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

Gold is one of the rarest elements in the world, making up roughly 0.003 parts per million of the earth’s crust. (For some perspective, one part per million, when converted into time, is equivalent to one minute in two years. Gold is even rarer than that.) If we took all the gold ever mined—all 186,000 tonnes, from the bullion at Fort Knox to India’s bridal jewelry to King Tut’s burial mask—and melted it down to a 20.5 meter-sided cube, it would fit snugly within the confines of an Olympic-size swimming pool.

The yellow metal’s rarity, of course, is one of the main reasons why it’s so highly valued across the globe and, for most of recorded history, recognized and used as currency. Unlike fiat money, of which we can always print more, there’s only so much recoverable gold in the world. And despite the best efforts of alchemists, we can’t recreate its unique chemistry in a lab. The only way for us to acquire more is to dig.

But for how much longer?

Goldman Sachs analyst Eugene King took a stab at answering this question last year, estimating we have only “20 years of known mineable reserves of gold.”

The operative word here is “known.” If King’s projection turns out to be accurate, and the last “known” gold nugget is exhumed from the earth in 2035, that won’t necessarily spell the end of gold mining. Exploration will surely continue as it always has—though at a much higher cost.

(In fact, our insatiable pursuit of gold might one day soon take us to space, as President Barack Obama signed legislation in November that permits commercial mineral extraction on asteroids and the moon. Many near-Earth asteroids are said to contain trillions of dollars’ worth of precious metals and other minerals. But that’s a discussion for another time.)

We’ll probably see a surge in mergers and acquisitions, as I told Kitco News’ Daniela Cambone this week. I think that as long as they have reliable output, mid-cap companies could be gobbled up by the Barricks and Newmonts of the world.

Another consequence of recovering the last known nugget? The gold price could spike dramatically to levels only imagined. My colleague Jim Rickards, in his book “The New Case for Gold,” puts it at $10,000 an ounce. GoldMoney founder James Turk says it’s closer to $12,000. There’s really no way of knowing how high gold could go.

Did Gold Production Peak in 2015?

What we do know is that global gold output has been contracting since 2013. Last year might have been the tipping point, however, in line with Goldcorp CEO Chuck Jeannes’ prediction that peak gold was within spitting distance.

“There are just not that many new mines being found and developed,” he told the Wall Street Journal in 2014, adding that this was “very positive” for the gold price going forward.

This year, second-quarter mine supply was 2 percent less than the same period in 2015, according to preliminary estimates made by Thomson Reuters GFMS. Some analysts now expect global production to fall 3 percent in 2016, after seven straight years of growth.

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What’s more, few new projects and expansions are expected to come online this year, writes Thomson Reuters, “and those in the near-term pipeline are generally fairly modest in scale, hence our view that global mine supply is set to begin a multiyear downtrend in 2016.”

Indeed, if we look at projects that opened in just the last two or three years, we see that they’re of lower grade, meaning they don’t produce nearly as much as older, easy-to-mine gold deposits.

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The truth of the matter is, when it comes to discovering new gold deposits, the low-hanging fruit has likely already been picked. Gone are the days when someone could stumble upon an exposed hunk of gold at the bottom of a riverbed, as James Marshall did in 1848, setting off the California Gold Rush. Every year, the pursuit of gold becomes increasingly more challenging—not to mention more expensive—requiring ever more sophisticated tools and technology, including 3D seismic imaging, direction drilling and airborne gravimetry. (A satisfactory “gold fracking” method, however, seems unlikely to become reality any time soon.)

Compounding the issue is the fact that the number of years between discovery of a new major deposit and production is widening, due to the increase in feasibility assessments, compliance, licenses and more—and that’s all before nugget one can be extracted. The average lead time for gold mines worldwide is close to 20 years, though it can sometimes be more, depending on the jurisdiction. This highlights the need for worldwide policy reform to remove many of the barriers that obstruct responsible mining.

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In The Goldwatcher, the book I co-wrote with John Katz, I expressed the importance of knowing which developmental stage of a mine’s lifecycle a project currently is in, as this has a strong influence on stock performance. Investing, like life, is all about managing expectations.

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Few New Mines as Companies Are Deleveraging

What all of this means is we’ll probably continue to see fewer and fewer major discoveries, or those that yield more than a million ounces. As you can see below, new gold discoveries peaked in 1995. Exploration spending peaked nearly 20 years later when the price per ounce averaged $1,600.

