Will the Gold Bull Market Resume After the Summer Correction?

Author: Frank Holmes
Date Posted: July 22, 2016 Read time: 48 min

Looking more Las Vegas casino than Oval Office, the stage Donald Trump delivered his nomination acceptance speech from last night was all gold, from the stairs to the podium, completely befitting of his showman-like style.

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

Donald Trump accepting the Republican nomination for president this week

Looking more Las Vegas casino than Oval Office, the stage Donald Trump delivered his nomination acceptance speech from last night was all gold, from the stairs to the podium, completely befitting of his showman-like style. Whether you support or oppose Trump, it’s time to face reality. This is really happening, and we should all brace ourselves for what will surely be one of America’s messiest, ugliest general election seasons.

Only time will tell which candidate will be triumphant in November, but in the meantime, one of the winners might very well be gold, which has traditionally attracted investors in times of political and economic uncertainty. In the United Kingdom, which voted one month ago to leave the European Union, gold dealers are seeing “unprecedented” demand, especially from first-time buyers. Some investors are reportedly even converting 40 to 50 percent of their net worth into bullion, though that’s not advisable. (I always suggest a 10 percent weighting, diversified in physical gold and gold mining stocks.) In Japan, where government bond yields have fallen below zero and faith in Abenomics is flagging, gold sales are soaring.

It’s not unreasonable to expect the same here in the U.S. between now and November (and beyond).

Strong U.S. Dollar and Treasury Yields Weighing on Gold

More so than the upcoming election, gold prices are being driven by U.S. dollar action, interest rates and low-to-negative bond yields around the world. (Between $11 trillion and $13 trillion worth of global sovereign debt currently carries a negative yield.) Right now the yellow metal is in correction mode on a strengthening dollar and rising two-year and 10-year Treasury yields, both of which share an inverse relationship with gold.

Gold Corrects on Rise of 10-Year Treasury Yield
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It’s also worth mentioning that the summer months have historically been among the weakest. By contrast, some of the highest gold returns of the year have occurred in September, when the Love Trade heats up in India in anticipation of Diwali and the wedding season.

Gold's Average Monthly Gains and Losses, 1975 - 2013
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For the past few trading days, gold demand had also been overshadowed by a hot equities market, with many stocks hitting 52-week highs. Both the S&P 500 Index and Dow Jones Industrial Average closed at all-time highs, twice in the latter’s case. The CNN Fear & Greed Index, which measures investor sentiment, is currently in “Extreme Greed” mode, at more than a two-year high.

Markets in Extreme Greed Mode

With gold taking a breather, now might be a good buying opportunity. Since 1970 there have been only four major gold bull markets, and the consensus among analysts right now is that we’re in the early stages of a new one, with end-of-year forecasts in the $1,400 an ounce range.

Rumors of Brexit’s Negative Impact Have Been Greatly Exaggerated

Despite gold’s correction, the metal got a boost yesterday courtesy of Mario Draghi. The European Central Bank (ECB) president, as expected, announced that euro area interest rates and asset purchases would remain unchanged as economic ramifications of the Brexit referendum continue to be assessed.

Speaking of Brexit, Draghi noted that markets have met the volatility and uncertainty in the month following the U.K. referendum with “encouraging resilience.” Like many others, he had predicted that Brexit would dramatically stunt euro growth, but as we’ve already seen, such claims are overdone. In a note released this week, securities trading firm KCG wrote that June 24, the day following the British referendum, “was no repeat of August 24,” a reference to the “flash crash” that struck equities last summer and led to ETF mispricing.

This week, the International Monetary Fund (IMF) trimmed 0.1 percent from its global economic growth forecast for the year, singling out Brexit fallout as the culprit. Curiously, though, the organization sees the U.K. growing faster than both Germany and France this year and next. This disconnect prompted U.K. Independence Party MP Douglas Carswell to label the IMF as “clowns” with “serious credibility problems.”

IMF Sees the U.K. Growing Faster Than Germany and France, Despite Brexit
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Following Draghi’s statement, gold prices immediately popped in Thursday morning trading, effectively hitting the pause button on the correction. Today, though, prices continued to slide, contributing to gold’s second straight week of losses.

