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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

Some Are Betting on Red, Some on Blue. I'm Betting on Gold
October 9, 2020

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

Some Are Betting on Red, Some on Blue. I’m Betting on Gold

Whether you support President Donald Trump or not, you must acknowledge that one of the bedrocks of his governing style is unpredictability. To some critics, Trump’s behavior and decision-making process may seem erratic, but I believe they make a sort of sense when viewed through the lens of game theory.

Take, for example, his hot-and-cold stance on a new coronavirus stimulus bill this week. On Tuesday, Trump unexpectedly tweeted that negotiations with House Speaker Nancy Pelosi would halt until after the election. “After I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Businesses,” he said.

That same day, Trump appeared to change his mind—reportedly after he saw how the stock market, and particularly airline stocks, reacted to the news. (I often say that he’s the first American president who keeps his eye on the stock market and sees it as a gauge of his success.) “The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support,” he tweeted.

airline stocks whipsaw at trump and pelosi haggle over stimulus
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Again, to some, this behavior might seem irrational, but in game theory, unpredictability can be an effective tool that leaves an opponent guessing.

In case you’re unfamiliar, “game theory” is the study of how and why people make decisions to achieve a certain outcome. More than one game theorist predicted Trump’s victory in 2016, and I wouldn’t be surprised to learn that some are doing the same in the 2020 contest.

That’s despite Trump trailing Joe Biden in national polls. Meanwhile, PredictIt data shows that betting odds favor a Biden win, with the spread having widened further since Trump’s positive COVID-19 diagnosis. But if you recall, then-candidate Trump was in a similar underdog position against Hillary Clinton heading into the election four years ago.

presidential betting odds favor biden over trump
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Follow the Trendline, Not the Headline

We’re only 25 days out from the election, and like Trump himself, it’s sure to be unpredictable. It could very well be contested, as there have been reports of both candidates hiring hundreds of lawyers in anticipation of a legal battle.

That’s why I believe it’s best right now to listen to the market rather than the negative political rhetoric, to follow the trendline and not the headline. As I shared with you in August, markets have accurately predicted presidential elections nearly three out of every four times since 1948. This is “Wisdom of Crowds” in action.

It’s also worth being reminded that 80 percent of all stock trading today is driven by quants and algos, which have no political preference. Their models are completely agnostic to who’s in the White House. Similarly, what matters most to us as active money managers are not the political parties but the policies.

Gold Expected to Head Higher on Fresh Stimulus

Speaking of policy, the Wall Street Journal reported today that the White House is preparing a coronavirus stimulus offer valued at $1.8 trillion, despite Trump’s earlier comment on ending negotiations. It’s been seven months since the last relief package, the CARES Act, was signed, and in that time, the number of Americans filing for jobless benefits has remained elevated.

initial jobless claims have fallen but remain elevated months after last stimulus
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With the national debt now topping $27 trillion, such a package isn’t good for the government’s balance sheet, but it’s good for gold. Indeed, the yellow metal traded up as much as 1.8 percent on the news.

And I believe there’s additional upside potential—no matter who wins the election. In 25 days, millions of Americans will be betting on “red,” millions of others on “blue.” I’ll be betting on gold.

I’m far from the only one. Leon Cooperman became just the latest billionaire investor to buy gold. In a recent interview, the Omega Advisors chairman and CEO said: “I bought gold for the first time in my life a week ago. I understand the case for gold. We’re on the way to some banana republic situation. Nobody’s worrying about the debt that’s being created.”

Meanwhile, ETFs backed by physical gold climbed to a record amount this Monday, touching 111.05 million ounces. According to the World Gold Council’s (WGC) September report, global gold ETFs saw their 10th straight month of inflows last month. For the first time ever, such funds added more than 1,000 tonnes of gold so far this year, the equivalent of $55.7 billion.

gold backed ETFs recorded 10th straight month of net inflows in september 2020
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Gold Miners to Report “Most Unbelievable Margins”

Then there’s gold mining stocks. Companies in the NYSE Arca Gold Miners Index put in a strong showing on Friday, finishing the session up 4.2 percent, its best single-day jump since August 17. For the week, the group advanced more than 4 percent.