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With gold now trading above $1,340 an ounce, up 26 percent for the year, many investors expect producers to begin lifting spending on exploration and production (or dividends).

Instead, most companies are in cost-cutting mode, using this opportunity to pay down debt and liquidate assets. According to Reuters, North American gold producers have managed to lower their debt levels 30 percent since late 2014.

Speaking to Mining.com, Newmont Mining CEO Gary Goldberg said his company, the second-largest gold producer in the world, is one of the few that’s currently building new mines—specifically the Merian project in Suriname and Long Canyon in Nevada. Because of the lack of new mines being built, he sees supply falling 7 percent between now and 2021.

Demand for the yellow metal, on the other hand, should remain strong during this period, helping to support prices even more.

Massive Inflows into Gold Funds

In the meantime, gold continues to find support from global monetary policy and low to negative government bond yields. This week the Bank of England cut rates as part of a stimulus package, which both weakened the British pound 1.5 percent and gave the yellow metal a jolt.

These gains were erased, however, following today’s better-than-expected U.S. jobs report, which sparked a rally in Treasuries. This contributes to the narrative that gold and government debt are inversely related, a key component of the Fear Trade.

When priced in the local currencies of the U.S., Canada, South Africa or Australia—four of the largest gold-producing countries—bullion is up, which has boosted miners’ profits. Gold stocks, as measured by the NYSE Arca Gold Miners Index, have appreciated 128.92 percent in the last 12 months.

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For the first half of 2016, inflows into commodities have been the strongest since 2009. Gold and other precious metals account for about 60 percent of the new money, which has pushed commodity assets under management above $235 billion. Barclays believes 2016 could be the best year on record for gold-related ETFs and other funds, with many big-name hedge fund managers, from Stan Druckenmiller to Paul Singer to Bill Gross, singing the praises of the yellow metal.

Index Summary

• The major market indices finished up this week. The Dow Jones Industrial Average gained 0.60 percent. The S&P 500 Stock Index rose 0.43 percent, while the Nasdaq Composite climbed 1.14 percent. The Russell 2000 small capitalization index gained 0.93 percent this week.
• The Hang Seng Composite gained 1.63 percent this week; while Taiwan was up 1.20 percent and the KOSPI rose 0.09 percent
• The 10-year Treasury bond yield rose 13 basis points to 1.59 percent.

Domestic Equity Market

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Strengths

• Information technology was the best performing sector for the week, increasing by 1.63 percent versus an overall increase of 0.37 percent for the S&P 500.
• Mallinckrodt was the best performing stock for the week, increasing 18.79 percent. The company’s shares jumped 14 percent on Tuesday after the pharmaceutical company posted better-than-expected quarterly results and upped its full-year earnings forecast..
• Amazon passed ExxonMobil to become the fourth most valuable company in the world. At $351 billion, Exxon’s market cap ranks it as the sixth most valuable public company in the U.S. Each of the five most valuable companies are in the tech industry.

Weaknesses

• Utilities were the worst performing sector for the week, falling by -2.68 percent versus an overall increase of 0.37 percent for the S&P 500.
• Bristol-Myers Squibb was the worst performing stock for the week, falling -15.41 percent. The stock got rocked after a failed drug trial. Opdivo, a drug designed to treat cancer, failed clinical trials, the British drug maker announced. In reaction to the news, the stock fell by just over 16 percent.
• With just 66 percent of the S&P 500 Index having reported, adjusted earnings (excluding extraordinary items) are down 2.6 percent from the same period a year ago. This represents the fourth straight year-over-year decline. Excluding energy, second quarter earnings are expected to rise 1.8 percent, while revenues are expected to rise 2.8 percent.

Opportunities

• Amazon is leasing airplanes. Amazon One, a converted Boeing 767 that is operated by Atlas Air and is the first plane to bear the company’s name, was unveiled Thursday. The company says it is leasing 40 planes, 11 of which are dedicated to bringing packages around the world.
• While the manufacturing side of the U.S. economy continues to struggle due to excess capacity and ongoing deflationary pressures from abroad, the ISM non-manufacturing survey suggests that services activity remains in good shape. Media companies tend to thrive when the service sector is outperforming goods producers, because it heralds top-line outperformance. Furthermore, proxies for media productivity and sales/employment are seeing a reacceleration, which should support relative forward earnings momentum.
• While banks are tightening lending to most sectors, they remain willing to extend mortgage credit. Long-term mortgage rates are extremely low and consumers are taking full advantage, as recent U.S. housing data has been on the strong side. This trend should continue on the back of firming income growth.