The next hurdle to be cleared is a U.S. interest rate hike. Expectations that rates will go up in September have wobbled back and forth since Brexit, but in recent days, it’s been reported that Federal Reserve officials feel confident enough to raise them at least once before the end of the year. Gold will face additional pressure if rates are allowed to rise, but if the Fed chooses to stand pat, it could serve as another catalyst for a price surge.

view our brief history of the production and application of silver

Index Summary

  • The major market indices finished up this week.  The Dow Jones Industrial Average gained 0.29 percent. The S&P 500 Stock Index rose 0.61 percent, while the Nasdaq Composite gained 1.40 percent. The Russell 2000 small capitalization index gained 0.63 percent this week.
  • The Hang Seng Composite gained 1.41 percent this week; while Taiwan was up 0.71 percent and the KOSPI fell -0.34 percent.
  • The 10-year Treasury bond yield rose 1 basis point to 1.56 percent.

Domestic Equity Market

SP 500 Economic Sectors
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  • Information technology was the best performing sector for the week, increasing 2.02 percent compared to an overall increase of 0.56 percent for the S&P 500 Index.
  • Chesapeake Energy was the best performing stock for the week, increasing 21.95 percent. The company received various upgrades from brokers and research firms. It was upgraded by analysts at Tudor Pickering and Zacks Investment Research from a “hold” rating to a “buy” rating and from “underweight” rating to a “neutral” rating by Simmons and Piper Jaffray.
  • Microsoft beat on the top and bottom lines. The company announced adjusted earnings of $0.69 a share, easily beating the $0.58 that analysts were expecting. Revenue rose 1.9 percent to $22.6 billion, topping the $22.14 billion that Wall Street was anticipating. Microsoft says it had a "run rate" of $12.1 billion for commercial cloud products during the quarter.


  • Energy was the worst performing sector for the week, falling negative 1.31 percent compared to an overall increase of 0.56 percent for the S&P 500.
  • Netflix was the worst performing stock for the week, falling 12.70 percent after a disappointing quarter. The video-streaming service earned $0.09 a share as revenue climbed 31 percent year-over-year to $2.1 billion. The good news stopped there, however, as the company said it added just 160,000 U.S. subscribers, well shy of its guidance of 500,000. Netflix also gained just 1.52 million international subscribers, missing its 2 million subscriber guidance. Third-quarter subscriber-growth guidance for both the U.S. and international markets was well shy of Wall Street estimates. Shares of Netflix were down more than 15 percent in after-hours trade after the earnings release.
  • Chipotle had a brutal quarter. The fast-casual burrito chain earned an adjusted $0.94 a share, topping the $0.91 that analysts were hoping for. But things got a bit ugly from there. Revenue plunged 16.6 percent to $998.4 million, same-store sales crashed 23.6 percent and traffic tumbled 19.3 percent as the company continues to struggle after its E. coli crisis.


  • GameStop shares jumped more than 8 percent after CEO Paul Raines told CNBC that sales at stores that were Pokémon Go gyms in the app were up 100 percent. Gyms are real-world places where players can take their Pokémon for battles, and 462 of them were at GameStop stores this past weekend. The popular location-based smartphone app is also helping GameStop sell merchandise, Raines said. In the first quarter, GameStop reported a 29 percent plunge in new video game hardware sales year-on-year, and a 7 percent drop in digital sales.
  • IBM beat on the top and bottom lines. "Big Blue" earned $2.95 a share, outpacing the $2.89 that Wall Street analysts were expecting. Revenue fell 3 percent year-over-year to $20.24 billion, but that was ahead of the anticipated $20.03 billion. Revenue has now fallen in 17 straight quarters. Cloud revenue remained a bright spot, however, surging 30 percent to $3.4 billion.
  • Halliburton believes the North American oil market has turned. "We expect to see a modest uptick in rig count during the second half of the year," CEO Dave Lesar said in the company’s second-quarter earnings statement. Around mid-May, the plunge in the U.S. oil rig count stabilized as rising oil prices encouraged some producers to increase activity. Halliburton posted an adjusted loss per share from continuing operations of $0.14, better than analysts’ median estimate for a loss of $0.19, according to Bloomberg. Revenue totaled $3.84 billion (versus $3.76 billion expected), a 35 percent year-over-year decline.


  • Fiat Chrysler is being investigated by the U.S. government on whether it violated securities laws, according to Bloomberg. The report recounted a January lawsuit in which "dealerships in Illinois and Florida that alleged the sales were padded through a scheme by which dealers—sometimes unbeknownst to their owners—were paid to create false New Vehicle Delivery Reports." The investigation is focused on sales of vehicles to customers, not dealerships.
  • The U.S. government is planning to file lawsuits to block the massive mergers of four health care giants, according to Bloomberg. The Department of Justice will try to block both the $54 billion deal between Anthem and Cigna, which would create the largest health insurance company based on the number of people covered, and a $37 billion takeover of Humana by Aetna. Both deals are being blocked on anticompetitive grounds, Bloomberg said, citing sources within the Justice Department. Lawsuits could come by the end of the week, the report said. The deals had already faced regulatory pushback from Democratic U.S. senators.
  • Volkswagen is being sued by a handful of states. Attorney generals from Maryland, Massachusetts and New York have filed a lawsuit against Volkswagen, Porsche and Audi, alleging a "cover up" that was "orchestrated and approved at the highest levels of the company." The lawsuit accuses Volkswagen of skirting emissions standards by installing "defeat devices" since the mid-2000s. Additionally, the suit says that the group "made a knowing decision to violate the law" and that Volkswagen "allegedly destroyed incriminating documents" upon hearing about the investigation.