Like the metal they mine, gold producers could see an even bigger jump when they begin to report third-quarter earnings. With gold having averaged $1,911 an ounce during the quarter, and hitting its all-time high of $2,070 in early August, producers generated some of the highest revenues they’ve ever experienced, not to mention margins.

That was the message of my friend Pierre Lassonde, speaking to Kitco News last month. The legendary co-founder of Franco-Nevada said that “gold miners have never had it so good,” explaining that the “margins they are producing are the fattest, the best, the absolute unbelievable margins they’ve ever had.”

An explosion in exploration activity could take place as a result, according to Pierre. “I think the budgets will be up more likely by 50 percent to 75 percent” in 2021, he said.

It’s not too late to participate!

Luxury Stocks Have Been Resilient During the Pandemic

On a final note, I’m very pleased to see how well luxury goods companies as a whole have held up during the pandemic months. Since the market bottom in mid-March, the S&P Global Luxury Index has increased more than 84 percent, close to double the return of the S&P 500. Giant multinational LVMH Moet Hennessy Louis Vuitton is up nearly 54 percent as of today.

luxury stocks have surged in the months since the market bottom
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With the single largest weighting in the index, Tesla has had an incredible year, returning 418.7 percent. Other stocks that we like have also performed well, including Lululemon Athletica (up 49.5 percent), Remy Cointreau (41.4 percent) and Hermes International (14.3 percent).

I maintain my call for $4,000 gold in the next three years due to record stimulus spending and money-printing, which may lead to extreme currency debasement. Get my full thoughts by watching my interview with CNBC below, and make sure to like and subscribe to our YouTube channel!

Gold Market

This week spot gold closed at $1,930.40, up $30.56 per ounce, or 1.61 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 4.17 percent. The S&P/TSX Venture Index came in up 3.34 percent. The U.S. Trade-Weighted Dollar fell 0.89 percent.

Date Event Survey Actual Prior
Oct-9 Initial jobless Claims 820k 840k 849k
Oct-13 Germany CPI YoY -0.2% -- -0.2%
Oct-13 Germany ZEW Survey Expectations 74.0 -- 77.4
Oct-13 Germany ZEW Survey Current Situation -60.0 -- -66.2
Oct-13 CPI YoY 1.4% -- 1.3%
Oct-14 PPI Final Demand YoY 0.2% -- -0.2%
Oct-15 Initial Jobless Claims 820k -- 840k
Oct-16 Eurozone CPI Core YoY 0.2% -- 0.2%

Strengths

  • The best performing precious metal for the week was silver, up 5.97 percent, perhaps related to Goldman Sachs suggesting investors go long with the boost seen from a greater expansion of solar energy. Gold rose for a second straight day on Thursday on hopes that Congress will provide another round of stimulus for the economy. The yellow metal was then up 2 percent on Friday morning on a weaker U.S. dollar.
  • Investment demand for gold was strong in September even as gold prices saw their sharpest decline in four years. New data from the World Gold Council (WGC) shows that holdings in ETFs backed by gold grew by 68.1 tonnes last month. This latest surge in inflows has pushed global holdings for the year above 1,000 tonnes – a new record high. The value of these assets under management is also at a record high of $235 billion for 2020.
  • Goldman Sachs Group said silver stands out as an “obvious beneficiary” from government stimulus programs that lean toward renewable energy, which boosts demand for the metal used in solar panels. Analysts said in a note that global solar installations will increase by 50 percent between 2019 and 2023. Goldman’s forecast is for silver to rise to $30 an ounce – about 26 percent higher than current prices.

goldman says silver to gain on stimulus-fueled boost and retail demand
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Weaknesses

  • The worst performing precious metal for the week was platinum, but still up by 1.30 percent. Hedge funds increased their bearish outlook on platinum by raising their net short positon to a 14-month high. An index of South African gold miners fell 1.1 percent on Monday after the country’s main stock index fell on lower gold prices.
  • Ghana suspended plans to raise $500 million in an IPO for its gold royalty fund after a state prosecutor began an investigation into the sale over a lack of transparency. The sale was scheduled to begin in September and the fund would be structured to pay dividends from the government’s income from gold operations.
  • Alliance Altyn, part of Russian Platinum Group, said it has shut its Kyrgyzstan gold mine after an attack. The country is facing violent uprisings over a disputed election result. A group of local citizens have tried to enter the production facilities of several gold mines.