Threats

• Goldman Sachs says sell stocks. A note written by Goldman strategist Christian Mueller-Glissmann moved his team’s weighting on stocks to “underweight” from “neutral” for its three-month asset allocation. “In our view, equities remain in their ‘fat and flat’ range and are now just near the upper end,” Mueller-Glissmann said.
• Tablet sales are in free fall. Sales tumbled 12.3 percent year-over-year in the second quarter, VentureBeat says, citing data from the research firm IDC. The tablet space has now seen sales decline for seven consecutive quarters. This is a negative trend for both tablet and semiconductor manufacturers.
• Stocks of three major cruise liners all fell after Zika warnings. Carnival, Royal Caribbean, and Norwegian Cruise Lines all saw their stocks decline the day after the CDC issued travel warnings for parts of Miami-Dade County, a key hub for the industry, due to cases of mosquito-transmitted Zika.

The Economy and Bond Market

 

Strengths

• Nonfarm payrolls climbed 255,000 in July, beating expectations of 180,000.The unemployment rate held at 4.9 percent as the gain in household jobs was offset by a welcome increase in the labor force.
• Markit manufacturing PMI jumped to 52.9. The index came in right in-line with expectations, indicating that the sector is in expansionary territory.
• Auto sales beat expectations. Total sales came in at 17.88 million on an annualized basis against projections of 17.6 million annualized.

Weaknesses

• Personal income rose 0.2 percent in June, which was lower than analyst expectations of 0.3 percent
• A large OPEC supply has caused the U.S. to import more oil than it has produced for the first time since January 2014. According to Vivek Dhar, a mining and energy commodities analyst at Commonwealth Bank, “the increase in U.S. oil imports reflects OPEC’s strategy to target market share instead of price.”
• Construction spending fell 0.6 percent month-over-month (MoM) in June.

Opportunities

• U.S. consumer spending was the bright spot in the second-quarter GDP report. July retail sales and consumer sentiment data on Friday will tell us whether this strength is continuing into the third quarter.
• The overall ISM index fell to 55.5 in July from 56.5, but remains at a fairly strong level. The rise in the new orders component to 60.3 from 59.9 bodes well for future activity.
• The strong jobs report bodes well for economic growth. If steam continues to pick up, a rate hike could be in the cards by the end of the year.

Threats

• According to BCA, the 10-year Treasury yield is sitting near the lower end of its projected fair value range. The BCA model now appears too low relative to a model based on global PMI, dollar sentiment and global policy uncertainty. This model has performed well tracking changes in the 10-year yield since 2010, and currently pegs fair value for the 10-year Treasury yield at 1.68 percent.

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• Revenue from tech deals is at its highest level since the dot-com bubble. Tech mergers and acquisitions have brought in $1.9 billion this year, according to Dealogic. That’s up 11.8 percent from the same period last year and trails only the same period in 2000 ($2.2 billion) for the highest total.
• According to BCA, every U.S. business cycle since the 1980’s noted a progressive decline in the average real interest rate. The economy’s neutral real interest rate may be negative today.

Gold Market

This week spot gold closed at $1,336.98, down $14.02 per ounce, or 1.04 percent. Gold stocks, however, as measured by the NYSE Arca Gold Miners Index, only gave up 0.8 percent. Junior miners outperformed seniors for the week, as the S&P/TSX Venture Index traded up 1.32 percent. The U.S. Trade-Weighted Dollar Index gained 0.73 percent.