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The Economy and Bond Market



  • U.S. housing starts rose more than expected in June. Starts jumped 4.8 percent at a seasonally adjusted annual rate of 1.189 million, rebounding from a downward-revised 1.7 percent drop in the May. Economists had forecast that starts rose 0.2 percent month-on-month in June at a seasonally adjusted annual rate of 1.164 million. Building-permit activity also topped estimates, rising by 1.5 percent at a rate of 1.153 million. Starts data are usually volatile month-to-month, but June’s increase "shows a sturdy demand for new homes as we move into the second half of the year," said Quicken Loans Vice President Bill Banfield.
  • According to Chris Williamson, Markit’s chief economist, American manufacturing is showing an "encouraging sign of revival." The firm’s flash purchasing managers’ index for July rose to 52.9, its highest level since November. Output growth jumped to the best level in eight months, and manufacturing payrolls had the biggest gain in a year.
  • The Citi Economic Surprise index has been on the rise lately, reflecting the strong economic data in the U.S. It coincides with the latest Conference Board U.S. Leading Index month-over-month (MoM), which posted an increase of 0.3 percent for June, ahead of the forecasted 0.2 percent.

Citi Economic Surprise Index Highlights Recent Bout of Strong Economic Data
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  • U.S. homebuilder sentiment unexpectedly fell in July. The National Association of Homebuilders’ housing market index dropped to 59 from a five-month high of 60 — the level that economists had forecast it would remain at. All three index components that the NAHB surveyed its members on — current sales, future sales expectations, and buyer traffic — fell in July. NAHB Chairman Ed Brady said in the release that members in some markets complained about regulatory constraints, inadequate lots, and labor shortages. 
  • In an update to its World Economic Outlook, the International Monetary Fund trimmed 0.1 percent from its March forecasts for global gross domestic product growth. The IMF now expects the global economy to grow 3.1 percent this year and 3.4 percent next year, blaming uncertainty surrounding Brexit for the slower growth. On a separate note, France’s highest court ruled on Friday that IMF managing director Christine Lagarde must stand trial for negligence in a case stemming back to her time as the French finance minister.
  • German confidence was hit hard by Brexit. The ZEW Indicator of Economic Sentiment for Germany plunged 26 points in July to -6.8. "Uncertainty about the [Brexit] vote’s consequences for the German economy is largely responsible for the substantial decline in economic sentiment," professor Achim Wambach, the ZEW president, said. "In particular, concerns about the export prospects and the stability of the European banking and financial system are likely to be a burden on the economic outlook."


  • U.S. data next week include the services PMI (following today’s manufacturing PMI), consumer confidence, home sales and prices, durable goods orders and second-quarter GDP. If the data confirm the FOMC’s expectation that U.S. growth is solid, the chance of a rate hike in September and/or December will rise sharply.
  • The U.S. oil-rig count rose for a fourth-straight week, according to Baker Hughes. The tally increased by 14 to 371, the gas-rig count fell by one to 88, and miscellaneous rigs rose by two to three, taking the total up 15 to 462. Amid steep cost reductions and rising oil prices in the past few weeks, producers are betting that a rebound is underway. 
  • Congress formed a Puerto Rico Economic Growth Panel. The eight-member panel was formed to conduct a review of federal laws and programs to help boost Puerto Rico’s economy, part of legislation enacted to address the island’s $70 billion debt crisis.


  • Policymakers at the Fed and the Bank of Japan hold their respective policy meetings next week (Wednesday for the Fed and Thursday for the BoJ). Any surprises could jolt the relative ease that markets have seen in the past weeks.
  • Eurozone data releases next week include PMIs and confidence for July. These data points will reveal whether or not the Brexit vote has had a large negative effect on the eurozone economy.
  • The municipal bond market has outperformed Treasuries as prices slipped during the past two weeks, making munis the most expensive relative to Treasuries in three weeks.