Opportunities

  • Northern Star Resources is buying smaller Australian rival Saracen Mineral Holdings. Bloomberg reports the deal will create a new top 10 global gold producer with a market valuation of $11.5 billion. After adding Saracen’s assets, Northern Star will be on track to produce 2 million ounces a year from 2027. Goldman Sachs says the merger would combine the “two best organic growth profiles in the Australian gold sector.”
  • Barrick Gold CEO Mark Bristow says the gold industry needs more consolidation to increase exploration and boost reserves. Bloomberg reports that gold mining deals worth around $14 billion have been completed or agreed so far this year compared with $26 billion completed in 2019. Bristow said at a virtual conference this week that “Canada still needs more work on consolidation.”
  • Union Bancaire Privee (IBP) says gold could reach $2,200 an ounce by December 2021 due to deeply negative inflation-adjusted U.S. interest rates. According to a report by authors including Michael Lok, gold miners position investors to benefit from the resumption of the long cycle bull market expected in early 2021 and the near-term earnings catalyst of increased output and the long-term driver of rising dividends.

Threats

  • A British appeals court ruled in favor of the Venezuelan government of Nicolas Maduro, saying the legal battle over the country’s $1 billion in gold in the Bank of England vaults should be reconsidered. Bloomberg reports the appeals court reversed a lower court ruling that recognized opposition leader Juan Guaido as the interim president. This ruling gives Maduro another chance at getting his hands on the gold, which he would likely sell in order to support the struggling South American nation.
  • Boston Federal Reserve President Eric Rosengren said on Thursday that high leverage points to a slow recovery from the pandemic recession, reports Reuters. “The increased risk build-up, such as the reaching-for-yield behavior in commercial real estate or increased corporate leverage, maker economic downturns including this one more severe. There are issues that I and others spoke about quite extensively in the years before the pandemic hit.”
  • Coronavirus cases continue to rise again in the U.S., and in some areas globally, leaving investors concerned over potential new lockdown measures. President Trump contracted the virus last Friday and it has spread to other White House and top officials.

The 5 M's of mining for picking Gold Stocks - Click to watch the video!

Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 3.27 percent. The S&P 500 Stock Index rose 3.74 percent, while the Nasdaq Composite climbed 4.56 percent. The Russell 2000 small capitalization index gained 6.34 percent this week.
  • The Hang Seng Composite gained 3.49 percent this week; while Taiwan was up 2.97 percent and the KOSPI rose 2.75 percent.
  • The 10-year Treasury bond yield rose 7 basis points to 0.772 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
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Strengths

  • Materials was the best performing sector of the week, increasing by 5.12 percent versus an overall increase of 3.74 percent for the S&P 500.
  • Xilinx was the best performing S&P 500 stock for the week, increasing 17.89 percent.
  • Billionaire investor Dan Loeb follows Warren Buffett and Marc Benioff into Snowflake. Loeb's Third Point fund revealed the cloud-data platform was one of its best-performing bets in September.

Weaknesses

  • Real estate was the worst performing sector for the week, increasing by 1.37 percent versus an overall increase of 4.74 percent for the S&P 500.
  • Vontier was the worst performing S&P 500 stock for the week, falling 19.69 percent.
  • EasyJet forecasts a loss of $1.1 billion, its first annual loss, as the pandemic continues to ravage the airline industry. The British airline also scrapped its dividend.