Date	Event	Survey	Actual	Prior
Jul-31	Caixin China PMI Mfg	48.8	50.6	48.6
Aug-1	U.S. ISM Manufacturing	53.0	52.6	53.2
Aug-3	U.S. ADP Employment Changes	170k	179k	176k
Aug-4	U.S. Initial Jobless Claims	265k	269k	266k
Aug-4	U.S. Durable Goods Orders	-4.0%	-3.9%	-4.0%
Aug-5	U.S. Change in Nonfarm Payrolls	180k	255k	292k
Aug-11	U.S. Initial Jobless Claims	265k	—	269k
Aug-11	U.S. Retail Sales YoY	10.5%	—	10.6%
Aug-12	Germany CPI YoY	0.4%	—	0.4%
Aug-12	U.S. PPI Final Demand YoY	0.3%	—	0.3%

 

Strengths

• The best performing precious metal for the week was platinum, which recorded a slight loss of 0.24 percent after falling on Friday in sympathy with the pullback in precious metal prices.
• The Austrian Mint had its third best year on record in 2015, according to its annual gold sales report, showing 756,200 troy ounces of Vienna Philharmonic gold coins sold. Although the bulk of sales are to Austrians, the report is used as a barometer for overall European and global physical gold demand. Sales of silver coins have also seen positive market reaction, with sales of the Perth Mint’s 2016 Australian Kangaroo coins surging to 10 million coins, when expectations were just 5 million for the year, reports GoldCore. According to Bloomberg, investors also amassed the most silver on record in exchange traded funds in July.

• The Bank of England cut key rates this week for the first time in seven years, sending gold higher on the news. The yellow metal also moved in reaction to details of a stimulus package in Japan, reaching a three-week high before the release of the U.S. jobs report on Friday. BullionVault reported that its Gold Investor Index (which measures a balance of client buyers to sellers) rebounded from an eight-month low this week, rising to 53.4 versus 51.4.

Weaknesses

• The worst performing precious metal for the week was silver with a loss of 3.10 percent. Relative to the 1.14 percent pullback in gold, the move was about as expected.
• Gold declined from its highest level in more than two weeks as the U.S. jobs report came out much better than expected on Friday. According to Deutsche Bank’s GDP growth model, the bank’s economists were expecting a much slower pace of job additions, around 150,000 in July, when in reality the U.S. created 255,000 jobs last month. Most economists are modeling the expected jobs number off relative GDP levels and they have come in below expectations for the second quarter, thus they were expecting the jobs number to fall too.
• Indian gold demand continues to slow, according to analysts at Desjardins. Gold imports fell for a sixth consecutive month, with purchases slumping 77 percent to 22 tonnes in July from this time last year. One explanation could be the surge in gold price by 29 percent so far in 2016. “Customers are staying away, as they feel these prices are too high and they are waiting for a correction,” said Bachhraj Bamalwa, a director at the All India Gems & Jewelry Trade Federation.

Opportunities

• HSBC has a positive outlook for silver in 2017, according to its latest Global Commodities report. In regards to supply and demand of the metal, the group notes that one side of the equation is anticipated to remain consistent while the other is expected to rise, reports ValueWalk. Francisco Blanch of Bank of America Merrill Lynch says that investing in gold right now makes sense for two important reasons. Not only does gold make an attractive investment when one-quarter of global bonds are offering negative yields, he told Bloomberg News, but gold’s carry costs are even lower compared to some currencies. “The negative carry on gold is actually smaller than the negative carry on, say, the euro or some other currencies,” Blanch explains.
• Barclays points out that inflows into precious metals in 2016 have topped previous records for the amount of money flowing into exchange-traded products featuring precious metals. Just in the last two months, nearly $8 billion has poured into these products, bringing the tally for the first seven months of the year to $50.8 billion. As the chart below illustrates, gold’s returns have dominated other asset classes and done so with less volatility than Treasury bills and just slightly more volatility than the S&P 500 Index. Note that volatility is graphically represented by the size of the circles.

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• Dovish central bank policies by the Federal Reserve, the Bank of Japan and the Bank of England are lending support to gold, says UBS. The group says that, overall, the regime has not changed, and as such, the macro story for gold remains intact, noting that bouts of weakness are potential buying opportunities. The report reads: “Weaker growth outlook and lower real yields—especially with potential tolerance for inflation to overshoot—in a sense reinforce the themes that have driven investors towards gold this year.”

