gundlach warns bond bulls as 10 year treasury yield climbs above key percent level
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  • The credit quality of U.S. states overall is worsening as governments’ costs grow quicker than tax collections, according to Conning. Tax revenue rose 2.6 percent year-over-year in the first half of this year, but that still isn’t enough to keep pace with rising expenses. 
  • Ray Dalio said the Federal Reserve should view the U.S. as split into two economies as it retools monetary policy. The Bridgewater founder said that “average statistics” are masking what’s really happening in the U.S., noting wide disparities in labor, retirement savings and death rates between the country’s top 40 percent and bottom 60 percent. It would be a “serious mistake” to focus on averages, which could suggest a brighter picture than reality, he said.

Gold Market

This week spot gold closed at $1,272.99, down $7.51 per ounce, or 0.59 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 3.13 percent. Junior-tiered stocks outperformed seniors for the week, as the S&P/TSX Venture Index came in off just 0.27 percent. The U.S. Trade-Weighted Dollar reversed course this week and surged 1.22 percent.

Date Event Survey Actual Prior
Oct-25 Durable Goods Orders 1.0% 2.2% 2.0%
Oct-25 New Home Sales 554k 667k 561k
Oct-26 Hong Kong Exports YoY 5.9% 9.4% 7.4%
Oct-26 ECB Main Refinancing Rates 0.000% 0.000% 0.000%
Oct-26 Initial jobless Claims 235k 233k 223k
Oct-27 GDP Annualized QoQ 2.6% 3.0% 3.1%
Oct-30 Germany CPI YoY 1.7% 1.8%
Oct-31 Eurozone CPI Core YoY 1.1% 1.1%
Oct-31 Conf. Board Consumer Confidence 121.0 119.0
Oct-31 Caixin China PMI Mfg 51.0 51.0
Nov-1 ADP Employment Change 190k 135k
Nov-1 ISM Manufacturing 59.3 60.8
Nov-1 FOMC Rate Decision (Upper Bound) 1.25% 1.25%
Nov-2 Initial Jobless Claims 235k 233k
Nov-3 Change in Nonfarm Payrolls 310k -33k
Nov-3 Durable Goods Orders 2.2%


  • The best performing precious metal for the week was palladium, down slightly by 0.42 percent.  Germany’s BASF noted that the automotive industry appears to be responding to the price surge in palladium this year and are slowing down purchases.  According to Bloomberg, gold traders and analysts are bearish for the first time in four weeks as the dollar strengthens. The passing of the U.S. budget by the Senate lifted hopes by boosting risk sentiment and pushing yields higher. Joni Teves of UBS says a large fiscal package is a key downside risk for gold as it would result in a higher policy rate path.
  • Even though there has been a pullback in gold prices, large buy orders came into the market two times this week and spiked prices higher. On Monday, 18,1792 gold contracts were traded in a span of five minutes and on Wednesday another 21,129 contracts were traded. Tai Wong, head of base and precious metals trading at BMO Capital Markets, bets the dollar is going to retrace and it will be good for gold.
  • Paul Wright, former CEO of Eldorado Gold Corp., will resign from his board position after 20 years at the company and just months after resigning as CEO. Although stock value tripled during his tenure, Wright’s late career was marked by a high-profile dispute with the Greek government after investing over $2 billion in the country. Following the results of the European Central Bank meeting, gold is seeing some selling pressure and trade surging after the dollar index rallied.


  • The worst performing precious metal for the week was silver, down 1.05 percent.  Gold declined for the sixth week out of seven to trade near the lowest close in more than two months, writes Ranjeetha Pakiam.  In addition, China’s purchases of gold from Hong Kong dropped to an eight-month low in September as wholesalers have ample stocks and imports will likely remain weak.
  • European Central Bank President Mario Draghi outlined plans to cut monthly bond purchases in half beginning in January and indicated that zero percent interest rates could remain at current levels.  The euro slid down in value taking gold with it as the dollar seems to be the only currency in the near-term to potentially see an interest rate hike.

taper tumbler gold slips with euro as ECB slows asset purchases
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  • Eldorado Gold plunged more than 28 percent after cutting its annual production forecasts for its flagship mine in Kisladag Turkey for the second time this year after struggling with low gold recoveries. Production guidance is down to 170,000-180,000 ounces from 230,000-245,000 ounces, citing lower-than-expected recovery, writes Aoyon Ashraf.  Turkey contributed about 91 percent of Eldorado’s 2016 revenue.