Opportunities

  • United Airlines and JetBlue could soar nearly 50 percent on upgraded outlooks for ample cash through 2022, JPMorgan says. Despite expectations for weaker air travel demand and weak earnings reports, JPMorgan upgraded both airline stocks.
  • Square bought 4,709 bitcoins for $50 million on the potential it will be a 'ubiquitous currency'. The investment represents about 1 percent of Square's total assets at the end of the second quarter.
  • Bank of America equity analyst Ron Epstein expects the space industry to grow by $1 trillion in the next decade.

Threats

  • Goldman Sachs senior strategist warns stocks could see 'considerable' pre-election downside that is not yet being factored into models. What Congress does next, what the president says and how the election will unfold cannot be forecasted by modeling, Abby Joseph Cohen said.
  • Citi's U.S. equities chief warns of an 'extreme peak' in earnings revisions heading into the crucial reporting season and says it makes stocks vulnerable to a pullback in the weeks ahead. A loss of momentum in positive earnings revisions could weigh down stock prices.
  • California Governor Gavin Newsom said the state’s theme parks must remain closed for now — a stance that has put him at odds with Walt Disney Co. and some legislators. “We’re going to be led by a health-first framework and we’re going to be stubborn about it,” the governor said at a press conference Wednesday. “We don’t anticipate in the immediate term any of these larger theme parks opening until we see more stability in terms of the data.”

The Economy and Bond Market

 

Strengths

  • The huge service side of the U.S. economy — retailers, restaurants, banks, hospitals and the like — expanded in September for the fourth month in a row and overall employment also grew in the sector for the first time since the pandemic began, a survey business executives showed. The index of nonmanufacturing companies rose to 57.8 percent last month from 56.9 percent in August, the Institute for Supply Management (ISM) said Monday.
  • White House Economic Adviser Larry Kudlow said on Friday that President Trump approved a revised coronavirus stimulus package. Treasury Secretary Steven Mnuchin will be discussing the plan with House Speaker Nancy Pelosi later Friday, according to Kudlow.
  • After a period of economic weakness in August and September, the pace of recovery in most advanced economies gained traction in the past two weeks, according to Bloomberg Economic gauges that integrate high-frequency data such as credit-card use, travel and location information. After weeks of stagnation, the U.S. is now seeing its recovery pace accelerate.  

Weaknesses

  • First-time claims for unemployment benefits totaled 840,000 last week, higher than expected in another sign that the spike in job growth over the summer has cooled heading into Election Day. Economists surveyed by Dow Jones had been expecting 825,000 new claims. Though the total was a bit worse than Wall Street expected, it still represented a modest decline from the upwardly revised 849,000 from a week earlier.
  • The U.S. trade deficit in goods and services rose 5.9 percent in August, climbing to its highest level in 14 years, according to data released Tuesday by the Census Bureau. The difference in value between the goods and services the U.S. exported and imported in August totaled $67.1 billion, up $3.7 billion from a revised total of $63.4 billion in July, according to the Census Bureau. The August 2020 trade deficit was the highest since August 2006. The new figures are the latest window into the impact of the coronavirus pandemic on U.S. production. The trade deficit widened significantly over the summer as purchases of imported goods increased at a faster rate than services exported by U.S. businesses abroad.
  • The UK's economic recovery is running out of steam - GDP grew just 2.1 percent in August despite government support. This fell far short of expectations for a reading of 4.6 percent.

Opportunities

  • The increased chances of a “blue sweep,” where the Democrats win the White House and take full control of Congress, would likely result in a much bigger spending package. That would help support the economy as it continues to recover from the virus economic fallout.
  • Retail sales for September are due Friday, where forecasts point to a solid set of numbers, which could reinforce the resilience of the American consumer.
  • CPI inflation data that will hit the markets on Tuesday, where a rise in inflation would be a positive sign that the economic recovery is gaining momentum.