Threats

• “We take the seemingly unpopular view, and contend that gold has already seen its 2016 peak,” said Christopher Louney, commodity strategist for RBC Capital Markets. In a report released by RBC last week, Louney notes that investors should be cognizant of just how much/little runway remains for gold appetite, reports Bloomberg, especially since its rally has stemmed almost entirely by investor demand. He does not see the metal moving significantly higher, at least not absent another significant risk-off event.
• Japan’s Government Pension Investment Fund, the world’s largest retirement savings pool, lost $50 billion last year, reports ValueWalk. A root of the issue stems from Prime Minister Abe’s redirection of the country’s financial assets from Japanese bonds to equities, searching for higher returns. The markets that Abe said would go up declined instead, and now the fund’s plans include buying junk bonds and emerging market debt. The bottom line is, the fund now pays out to retirees more than it takes in, the article continues.
• Alan Greenspan says we’re seeing the early stages of inflation, Bloomberg reports, noting things like slow productivity around the world, a pickup in wages and a pickup in money supply. Greenspan said the U.S. won’t be able to pay for entitlements, pushing the idea that the economy won’t be able to recover until politicians deal with the issue. He added that it’s crowding out and scaring off investment.

Energy and Natural Resources Market

 

Strengths

• Natural gas continues to surprise to the upside. This Thursday, the U.S. Energy Information Administration (EIA) reported an extremely rare summer withdrawal of 6 bcf (billion cubic feet) from natural gas inventories, compared to the five-year average injection of 54 bcf. Furthermore, this withdrawal represents only the third summer draw on record.

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• The best performing sector for the week was the S&P 500 Oil & Gas Refining and Marketing Index. The index of major U.S. refiners rose 3.1 percent for the week following a report showing gasoline inventories declined by 3.3 million barrels for the week, thus alleviating fears of a gasoline glut during what is considered peak driving season.
• EOG Resources Inc., a U.S. major oil and gas producer, was the best performing stock in the broader natural resource space, rallying 10.4 percent for the week. The stock outperformed after releasing earnings and highlighting it will increase its drilling targets and completion for this year to cash in on low cost opportunities available in the current market.

Weaknesses

• The U.S. dollar rallied on the back of strong jobs data. Friday’s payrolls report, which surprised to the upside, led the ‘greenback’ above 96 points as economists hiked their bets for a Fed rate hike this September. The stronger dollar weighed on commodity prices, with crude oil, copper, and gold posting negative returns for the week.
• The worst performing sector for the week was the TSX Capped Diversified Metals and Mining Index. The index of Canadian base metals companies dropped 3.3 percent for the week, led lower by Turquoise Hill Resources, which weakened after Rio Tinto denied speculation that it is looking to raise its equity stake in the company. Rio Tinto owns 51 percent of Turquoise Hill.
• 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 slumped 10.5 percent for the week after reporting an 80 percent drop in quarterly earnings as a result of weaker fertilizer prices.

Opportunities

• China’s Caixin PMI posted a surprise gain in July. The reading, which focuses on the small and mid cap sectors in China, leaped to a 17-month high of 50.6, its first expansionary reading since February 2015. The move is encouraging as output and new orders were strongly above the key 50 level, suggesting there was an uptick in commodity demand.

• Andy Hall, an oil veteran famous for scoring big on crude’s drop in 2014, has warned investors that a violent reversal higher looms as extreme positioning and improving fundamentals may squeeze short sellers. In addition, a Bloomberg article also warned that the six month oil contango is at profitable levels, making it economical for traders to buy crude to keep in storage, thus adding further pressure on short sellers.

• China house prices are still rising strongly. As VTB Capital reports, a private survey of 100 large cities showed house prices up 12.39 percent in July from a year ago, faster than the pace in June. The data suggests that the price boom continues to gather pace, which lifts raw commodities as builders boost orders.

Threats

• Banks are lowering their crude oil bets. The Wall Street Journal surveyed major investment banks on their predictions for Brent crude prices, showing that expectations have declined from last month, and year-on-year. The banks now expect oil prices to rally back to $50 by year end, a dramatic drop from last year’s expectations that crude would hit $70 in 2016.
• China’s demand for steel is cooling. In spite of a major leap in PMIs, which saw the steel PMI rise 2.1 points to 50.2, there is evidence that end user demand in China is slowing down. The major driver behind the steel PMI leap was an even greater leap in steel exports, suggesting that the key demand driver is coming from abroad, while masking deceleration at home. This situation is concerning given China’s 46 percent share of global finished steel consumption.
• The 40 percent rally in Chinese port coal prices year-to-date may lead to a glut as marginal operations restart. Macquarie Research reports news of Indonesia miner Reswara which is set to resume exports in October after a year-long suspension and add 3 million tons annually to the seaborne market. These resumptions are likely to cap the strong price rally, especially considering that global demand for thermal coal continues to fall.