  • The U.S. posted its largest budget deficit since 2013 in the fiscal year that just ended and the Senate also approved a budget resolution that would fast-track up to $1.5 trillion in tax cuts. These measures would worsen the deficit situation, writes Saleha Mohsin. Despite this threat of higher interest rates, rising budget deficits have historically been associated with higher gold prices.
  • Ray Dalio, founder of Bridgewater Associates, shared that the top 0.1 percent of households now holds about the same amount of wealth as the bottom 90 percent – similar to the wealth gap from 1935 to 1940 in the “era of populists” much like we are seeing today. Dalio continued to say that the Federal Reserve should more closely monitor the economic struggles of the bottom 60 percent of the economy and look beyond average statistics.
  • Gold may climb back above $1,300 per ounce this year prompting investors to buy or increase their holdings as insurance, according to Gold Fields Mineral Services. Construction of Fruta del Norte, Ecuador’s first large gold mine, owned by Lundin Gold Inc. is underway while other companies continue to rush to the country after the government lifted a moratorium on exploration concessions last year. Additionally in South America, Mirasol Resources announced that one of its Argentine subsidiaries signed an exploration agreement for a gold-silver project.


  • Chinese millennials are demonstrating a different taste toward gold from their elders as they pull away from traditional 24K gold in favor of exclusivity and individuality in their jewelry, writes Ruonan Zheng of the Jing Daily. Gold jewelry sales fell 3.6 percent in the first half of 2017 compared to the same period in 2016.  Millennials are buying low caret value gold where more uniquely designed jewelry can be fabricated for younger taste versus a simple pure gold chain.
  • With few deals completed and negative investor relations, the total value of mining deals involving North American companies is $3.7 billion, down 40 percent from the same time in 2016. Nate Trela writes that possible explanations are displeasure with results of transactions in recent years and traders taking advantage of arbitrage opportunities.
  • Barrick Gold settled a dispute between its Acacia Mining unit and the Tanzanian government by agreeing to hand 50 percent of the economic benefits over to the country. This grew criticism from mining investors saying Barrick may have set a baseline for what nations may demand from mining companies.

Discover how China became the worlds second largest economy

Energy and Natural Resources Market



  • Gasoline was the best performing major commodity this week, rising 5.5 percent. The commodity rallied after weekly inventory numbers released by the Department of Energy were greater than expected, and there was an unseasonably high inventory draw for the week. In addition, hedge fund managers were most bullish in four weeks as evidenced by increased bets that the commodity will continue to rally.
  • The best performing sector this week was chemicals. The group comprised of fertilizer, agricultural chemical and petrochemical producers rose 1.2 percent for the week as major players reported strong revenue and earnings beats for their third-quarter financials.
  • Beach Energy, a leading Australian oil and gas producer, was the best performing stock in the broader resource market this week. The stock rallied 10.2 percent to a 52-week high after the company announced the acquisition of privately held Lattice Energy.


  • Natural gas was the worst performing major commodity this week, dropping 5.6 percent. The commodity dropped as weather forecasts of an unusually mild start to November in the U.S. signaled limited demand at the start of the peak season for the heating fuel.
  • The worst performing sector this week was diversified metals and miners. The group dropped 7.5 percent after heavyweights Teck Resources and First Quantum Minerals announced disappointing third quarter earnings results. 
  • The worst performing stock for the week was Evraz. The Russian iron, coal and steel producer dropped 10.9 percent as declines in iron ore and steel prices weighed on the stock. The early closure of steel mills in China on environmental grounds, coupled with strong shipments out of Australian exporters, suggest an oversupply market imbalance. 


  • The Organization of Petroleum Exporting Countries (OPEC) is likely to extend its supply-restraint deal as Saudi Arabia and Russia agree to continue their cooperation according to sources familiar with negotiations. Brent crude prices climbed above $60 a barrel for the first time in more than two years as a result. In addition to this news, crude flows from Iraq to Turkey remain below normal levels as the Kurds and Iraqis have not reached an official cease-fire, a situation which may impair production and sales of crude supplies to the global market.

Oils surge WTI and Brent Strengthens this month
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  • The copper rally is largely justified, according to Goldman Sachs. The bank’s analysts believe the copper rally can be sustained thanks to the strong and synchronous global growth, the U.S. dollar’s depreciation and repeated disappointments in copper mine supply. Due to its wide range of uses in household wiring, pipes and electricity networks, copper is seen as a good gauge of construction and industrial demand, which have rebounded globally since 2016.
  • Further supply disruptions may be in the cards to support the recent crude rally. In addition to the disruptions in Kurdistan, Iran’s crude exports are expected to fall in October to a 16-month low. Iran’s exports may drop 19 percent from the previous months due to technical issues at the South Pars field.