Threats

  • President Donald Trump’s tweet on Tuesday ending U.S. stimulus talks upended stocks and bonds, sending measures of volatility spiking. The ICE BofA MOVE Index, which measures swings in the Treasury market, jumped 18 points, the biggest increase since the height of the market turmoil from the coronavirus pandemic in March. “President Trump creates much of the volatility and is faced with a very difficult re-election prospect,” said Sebastien Galy, macro strategist at Nordea Investment Funds. “His unpredictability will keep the market volatile.”

treasury volatility jumps most in a day since the start of the pandemic
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  • Federal Reserve officials kept up pressure for Washington to renew fiscal support for the virus-ravaged economy even as hopes of a deal between Democrats and Republicans continued to look dim. Without additional fiscal relief, the recovery will likely be a lot weaker, Dallas Fed President Robert Kaplan said in a Bloomberg Television interview with Kathleen Hays Thursday. He said the Fed likely won’t increase large-scale asset purchases right now as it wouldn’t do much to help the real economy.
  • The pandemic is threatening to worsen an “already outsized liability burden,” for the state of Illinois, according to Moody’s. The state's gross domestic product and “revenue will suffer from the pandemic’s economic fallout, and its already outsized long-term obligations, primarily for unfunded retirement benefits, will rise,” Moody’s said in a report emailed on Friday.

Energy and Natural Resources Market

 

Strengths

  • The best performing commodity for the week was natural gas, up 13.08 percent. Money managers boosted their bullish bets on natural gas by 4,940 net-long positions to 434,448 weekly – the most bullish net-long position in more than three years, according to Bloomberg.
  • Copper rebounded on Wednesday after President Donald Trump tweeted that he was willing to approved aid for airlines and small businesses. Bloomberg notes that copper prices are seen as a barometer of economic growth. Oil prices had their biggest gain since May, added 1.2 percent on Tuesday after rising above $39 a barrel on Monday.
  • Renewable energy stocks have soared in China since President Xi Jinping announced the country aims to be carbon neutral by 2060. Bloomberg notes that solar giants Longi Green Energy Technology and Tongwei jumped in trading on Friday after a week-long holiday, up 9.3 percent and 10 percent, respectively.

Weaknesses

  • The worst performing commodity for the week was lumber, down 7.58 percent on commercial demand wavering a bit after the stellar price run over the last several months. Iron ore exports have hit record highs in top producing countries Australia and Brazil, which could spell trouble in the form of lower ore prices. Exports from Australia’s Port Hedland hit 45.6 million tons in September – the highest ever for that month. Supply balance fundamentals are changing after iron soared in 2020 on China’s ramped up stimulus pushing steel production to record highs.

australia and brazil iron exports hit record high
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  • According to environmental group Earthworks, emissions from MDC Energy LLC’s Pick Pocket location in West Texas have been spewing polluting gasses into the atmosphere for 10 months despite being investigated by Texas regulators. MDC is a bankrupt shale producer, raising concerns over the growing number of bankruptcies and what will happen to their projects if they are unable to properly maintain or plug them.
  • Poland placed a $7.6 billion fine on Gazprom PJSC’s nearly complete Nord Stream 2 pipeline that will feed natural gas from Russia to Germany under the Baltic Sea, reports Bloomberg. Poland and the U.S. have long objected the pipeline saying it would deepen Europe’s dependence on Russia for energy supplies. This massive fine could halt the project and prevent completion.

Opportunities

  • According to BloombergNEF, global solar module manufacturing capacity has increased by 20 percent so far this year, with more than 50 gigawatts of new capacity added. A further 30 gigawatts is currently under construction and there are plans for 110 gigawatts of additional capacity within the next two to three years. BloombergNEF forecasts 3 gigawatts of residential solar installations in 2020, which would top the previous high of 2.8 gigawatts set in 2019.
  • Chile could become hydrogen’s next superpower. BloombergNEF says the country is well-placed to be one of the world’s cheapest hydrogen producers given its strong mining sector demand. Antofagasta announced its copper mines may use hydrogen trucks last week, and the following day Enel Green Power Chile and Andes Mining & Energy SA announced a plan to install a pilot production project. Chile’s energy minister said the country is considering financial assistance for green hydrogen projects.
  • Nissan announced the 2024 model of its electric sports-utility vehicles will use carbon fiber-reinforced plastics in the car body, which will reduce vehicle weight and increase driving range, reports Bloomberg. These types of parts are more than 50 percent lighter than steel and 10 times the price. Nissan’s increased use of the plastics should promote more demand, which could boost production and lower prices.