China Region

Strengths

• The Caixin China Manufacturing PMI for the July period came in at 50.6 percent, much better than the contractionary print of 48.8 anticipated in analyst surveys and up from 48.6 in June. Official Manufacturing PMI was roughly in-line, coming in at 49.9, barely missing expectations of 50.0.

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• Hong Kong was a top performer in the region for the week, with the H-shares rising nearly 2 percent in the last five trading days and the Hang Seng Composite Index not far behind.

• Indonesia’s quarter-over-quarter second-quarter GDP came in at 4.02 percent, ahead of expectations for 3.80 percent. Year-over-year numbers also beat, coming in at a pace of 5.18 percent, better than expectations for an even 5 percent.

Weaknesses

• Singapore’s Straits Times Index performed poorly this week relative to many of its peers across the region as the STI dropped about 1.41 percent. Singapore’s dollar was also a relatively weak performer for the week, down about 34 basis points.
• The Nikkei Indonesia Manufacturing PMI dropped to 48.4 in July, down from a previous and expansionary July print of 51.9.
• July exports for South Korea dropped 10.2 percent year-over-year, missing expectations for a drop of only 6.7 percent and down from June’s drop of 2.7 percent. Imports were down as well, falling 14 percent year-over-year, worse than the expected drop of 10.5 percent and down from June’s print of -8.0 percent.

Opportunities

• This weekend China is expected to release FX Reserves data, and China-watchers will be monitoring carefully for continued stability in the numbers.
• Uber Technologies took a big step toward being ready for an IPO, reports Bloomberg. The company bailed out of its China business by selling the unit to ride-hailing competitor Didi Chuxing. Travis Kalanick, CEO of Uber, has said although he plans to wait as long as possible before going public, “throttling losses in China was one of the main things holding up a potential IPO,” the article continues.
• Signs that China’s economy is stabilizing have helped restore confidence in global companies tied to it, reports Bloomberg. An index of firms in developed markets, including Yum! Brands, Qualcomm and Adidas, has risen 33 percent since a low in February. “For the first time in ages, we’re actually getting positive surprises out of China,” said Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen.

Threats

• Hong Kong’s PMI numbers improved to 47.2 in July, up from 45.4 in June. The reading still sits below the 50 mark, however, indicating economic contraction for a seventeenth consecutive month.
• The northeastern province of Liaoning, or the rustbelt, saw its economy contract by 1 percent in the first half of 2016, reports Bloomberg, as factories splutter and the coal industry groans under the weight of overcapacity. Interestingly, China’s regions show divergence, as the hardship remains localized – regional data for the first six months shows economic growth in 15 of the nation’s 31 provinces.
• A weakening yuan adding to servicing costs, is causing China airlines to cut losses by selling local-currency bonds at the fastest pace since 2009, reports Bloomberg, in hopes of trimming their exposure to the greenback. In March, Air China announced plans to cut dollar debt to 60 percent of its total by the end of this year, from 73.5 percent at the end of 2015, the article continues.

Emerging Europe

Strengths

• Poland was the best performing country this week, gaining 3 percent. Warsaw Stock Exchange gains were led by a surge in banks, which appreciated after the government softened its stance on foreign low-mortgage conversion plans.
• The Polish zloty was the best currency this week, gaining 95 basis points against the dollar. The currency and Polish equities rebounded as investors became more optimistic about Poland. On August 4, Fitch commented that Poland’s latest plan for dealing with $36 billion of foreign currency-denominated loans is a better deal for banks than the previous proposals.
• Materials was the best performing sector among Eastern European markets this week.

Weaknesses

• The Czech Republic was the worst performing market this week, losing 3.6 percent. The decline in the Prague Exchange was led by Komercni Bank, which slumped the most in five years after the Czech unit of Socete Generale said new regulation was forcing it to cut its generous dividend policy event as profits rose.
• The euro was the worst performing currencies this week, losing 85 basis points against the dollar. The dollar climbed against most major currencies and headed for its biggest weekly gain since June against the euro. This follows the strong U.S. jobs report for July, which bolstered bets that the Federal Reserve will raise interest rates as soon as this year.
• Telecommunications was the worst performing sector among Eastern European markets this week.