Gold Market

This week spot gold closed at $1,322.01, down $15.49 per ounce, or -1.16 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, slipped 3.50 percent. Junior miners outperformed seniors for the week as the S&P/TSX Venture Index traded up 0.47 percent. The U.S. Trade-Weighted Dollar Index moved higher with a 0.82 percent gain.

Date Event Survey Actual Prior


Germany ZEW Survey Current Situation





Germany ZEW Survey Expectations





U.S. Housing Starts





ECB Main Refinancing Rate





U.S. Initial Jobless Claims





Hong Kong Exports YoY




U.S. Consumer Confidence Index




U.S. New Home Sales




U.S. Durable Goods Orders




FOMC Rate Decision




Germany CPI YoY




U.S. Initial Jobless Claims




Eurozone CPI Core YoY




U.S. GDP Annualized QoQ





  • The best performing precious metal for the week was palladium, up 5.49 percent.  Citigroup forecast that platinum could see a deficit of 172,000 ounces in 2016, but palladium’s deficit could be short by 847,000 ounces, thus the group is more bullish on the later.
  • Esturo Honda, who according to Bloomberg News has emerged as a matchmaker for Prime Minister Shinzo Abe in finding foreign economic experts to offer policy guidance, is opening his ears to Ben Bernanke.  In April, Bernanke noted that helicopter money, in which “the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them,” could work as the strongest tool to overcome deflation, says Honda.
  • Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, says there is political risk building into the gold market, including the Italian referendum and U.S., French and German elections. Blanch adds that in the past, gold used to be driven more by the U.S. dollar and commodity market movements, but “in this day and age, it’s a new world.” He also mentions that one-third of government bonds are yielding negative. The chart below shows that $9.2 trillion of sovereign bonds are trading with negative yields.

There are Now More than $9 Trillion of Sovereign Bonds Outstanding With Negative Yields
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  • The worst performing precious metal for the week was silver, down -2.97 percent.  With silver generally more volatile than gold, a strong rally in stocks, up 10 of the last 11 days and with new record highs, had investors chasing returns in the broader market.
  • Gold traders and analysts are bearish for the first time in four weeks, reports Bloomberg. The precious metal headed for its first back-to-back weekly decline since May, with gains in equity markets and the dollar hurting prices. David Meger, director of metals trading at High Ridge Futures in Chicago, says that the dollar’s strength continues to pressure most commodities, gold in particular. “Safe-haven demand has been diminishing, obviously with equity markets moving to new record highs,” Meger said.
  • A group of armed men stormed one of Agnico Eagle’s mines in northern Mexico early Tuesday morning, reports the Canadian mining company, injuring a security guard and making off with a haul of gold and silver. Last April a similar situation occurred when armed men entered McEwen Mining’s El Gallo 1 mine in northern Mexico, reports Reuters, even though thefts within mines are “relatively rare in Mexico.”


  • The World Gold Council and the Accounting and Auditing Organization for Islamic Financial Institutions are drafting new standards for investing in gold to comply with Sharia law, reports an Energy and Capital article. If the proposals for the changes (expected in the fourth quarter) are accepted, a flood of new investors could help send gold prices soaring, the article continues. A similar situation took gold prices to $1,900 in 2011 when surging demand came from China following the government’s urge for its citizens to own the yellow metal.
  • With the U.S. presidential election seen as the next big catalyst, Bill Beament of Northern Star Resources believes that gold’s rally is set to endure, reports Bloomberg. He says the overall trend is up and that “the U.S. vote will have more of an impact on bullion than the U.K. referendum.” The IMF also scrapped its forecast for a pickup in global growth, the article continues, yet another positive for gold.
  • Commerzbank raised its year-end gold estimate by $100, reports Bloomberg, to $1,450 an ounce. Similarly, DBS Group Holdings says that gold is in a major bull market and could surge past $1,500 an ounce as “low interest rates buoy demand and the U.S. presidential election looms.” The long-term gold price has been adjusted higher at Numis Securities as well, up to $1,400 an ounce from $1,350 an ounce.  While it good to see the street starting to take their price forecast higher for gold, investors should remain disciplined as the late summer can be a seasonally weak period for prices and many of the expected price targets being raised are capitulation moves to higher price levels.