  • The U.S. dollar rally may persist as investors ready for President Donald Trump’s announcement of the next Federal Reserve chair. Stanford University professor and Fed chair candidate John Taylor, together with leading candidate Jay Powell, are both perceived as more “hawkish” than Janet Yellen, leading investors to anticipate a quicker rate hiking cycle, which should be supportive of the U.S. dollar.
  • The cost of new housing in China rose at the slowest rate in 17 months in September as official figures showed price growth slowing markedly in top-tier cities, with prices in Beijing up just half a percent from a year prior and with those in Shanghai falling into slight contraction. China’s property development sector is a major source for commodity demand.
  • Iron ore is in retreat amid gathering concern that the unprecedented curbs on steelmakers’ output in the months ahead will hurt demand in the biggest producer just as miners add cargoes, reports Bloomberg. In an early sign of the clampdown, steel output in China, which had been running at a record pace, fell in September, according to Bloomberg data.

China Region



  • India’s Sensex Index rose by just over 2 percent to a new record for the week, helped by earnings and the government’s announcement of a bank recapitalization plan. India’s NIFTY 50 Index also gained for the week, rising 1.37 percent for the last five trading days.  Vietnam’s Ho Chi Minh Stock Index rose 1.65 percent during that time, while China’s Shanghai Composite climbed 1.13 percent as the Party Congress wound down.
  • China’s year-over-year industrial profits for the September period rose 27.7 percent, ahead of analysts’ estimates for a gain of 24.0 percent.
  • South Korea’s preliminary year-over-year GDP growth rate for the third quarter came in at 3.6 percent, beating estimates for a pace of 3.0 percent and jumping up from the second quarter’s 2.7 percent print. 


  • The Philippines’ Stock Exchange Index fell 63 basis points for the week, while Hong Kong’s Hang Seng Composite Index declined 34 basis points and Taiwan’s Taiwan Stock Exchange Weighted Index fell by 18 basis points.
  • Year-over-year export orders in Taiwan for the September period fell to 6.9 percent, down from the prior 7.5 percent and below analysts’ expectations for an 8.9 percent print.
  • The worst performer in the HSCI for the week was fertilizer producer Sinofert Holdings Ltd. (297 HK), which dropped 24.02 percent for the week.  The company announced a sale of 20.5 percent of Qinghai Salt Lake to Sinochem.


  • In a push to bring pollution down to “acceptable limits,” China is urging local authorities to speed up the development of its environmental equipment manufacturing industry, reports Reuters. According to the Ministry of Industry and Information Technology, China wants to increase supplies of advanced environmental protection equipment and boost the output of the industry to 1 trillion yuan, the article continues.
  • What is the world’s largest economy?  When looking at nominal GDP, the answer is most certainly the United States, reports Bloomberg. But some might protest this metric, saying that, of course, things cost different amounts in different countries.  The chart below shows how economists have tried to correct this, with an adjustment called purchasing power parity, controlling for relative prices. By this measurement, China has already surpassed the U.S., the article continues.

A more accurate picture of how a country really produces
click to enlarge

  • President Donald Trump is heading to China November 8-10 on a trade mission, reports Seeking Alpha, with around 40 companies expected to accompany him to the Asian nation. Deals totaling billions of dollars will be signed, mostly in energy, with one of the biggest being a multibillion-dollar energy investment from Chinese oil and gas giant Sinopec.


  • There may well be higher expectations for reforms in China after President Xi Jinping cemented his tremendous power for the next five years—and possibly beyond—at the conclusion of the 19th Party Congress.  The Congress finished with no clear successor elevated to the Standing Committee.  After elements of Xi Jinping’s “Thought” was incorporated into official documents—placing President Xi alongside Mao and Deng Xiaoping in status and simultaneously confirming and affirming his grip on the country’s future—the market will likely expect significant progress in advancing development in reforms.  To be sure, reform itself hardly constitutes a “threat,” but note that any market impatience at any perceived delays very much could.
  • According to an article in Bloomberg this week, it seems that China’s ambitions globally could end up splitting the world economy. Although Xi Jinping stated in the latest Communist Party Congress that “China will not close its door to the world; it will only become more and more open,” some aren’t holding their breath. Instead of integrating China into the existing world order, he could be creating a separate economic bloc, the article explains, and that may not be good for companies.
  • If you’ve got a private car in Singapore, you may want to hang on to that “certificate of entitlement:” the government announced a freeze in the number of private cars on the road as of the end of next year.