Opportunities

• The Bank of England cut its key rate for the first time in more than seven years and announced an increase in its bond-buying program. The bank’s key rate was reduced to 25 basis points from 50 basis points. The Monetary Policy Committee will buy 60 billion pounds of government bonds over six months and as much as 10 billion pounds of corporate bonds in the next 18 months.

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• The president of Poland announced a new proposal on how to unwind the country’s $36 billion foreign-currency loan portfolio. Now he will be seeking a voluntary and gradual solution instead of forcing lenders to pay back clients as much as 4 billion zloty ($1 billion) for excessive exchange rate spreads. Polish banks welcomed the news and outperformed.
• In the days after Vladimir Putin annexed Crimea in mid-March of 2014, Republican presidential candidate Donald Trump expressed strong oppossition to the move. But recently Trump made comments that he is “going to take a look” at recognizing Crimea as Russian territory. Further, he would consider lifting sanctions. If Trump wins the election, our relationship with Russia and investor sentiment toward the country could possibly improve.

Threats

• Moody’s is due to review Turkey’s Baa3 credit rating. If it decides to cut, Turkey will lose its investment grade rating at that rating agency. Moody’s and Fitch currently have the country’s rating one notch above non-investment grade. Standard and Poor’s recently cut Turkey from BB+ to BB-, with a negative outlook.
• In a recent survey of German companies across Central Europe, Poland’s investment attractiveness fell to second place behind the Czech Republic for the first time in four years. Driving the decline was a plunge in the rating of Poland’s political stability and predictability of economic policies.
• After the U.K. vote to leave the eurozone on June 23, British house prices fell 1 percent in July, the biggest slide since February and reversing a 1.2 percent gain in June.

Leaders and Laggards

 

 

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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 06/30/2016:
Barrick Gold
ExxonMobil Corp
Komercni Bank
Newmont Mining Corp
Turquoise Hill Resources Ltd.

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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 EAFE (Europe, Australia and Far East) Index measures the performance of the leading stocks in 21 developed countries outside North America.
The S&P GSCI Spot index tracks the price of the nearby futures contracts for a basket of commodities.
The Barclays U.S. Corporate High-Yield Bond Index covers the universe of fixed-rate, non-investment grade corporate debt of issuers in non-emerging market countries.
The Barclays Capital U.S. Credit Bond Index measures the performance of investment grade corporate debt and agency bonds that are dollar denominated and have a remaining maturity of greater than one year.
The Barclays Capital 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non-convertible.
The Caixin China Manufacturing PMI, released by Markit Economics, is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private manufacturing sector companies.
DOENUSCH Index is the U.S. Department of Energy’s Energy Information Administration’s estimated weekly U.S. working natural gas in underground storage, including U.S. totals and regional breakdowns.
The ISM Nonmanufacturing index based on surveys of more than 400 non-manufacturing firms’ purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non-Manufacturing Index tracks economic data, like the ISM Non-Manufacturing Business Activity Index. A composite diffusion index is created based on the data from these surveys that monitors economic conditions of the nation.
S&P Oil & Gas Refining and Marketing Index tracks the market performance of downstream oil and gas companies.
S&P/TSX Capped Diversified Metals and Mining Index is an index of companies engaged in diversified production or extraction of metals and minerals.
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.
BullionVault’s Gold Investor Index measures the balance of private investors buying gold to start or grow their holding across the month over those reducing or selling them entirely. A reading of 50.0 means the number of people buying gold across the month was perfectly balanced by the number of sellers.
The FTSE Straits Times Index (STI) is a capitalisation-weighted stock market index that is regarded as the benchmark index for the Singapore stock market. It tracks the performance of the top 30 companies listed on the Singapore Exchange.