  • According to data compiled by Bloomberg, investors pulled $793 million out of SPDR Gold Shares last week, the most since November. As Citigroup’s U.S. Economic Surprise Index rose to its highest since January 2015 (a sign of an improving economic outlook), demand for ETFs backed by gold has diminished some. Holdings in gold-backed ETFs around the world fell 3.9 metric tons last week, reports Bloomberg.
  • Sovereign gold bonds issued in India were trading at a 27-percent premium over the fixed price when the bonds were first issued in November, reports LiveMint. Prices of physical gold have risen 23 percent during the same period. According to the article, “Investors get a fixed interest rate of 2.75 percent per annum on these bonds over and above the capital gains that may accrue if the price of gold rises in the spot market.” The gold bonds are part of the government’s gold monetization efforts aimed to “wean the public off physical gold.”
  •  Will gold miners maintain their capital discipline? Bloomberg reports that as the price of gold rises to its best first half of the year in nearly four decades, earnings reports could indicate that miners are preparing to ease in terms of spending. “Historically there’s been a very high correlation, almost a one-to-one correlation, between costs and the gold price, implying that with higher gold prices you will likely see costs rise at the same time,” Josh Wolfson of Dundee Capital Markets said. Wolfson added that a majority of miners structured spending based on the assumption that gold will trade between $1,100 and $1,150 an ounce.  Let’s hope the miners learned something over the prior three painful years of falling gold prices.

All Eyes on Gold: What's Attracting Investors to the Yellow Metal. Watch the Webcast Replay

Energy and Natural Resources Market



  • Gold miners results are coming in and they are good. With major gold indices more than doubling in 2016, expectations were high, and quarterly results have not disappointed. Newmont Mining, the largest U.S. producer of the yellow metal, posted its best quarterly performance since the first quarter of 2013, handsomely beating analysts’ expectations and even suggesting a dividend increase may materialize later this year. Similarly, AngloGold Ashanti, Africa’s top bullion producer, returned to a profit as higher prices and years of cost-cutting boosted its margins.
  • The best performing sector for the week was the Nasdaq Clean Edge U.S. Index. The index of renewable energy companies rose 1.3 percent for the week as the White House announced an initiative to accelerate the deployment of electric vehicle charging infrastructure and encourage the use of electric vehicles.
  • Lucara Diamond Corp, a Canadian diamond mining company was the best performing stock in the broader natural resource space, rallying 6.4 percent for the week. The stock outperformed after the company announced the payment of a special dividend, raising the annual distribution yield to 13.6 percent.


  • Oil prices dropped to a three-month low as inventories hit an all-time high. A ninth-straight decline in U.S. oil inventories could not prevent OECD crude stockpiles from rising to a new all-time high of 3,074 million barrels. The EIA reported a 13.5 million barrel build in overall OECD inventories for the month of June, suggesting there may be more short-term pain before the market reaches a supply demand balance in 2017. 
  • The worst performing sector for the week was the FTSE 350 Mining Index. The index of major diversified mining companies dropped 4.3 percent for the week as BHP Billiton and Anglo American reported disappointing production numbers for the second quarter.
  • The worst performing stock for the week in the S&P Global Natural Resources Index was CF Industries Holdings Inc. The major producer of fertilizers dropped 8.3 percent for the week as a number of analysts cautioned that weaker nitrogen pricing forecasts may lead to downside revisions to estimates.


  • Natural gas prices should continue their run as abnormally warm weather hits much of the East Coast. In fact, gas deliveries to electricity generators have jumped to an all-time high as people blast air conditioners to keep cool, according to a Bloomberg report. The boost from warmer weather coincides with an underlying fundamental switch in the U.S. electricity market, which has seen natural gas take over as the major source of electricity generation in the country as coal-powered plants continue to be phased off.

Annual Share of Total U.S. electricity generation by source (1950-2016)
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  • Activity in the oil sector is set to rebound as major service companies call a bottom. Schlumberger and Halliburton, the two largest providers of drilling and fracking services, have declared that the worst is over as the cycle has bottomed. The companies are forecasting modest upticks in activity for the remainder of the year.
  • Platinum group metals should continue to outperform as auto sales beat expectations. Macquarie reports that global car sales rose 5.6 percent in June, led by China and the EU. The strong beat suggests full-year growth expectations may see upward revisions. The news is especially supportive for PGMs, which derive most of their demand from auto catalysts fitted to new vehicles.


  • Gasoline demand is posting disappointing growth rates. Americans drove 9 billion miles in May 2016, representing a 2-percent growth compared to last year. This growth rate compared unfavorably to those of March and April 2016, at 4.9 and 2.5 percent respectively. On a year-to-date basis, the growth rate slowed to 2.7 percent, leading analysts at Tudor Pickering Holt to remain cautious on gasoline fundamentals.
  • Gasoline prices may continue to drop as China boosts exports to record. Chinese refiners more than doubled gasoline exports as a last ditch effort to alleviate swelling stockpiles at home. Exports rose 120 percent from last year to a new record of 312,000 barrels per day, exacerbating a glut of fuel across Asia, as Japan and South Korea also grow their exports.
  • Steel prices continue to weaken as Chinese property prices cool down. June property prices continue to taper off as more cities impose curbs designed to avoid speculation in the real estate market. Steel prices retreated 6 percent for the week.