Threats

  • China is investing heavily in new mega-refineries even as its fuel demand is projected to peak in five years. Bloomberg reports at least four projects with 1.4 million barrels a day of crude processing capacity are under construction – more than the capacity of all factories in the U.K. combined. The threat is it could flood the region with cheap exports.
  • Alliance Altyn, part of Russian Platinum Group, said it has shut its Kyrgyzstan gold mine after an attack. The country is facing violent uprisings over a disputed election result. A group of local citizens have tried to enter the production facilities of several gold mines.
  • Leaked documents seen by Bloomberg show that Exxon Mobil Corp has been planning to increase its annual carbon dioxide emissions by as much as the output of the entire nation of Greece. The oil major’s investment strategy shows yearly emissions rising by 17 percent by 2025. This comes as rivals are working to reduce CO2 emissions and transition to cleaner energy.

Emerging Europe

 

Strengths

  • Turkey was the best performing country this week, gaining 1.8 percent. Bloomberg reported that many investors underweight Turkish assets and are starting to nibble. Last week investors purchased $610 million of Turkish bonds and equites – the largest inflow since January 2018. However, the lira continues to depreciate against the dollar. Aksa Akrilik Kimya Sanayii, a textile producer, was the best performing equity trading in the iShares Turkey ETF (TU), gaining 10.6 percent in the past five days.
  • The Russian ruble was the best relative performing currency this week, gaining 1.9 percent, strengthening with the price of oil. Brent crude oil gained 9 percent in the past five days, closing the week at nearly $43 per barrel.
  • Telecommunication service was the best performing sector among eastern European markets this week.

Weaknesses

  • Russia was the worst performing country this week, losing 60 basis points. A spike in coronavirus infections and renewed talks about sanctions pushed Russian equites lower. Rostelecom PJSC, a telecommunication company, was the worst equity trading in the VanEck Russia ETF (RSX), losing 4.3 percent in the past five days. Lukoil shares declined with the weakness in oil prices.
  • The Turkish lira was the worst performing currency in the region this week, losing 1 percent. The lira fell to a historical low against the U.S. dollar due to rising geopolitical tensions. On Friday, the central bank increased its weekly swap transaction rate to 11.75 percent from 10.25 percent in a move to halt currency depreciation.
  • Information technology was the worst performing sector among eastern European markets this week.

Opportunities

  • Greece may record one of the strongest economic gains next year among European peers. The Greek government presented its budget to parliament this week. In the base case scenario, the government expects GDP growth of 7.5 percent in 2021 driven by a strong rise in investments. In the worst-case scenario presented in the budget is that GDP will grow by 4.5 percent next year.
  • Bloomberg reported that ECB President Lagarde pledged not to remove monetary support until the coronavirus crisis is over, reinforcing her message that central banks and fiscal authorities must act together. In an interview with the Harvard International Review, Lagarde said macroeconomic policies have acted forcefully and should guard against premature withdrawal of these support measures.
  • Polish e-commerce platform Allegro will have its first day of trading on Monday. This new addition to the Warsaw Stock Exchange will help the country’s stock market cut its reliance on old-economy industries and raise the profile of Polish technology stocks.