Disclaimer© 2010 Junior Gold ReportJunior Gold Report’ Newsletter: Junior Gold Report’s Newsletter is published as a copyright publication of Junior Gold Report (JGR). No Guarantee as to Content: Although JGR attempts to research thoroughly and present information based on sources we believe to be reliable, there are no guarantees as to the accuracy or completeness of the information contained herein. Any statements expressed are subject to change without notice. JGR, its associates, authors, and affiliates are not responsible for errors or omissions. Consideration for Services: JGR, it’s editor, affiliates, associates, partners, family members, or contractors may have an interest or position in featured, written-up companies, as well as sponsored companies which compensate JGR. JGR has been paid by the company written up. Thus, multiple conflicts of interests exist. Therefore, information provided herewithin should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. No Offer to Sell Securities: JGR is not a registered investment advisor. JGR is intended for informational, educational and research purposes only. It is not to be considered as investment advice. Subscribers are encouraged to conduct their own research and due diligence, and consult with their own independent financial and tax advisors with respect to any investment opportunity. No statement or expression of any opinions contained in this report constitutes an offer to buy or sell the shares of the companies mentioned herein. Links: JGR may contain links to related websites for stock quotes, charts, etc. JGR is not responsible for the content of or the privacy practices of these sites. Release of Liability: By reading JGR, you agree to hold Junior Gold Report its associates, sponsors, affiliates, and partners harmless and to completely release them from any and all liabilities due to any and all losses, damages, or injuries (financial or otherwise) that may be incurred.

Forward Looking Statements
Except for statements of historical fact, certain information contained herein constitutes forward-looking statements. Forward looking statements are usually identified by our use of certain terminology, including “will”, “believes”, “may”, “expects”, “should”, “seeks”, “anticipates”, “has potential to”, or “intends’ or by discussions of strategy, forward looking numbers or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Forward-looking statements are statements that are not historical facts, and include but are not limited to, estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to the effectiveness of the Company’s business model; future operations, products and services; the impact of regulatory initiatives on the Company’s operations; the size of and opportunities related to the market for the Company’s products; general industry and macroeconomic growth rates; expectations related to possible joint and/or strategic ventures and statements regarding future performance. Junior Gold Report does not take responsibility for accuracy of forward looking statements and advises the reader to perform own due diligence on forward looking numbers or statements.

Disclaimer© 2010 Junior Gold ReportJunior Gold Report’ Newsletter: Junior Gold Report’s Newsletter is published as a copyright publication of Junior Gold Report (JGR). No Guarantee as to Content: Although JGR attempts to research thoroughly and present information based on sources we believe to be reliable, there are no guarantees as to the accuracy or completeness of the information contained herein. Any statements expressed are subject to change without notice. JGR, its associates, authors, and affiliates are not responsible for errors or omissions. Consideration for Services: JGR, it’s editor, affiliates, associates, partners, family members, or contractors may have an interest or position in featured, written-up companies, as well as sponsored companies which compensate JGR. JGR has been paid by the company written up. Thus, multiple conflicts of interests exist. Therefore, information provided herewithin should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. No Offer to Sell Securities: JGR is not a registered investment advisor. JGR is intended for informational, educational and research purposes only. It is not to be considered as investment advice. Subscribers are encouraged to conduct their own research and due diligence, and consult with their own independent financial and tax advisors with respect to any investment opportunity. No statement or expression of any opinions contained in this report constitutes an offer to buy or sell the shares of the companies mentioned herein. Links: JGR may contain links to related websites for stock quotes, charts, etc. JGR is not responsible for the content of or the privacy practices of these sites. Release of Liability: By reading JGR, you agree to hold Junior Gold Report its associates, sponsors, affiliates, and partners harmless and to completely release them from any and all liabilities due to any and all losses, damages, or injuries (financial or otherwise) that may be incurred.

Forward Looking Statements
Except for statements of historical fact, certain information contained herein constitutes forward-looking statements. Forward looking statements are usually identified by our use of certain terminology, including “will”, “believes”, “may”, “expects”, “should”, “seeks”, “anticipates”, “has potential to”, or “intends’ or by discussions of strategy, forward looking numbers or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Forward-looking statements are statements that are not historical facts, and include but are not limited to, estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to the effectiveness of the Company’s business model; future operations, products and services; the impact of regulatory initiatives on the Company’s operations; the size of and opportunities related to the market for the Company’s products; general industry and macroeconomic growth rates; expectations related to possible joint and/or strategic ventures and statements regarding future performance. Junior Gold Report does not take responsibility for accuracy of forward looking statements and advises the reader to perform own due diligence on forward looking numbers or statements.