China Region



  • Hong Kong’s benchmark Hang Seng Index has now erased 2016 losses and this week entered a so-called technical bull market, rising to a closing high yesterday of more than 20 percent from the index’s February lows.
  • Indonesia’s Jakarta Composite Index continued its gains this week, climbing to new 52-week highs as investors focused upon a possible tax amnesty plan for the island nation, largely shrugging off the fact that Bank Indonesia left reference rates unchanged despite chatter and some expectations of a cut.

Jakarta Composite Index Makes More 52-Week Highs
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  • Thailand’s SET Index also climbed to new 52 week highs this week. The index is now up roughly 23 percent from its February lows and about 17 percent year-to-date.


  • Housing gains in China slowed down for the June period as even some second-tier cities have now imposed curbs to cool rising prices. Prices dropped in 10 cities, according to Bloomberg News, compared to only four in May.
  • The publishers of the China Minxin Manufacturing PMI Index suspended indefinitely the unofficial purchasing managers’ index. The index, a joint product of the China Minxin Banking Corp. and the China Academy of New Supply-side Economics, follows the October discontinuation of the former flash PMI index that had been compiled by Markit Economics and Caixin Media. 
  • The Malaysian ringgit and the FTSE Bursa Malaysia KLCI Index are both among the worst relative performers in the region for the last week and the trailing three months as the broad regional rally has generally left Malaysia’s currency and benchmark equity index in the dust.


  • China’s top economic planner issued the nation’s latest railway plan this week, reports China Daily, with the target to operate a 175,000 kilometer rail network by 2025. According to the National Development and Reform Commission, by 2020 China will have 150,000 kilometers of railway, of which about 30,000 kilometers will be high-speed, covering 80 percent of the major cities nationwide.
  • China’s working-age population has been shrinking since 2012, reports Bloomberg, a clear fact that the world’s most populous country, ironically, needs people. According to the article, China is preparing to open its first-ever immigration office to attract highly skilled foreigners to help the nation become a “global center for innovation.”
  • According to a report from the National Development and Reform Commission, a record number of students who studied overseas are making their way back home to start their own businesses, reports China Daily. Around 523,700 Chinese students went overseas to study in 2015 and 409,100 returned last year, up 12 percent from 2014, reports the Ministry of Education.


  • “China is still a developing country—we can’t shoulder the heaviest burden of the world’s economy,” Premier Li Keqiang said on Friday during a discussion on economic growth, reports Bloomberg. Li continued by explaining that the Asian nation still has room for proactive fiscal policies and tax cuts, while sticking to prudent monetary policy, and that China still faces long-term, downward pressure.
  • The Three Gorges Dam’s role in flood control is being questioned among those living along the Yantgze River, reports South China Morning Post, as the area battles its worst flooding since 1998. According to the article, floods have left 237 people dead and another 93 missing, on top of the 69 killed when Typhoon Nepartak hit Fujian province on July 9.
  • Goldman Sachs estimates that June cash outflows in China were closer to $50 billion, up from May’s roughly $25 billion. Given that the renminbi weakened this week as far as 6.7 versus the dollar for the first time in five years, Goldman suspects that the subsequent stabilization of the currency indicates policymakers’ response to the situation. 

Emerging Europe


  • The Czech Republic was the best performing country this week, gaining 3.2 percent.  S&P Global Ratings affirmed its AA-/A-1+ long- and short-term foreign currency and its AA/A-1+ long- and short-term local currency sovereign credit ratings on the Czech Republic. The ratings reflect the country’s diversified and productive economy, stable institutions, and moderate levels of public debt that the government is able to refinance on the domestic market. The outlook is stable.
  • The Polish zloty was the best performing currency this week, gaining 100 basis points against the U.S. dollar. Economic data releases show improvement in the economy including stronger retails sales, higher gross wages, and a pickup in sold industrial output.
  • The health care sector was the best performing sector among Eastern European markets this week.