Emerging Europe



  • Hungary was the best performing country this week, gaining 1.3 percent. OTB Bank, which is the largest holding of the Budapest stock exchange, accounting for about one third of the index, gained 2 percent in the past five days. The bank will release its latest quarter results on November 10, and analysts expect solid performance to continue. 
  • The Russian ruble was the best relative performing currency this week, losing 90 basis points against the U.S. dollar. The ruble is highly correlated with the price of crude oil, but this week the currency and crude oil moved in opposite directions.  Brent crude oil climbed to $60 per barrel for the first time since July 2015. Saudi Arabia and Russia backed the extension of OPEC oil cuts beyond March 2018.
  • The health care sector was the best performing sector among eastern European markets this week.


  • Greece was the worst performing country this week, losing 1.3 percent. The Greek banking index declined by 6.5 percent. The central bank chief Mr. Stournaras urged the banking sector to act faster to tackle its bad debt problem. Three of Greece’s largest lenders plan to sell up to 5.5 billion euros ($6.5 billion) in bad loans by early next year. Greek banks hold 103 billion euros in bad loans, equal to almost 60 percent of the economy.
  • The Turkish lira was the worst performing currency this week, losing 3.5 percent against the U.S. dollar. Germany announced funding cuts to Turkey over an escalating political dispute between the two counties. Turkey relies on access to foreign funding to finance its current account deficit, and German banks are the second-largest providers of lending to the Turkish private sector as of August. Despite increasing political tension, the central bank of Turkey once again refused to support its currency, leaving the country’s main rates unchanged on Thursday.
  • The real estate sector was the worst performing sector among eastern European markets this week.


  • The European Central Bank (ECB) delivered what the market expected in terms of the size and duration of asset purchases. The ECB’s key rates were kept at the same level and will remain at the present level for an extended period of time. In January, the monthly bond purchases will be reduced from 60 billion euros to 30 billion for an initial nine-month period. The size and duration of the bond buying program could be extended, if needed. A dovish ECB tone pushed the euro lower against the U.S. dollar, but its decision should be growth supportive.
  • Strong economic data continues to be released. French, German and eurozone manufacturing PMIs were reported above market expectations. Germany business confidence rose to a record high in October, supported by construction and manufacturing activities. Germany’s Ifo measure of sentiment reached 116.7 from a upwardly revised 115.3 last month. The record-high reading came after two consecutive monthly falls.
  • The Central Bank of Russia cut its main policy rate by 25 basis points to 8.25 percent, as expected. The next central bank meeting is scheduled for December, and most analysts predict that the key rate will be cut again either by 25 or 50 basis points.


  • UBS in its Global Macro Strategy publication from October 19 wrote that the Turkish lira (TRY), Malaysian ringgit (MYR) and Mexican peso (MXN) are the most sensitive currencies to periods of rising U.S. yields. The chart below shows currency performance versus the U.S. dollar during weeks when 10-year U.S. Treasury yields have risen 40 basis points or more over 12-week intervals. Rising rates in the U.S. could push the lira even lower against the U.S. dollar.

Turkish Lira is highly sensitive to rising US interest rates
click to enlarge

  • S&P analyst Frank Gill said that Poland is close to its economic peak. Poland’s economy is reaping the benefits from “almost full employment, capital expenditures increasing in the public sector, and the EU investment cycle picking up again.” However, despite the strong economic growth in the private sectors, there is no policy in place to increase public savings, Frank said. He believes that public debt will grow as fast as the economy in the coming years.
  • We see rising political noise in Europe currently. Catalonia’s vote for independence has created political tension between Madrid and Barcelona. Germany, the Czech Republic and Austria are in the process of forming new governments. Sebastian Kurz, leader of Austria’s conservative People’s Party, opened talks with the far-right Freedom Party. In Turkey, a new party was launched, led by former interior minister Meral Aksener, who unsuccessfully opposed Erdogan’s drive for great presidential powers in a referendum last year. In Russia, Alexei Navalny, the biggest opponent of Putin, was barred from running in next year’s presidential election. Ksenia Sobchak, a 35-year-old television host, announced her willingness to run against Putin.  The election in Russia will be held in March 2018.