  • Turkey was the worst performing market this week, losing 13.4 percent. After last week’s failed coup attempt, Turkey imposed a state of emergency for the next three months.  The President of Turkey held an exiled cleric, Fethullah Gulen, responsible for the uprising and demanded that President Obama deport him from his home in Pennsylvania. Secretary of State John Kerry said that the U.S. would consider extradition, but required evidence of wrongdoing.
  • The Russian ruble was the worst performing currency this week, losing 1.84 percent against the U.S. dollar. Year-to-date the ruble is the second strongest world currency, appreciating 15.9 percent against the U.S. dollar. President of Russia, Vladimir Putin, instructed the country’s government to pay attention to a strengthening ruble as strong currency means that Russia gets less revenue per barrel of crude sold abroad.
  • The industrial sector was the worst performing sector among Eastern European markets this week.


  • Since the U.K. voted to leave the eurozone, emerging market equities have outperformed equites from developed markets. The chart below shows the performance of an Eastern European ETF versus a Western European ETF since June 23.

Emerging Europe Outperforms Developed Europe Since Brexit Vote
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  • Greece’s second review may start in September and could be completed by the end of this year. Its main targets will focus on labor reforms and the legal framework for the trade unions. Once complete, Greece will receive another financial aid and will push forward with its reforms to strengthen its economy.
  • Wells Fargo, the world’s biggest bank by capitalization, has given a huge vote of conidence in London’s future as a financial center, even after the British exit from the European Union. The bank bought an 11-story building for its new headquarters in the U.K. capital. The office sale was one of the largest property deals since the U.K. voted to leave the EU on June 23. This purchase takes place even as some were concerned with Britan’s property market and London’s status as a finiancial hub.


  • The eurozone’s ZEW sentiment survey plunged after the Brexit vote. The investor confidence index, calculated by the ZEW economic institute, fell by 34.9 points to minus 14.7 points in July from 20.2 in June, its lowest level in four years.

Eurozone ZEW Investor Sentiment of Economic Growth Falls Post-Brexit
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  • Marc Chandler from Brown Brothers Harriman writes that Italian banks face three challenges: capitalization, bad loans and profitability. The government appears to be moving toward recapitalization and a way to get bad loans off of the bank books. However, the European Banking Authority and the European Central Bank’s stress test on July 29 are expected to show some Italian banks are under-capitalized.
  • The S&P rating agency cut Turkey’s credit rating from BB+ to BB. Similarly, Moody’s rating agency placed Turkey’s Baa3 rating on review for downgrade. The rating agency said that it would consider the current rating if Turkey withstands the pressure from rising political risk. A potential downgrade would probably be limited to one notch, but it will cut the rating from investment grade to junk. An announcement will be made August 5.



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Leaders and Laggards


Weekly Performance
Index Close Weekly
DJIA 18,570.85 +54.30 +0.29%
S&P 500 2,175.03 +13.29 +0.61%
S&P Energy 512.82 -6.80 -1.31%
S&P Basic Materials 304.93 -0.84 -0.27%
Nasdaq 5,100.16 +70.57 +1.40%
Russell 2000 1,212.89 +7.58 +0.63%
Hang Seng Composite Index 2,954.40 +31.44 +1.08%
Korean KOSPI Index 2,010.34 -6.92 -0.34%
S&P/TSX Global Gold Index 261.46 -5.22 -1.96%
XAU 103.74 -3.99 -3.70%
Gold Futures 1,330.80 -4.10 -0.31%
Oil Futures 44.20 -1.75 -3.81%
Natural Gas Futures 2.78 +0.02 +0.91%
10-Yr Treasury Bond 1.57 +0.01 +0.84%


Monthly Performance
Index Close Monthly
DJIA 18,570.85 +790.02 +4.44%
S&P 500 2,175.03 +89.58 +4.30%
S&P Energy 512.82 +5.41 +1.07%
S&P Basic Materials 304.93 +7.18 +2.41%
Nasdaq 5,100.16 +266.84 +5.52%
Russell 2000 1,212.89 +63.92 +5.56%
Hang Seng Composite Index 2,954.40 +135.18 +4.79%
Korean KOSPI Index 2,010.34 +17.76 +0.89%
S&P/TSX Global Gold Index 261.46 +30.77 +13.34%
XAU 103.74 +12.85 +14.14%
Gold Futures 1,330.80 +54.50 +4.27%
Oil Futures 44.20 -4.93 -10.03%
Natural Gas Futures 2.78 +0.10 +3.88%
10-Yr Treasury Bond 1.57 -0.12 -7.18%


Quarterly Performance
Index Close Quarterly
DJIA 18,570.85 +567.10 +3.15%
S&P 500 2,175.03 +83.45 +3.99%
S&P Energy 512.82 +12.86 +2.57%
S&P Basic Materials 304.93 +8.31 +2.80%
Nasdaq 5,100.16 +193.93 +3.95%
Russell 2000 1,212.89 +66.20 +5.77%
Hang Seng Composite Index 2,954.40 +29.40 +1.01%
Korean KOSPI Index 2,010.34 -5.15 -0.26%
S&P/TSX Global Gold Index 261.46 +58.78 +29.00%
XAU 103.74 +22.88 +28.30%
Gold Futures 1,330.80 +95.80 +7.76%
Oil Futures 44.20 +0.47 +1.07%
Natural Gas Futures 2.78 +0.64 +29.95%
10-Yr Treasury Bond 1.57 -0.32 -17.15%


Monthly Performance
Index Close Monthly
DJIA 18,516.55 +876.38 +4.97%
S&P 500 2,161.74 +90.24 +4.36%
S&P Energy 519.62 +21.91 +4.40%
S&P Basic Materials 305.77 +11.51 +3.91%
Nasdaq 5,029.59 +194.66 +4.03%
Russell 2000 1,205.31 +56.01 +4.87%
Hang Seng Composite Index 2,922.96 +152.44 +5.50%
Korean KOSPI Index 2,017.26 +48.43 +2.46%
S&P/TSX Global Gold Index 266.68 +28.69 +12.06%
XAU 107.73 +15.31 +16.57%
Gold Futures 1,337.70 +49.40 +3.83%
Oil Futures 46.28 -1.73 -3.60%
Natural Gas Futures 2.76 +0.16 +6.20%
10-Yr Treasury Bond 1.55 -0.02 -1.34%


Quarterly Performance
Index Close Quarterly
DJIA 18,516.55 +619.09 +3.46%
S&P 500 2,161.74 +81.01 +3.89%
S&P Energy 519.62 +44.37 +9.34%
S&P Basic Materials 305.77 +16.41 +5.67%
Nasdaq 5,029.59 +91.37 +1.85%
Russell 2000 1,205.31 +74.39 +6.58%
Hang Seng Composite Index 2,922.96 +0.85 +0.03%
Korean KOSPI Index 2,017.26 +2.55 +0.13%
S&P/TSX Global Gold Index 266.68 +65.47 +32.54%
XAU 107.73 +29.81 +38.26%
Gold Futures 1,337.70 +101.50 +8.21%
Oil Futures 46.28 +5.92 +14.67%
Natural Gas Futures 2.76 +0.85 +44.90%
10-Yr Treasury Bond 1.55 -0.20 -11.47%


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

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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 investor.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article held by one or more accounts managed by U.S. Global Investors as of 03/31/2016: Airbus Group SE
Agnico Eagle Mines Ltd.
Northern Star Resources Ltd.
BHP Billiton Ltd.
Lucara Diamond Corp.
Gamestop 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 ZEW Economic Sentiment Index covers the economic futures of several countries including analyst opinions for Europe, the UK, Japan and the U.S. An index value greater than zero indicates optimism while a value below zero indicates pessimism.
The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median).
The Jakarta Stock Price Index is a modified capitalization-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange.
The Nasdaq Clean Edge U.S. Liquid Series Indexes are modified market capitalization weighted indexes designed to track the performance of clean-energy companies that are publicly traded in the U.S.
The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified, liquid and investable equity exposure across 3 primary commodity-related sectors: Agribusiness, Energy, and Metals & Mining.
The FTSE 350 Mining Index is a capitalization-weighted index of all stocks designed to measure the performance of the mining sector of the FTSE 350 Index. The index was developed with a base value of 1000 as of December 31, 1985.
There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.
The Conference Board index of leading economic indicators is an index published monthly by the Conference Board used to predict the direction of the economy’s movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy.
The NAHB Housing Market Index is derived from a monthly survey, and gauges builder perceptions of current single-family home sales and sales expectations for the next six months, as well as rating traffic of prospective buyers. Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The SET Index is a Thai composite stock market index which is calculated from the prices of all common stocks (including unit trusts of property funds) on the main board of the Stock Exchange of Thailand (SET), except for stocks that have been suspended for more than one year.
The China Minxin Manufacturing PMI Index, produced by the China Academy of New Supply-side Economics, surveys around 4,000 companies a month across mainland China.
The FTSE Bursa Malaysia KLCI, also known as the FBM KLCI, is a capitalization-weighted stock market index, composed of the 30 largest companies on the Bursa Malaysia by market capitalization that meet the eligibility requirements of the FTSE Bursa Malaysia Index Ground Rules.
The CNN Fear & Greed Index monitors seven market factors, including stock price momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility and safe haven demand, by calculating how far they have veered from their averages relative to how far they normally veer, on a scale of 0 to 100, with 0 indicating fear and 100 greed. Then, the seven scores are equally combined into one.