Leaders and Laggards

Weekly Performance
Index Close Weekly
Russell 2000 1,508.32 -0.93 -0.06%
S&P Basic Materials 370.49 +2.54 +0.69%
Nasdaq 6,701.26 +72.21 +1.09%
Hang Seng Composite Index 3,953.29 -13.66 -0.34%
S&P 500 2,581.07 +5.86 +0.23%
Gold Futures 1,274.60 -5.90 -0.46%
Korean KOSPI Index 2,496.63 +7.09 +0.28%
DJIA 23,434.19 +105.56 +0.45%
S&P/TSX Global Gold Index 194.63 -3.81 -1.92%
SS&P/TSX Venture Index 787.38 -2.13 -0.27%
XAU 81.57 -3.44 -4.05%
S&P Energy 499.45 -2.81 -0.56%
Oil Futures 54.00 +2.53 +4.92%
10-Yr Treasury Bond 2.41 +0.03 +1.17%
Natural Gas Futures 2.75 -0.16 -5.59%


Monthly Performance
Index Close Monthly
Korean KOSPI Index 2,496.63 +124.06 +5.23%
Hang Seng Composite Index 3,953.29 +110.90 +2.89%
Nasdaq 6,701.26 +248.00 +3.84%
XAU 81.57 -3.18 -3.75%
S&P/TSX Global Gold Index 194.63 -0.89 -0.46%
Gold Futures 1,274.60 -13.20 -1.03%
S&P 500 2,581.07 +74.03 +2.95%
S&P Basic Materials 370.49 +16.82 +4.76%
DJIA 23,434.19 +1,093.48 +4.89%
Russell 2000 1,508.32 +23.50 +1.58%
SS&P/TSX Venture Index 787.38 +11.77 +1.52%
Oil Futures 54.00 +1.86 +3.57%
S&P Energy 499.45 -6.72 -1.33%
Natural Gas Futures 2.75 -0.22 -7.46%
10-Yr Treasury Bond 2.41 +0.10 +4.41%


Quarterly Performance
Index Close Quarterly
Korean KOSPI Index 2,496.63 +95.64 +3.98%
Hang Seng Composite Index 3,953.29 +257.41 +6.96%
Nasdaq 6,701.26 +326.59 +5.12%
Natural Gas Futures 2.75 -0.19 -6.43%
Gold Futures 1,274.60 -0.70 -0.05%
S&P 500 2,581.07 +108.97 +4.41%
S&P Basic Materials 370.49 +25.76 +7.47%
S&P/TSX Global Gold Index 194.63 +0.11 +0.06%
XAU 81.57 -3.99 -4.66%
DJIA 23,434.19 +1,603.88 +7.35%
Russell 2000 1,508.32 +79.06 +5.53%
SS&P/TSX Venture Index 787.38 +14.81 +1.92%
S&P Energy 499.45 +11.01 +2.25%
Oil Futures 54.00 +4.29 +8.63%
10-Yr Treasury Bond 2.41 +0.12 +5.37%


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

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

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

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

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 09/30/2017:
Sinopec Corp.
Franco-Nevada Corp.
Seabridge Gold
Beach Energy Ltd.
Evraz PLC
Gold Fields Ltd
Lundin Gold Inc.
Mirasol Resources Ltd


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

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001). FTSE/ATHEX-CSE Banking Index – captures the performance of banks listed on ATHEX and Cyprus Stock Exchange (CSE). The Budapest Stock Exchange Index is a capitalization-weighted index adjusted for free float. The index tracks the daily price-only performance of large, actively traded shares on the Budapest Stock Exchange. The Ifo Business Climate Index is a widely observed early indicator for economic development in Germany. The Bombay Stock Exchange Sensitive Index (Sensex) is a cap-weighted index. The selection of the index members has been made on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation. Sensex has a base date and value of 100 on 1978-1979. The index uses free float. The NIFTY 50 index is National Stock Exchange of India’s benchmark stock market index for Indian equity market, launched on 21st April 1996. The Vietnam Stock Index or VN-Index is a capitalization-weighted index of all the companies listed on the Ho Chi Minh City Stock Exchange. The Philippine Stock Exchange PSEi Index is composed of stocks representative of the industrial, properties, services, holding firms, financial and mining & oil sectors of the Philippines Stock Exchange. The Richmond Fed Manufacturing Index is based upon mail-in surveys from a representative sample of manufacturing plants and seeks to track industrial performance. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.