Threats

  • Europe is experiencing a resurgence in coronavirus infections. France, Spain and the Czech Republic all posted record increases in coronavirus cases. Counties across Europe are imposing new restrictions, hurting to already weak economic recovery. In Spain, a court blocked national government efforts to force Madrid to apply curbs on movement, ruling that such restrictions affect fundamental constitutional rights.
  • Bloomberg reported that France and Germany will propose sanctions on Russian individuals they find responsible for the poisoning of the Russian opposition leader Alexei Navalny. On Tuesday, the Organization of the Prohibition of the Chemical Weapons confirmed findings of German, French and Swedish laboratories that Navalny had been poisoned by Novichok, a chemical weapon developed by the Soviet Union. Moscow denies any involvement in the poisoning.
  • The Turkish lira continues its depreciation against the U.S. dollar as geopolitical tension puts further pressure on the currency. Turkey announced its plan to test Russian-made S-400 missiles against the U.S. recommendation not to do so. Fighting between Armenia and Azerbaijan further complicates the political imbalance as Turkey supports Azerbaijan while Russia helps Armenia.

the turkish lira continues to depreciate against the dollar
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China Region

 

Strengths

  • India was the best performing country this week, gaining 3.5 percent. Indian equites climbed to the highest since February after the Reserve Bank of India kept its policy rates unchanged, but signaled more policy easing to support the economy and improve lending. Wipro LTD, an IT service company, was the best performing equity among the stocks trading in the iShares India ETF (INDA), gaining 19.5 percent in the past five days.
  • The South Korean won was the best performing currency this week, gaining 2 percent. The currency was the best performing for the second week in a row, supported by gains in equites and strong inflows into the nation’s bond market.
  • Technology service stocks were the best performing among the stocks trading on the Hong Kong Stock Exchange.

Weaknesses

  • The Philippines was the worst performing market this week, losing 1.1 percent. Domestic political tensions delayed the passing of an $89 billion budget vital to strengthening the economy. Aboitiz Equity Ventures Inc. was the worst performing equity among the stocks trading in the iShares MSCI Philippines ETF (EPHE), losing 10.3 percent in the past five days.
  • The Vietnam dong was the worst relative performing currency this week, gaining just 2 basis points. The currency was little changed, but still underperformed its peers. Pro-democracy blogger Pham Doan Trang was arrested on charges of carrying out anti-state activities. The arrest took place just hours after Vietnam’s communist government officials held talks with the United States on human rights.
  • Distribution services stocks were the worst performing among the stocks trading on the Hong Kong Stock Exchange.

Opportunites

  • Renewable energy stocks have soared in China since President Xi announced the country aims to be carbon neutral by 2060. Bloomberg notes that solar giants Longi Green Energy Technology and Tongwei jumped in trading after a week-long holiday.
  • India’s services purchasing manager’s index (PMI) improved for a fifth straight month in September. Compiled by IHS Markit, the India Services Business Activity Index rose to 49.8, up from 41.8 in August and just below the 50 level that separates growth from contraction. The services sector makes up more than half of India’s GDP.
  • Thailand is extending tax incentives to spur consumption and help counter the nation’s worst economic contraction. The concession will allow 3.7 million taxpayers to deduct 30,000 baht ($96) each from their total taxable income, reports Bloomberg. The tax breaks follow the 51-billion-baht cash handout approved by the government’s cabinet last week targeted to low-income groups. Thailand predicts GDP will shrink 8.5 percent and a return to pre-pandemic levels could take two years.

thai economy plunged in second quarter 2020 GDP
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Threats

  • The Trump administration is exploring restrictions on Ant Group and Tencent over concerns their digital payment platforms threaten U.S. national security and give China access to banking and personal data of millions of users, reports Bloomberg. Restrictions potentially involve putting the companies on the Treasury Department’s national list, effectively preventing companies from doing business with them.
  • Data from the Macau Government Tourism Office shows that just 139,280 visitors arrived in Macau between October 1 and October 7 – or the autumn Golden Week holiday period. Arrivals to the popular gaming destination were down 85.7 percent from the same period a year earlier.
  • Bloomberg’s Samson Ellis writes that fear is growing among analysts that China might finally follow through with its threat to invade Taiwan, potentially triggering a war with the U.S. Ellis notes that last month the People’s Liberation Army aircraft repeatedly breached the median line in the Taiwan Strait. President Xi Jinping’s desire to cement his legacy by gaining “lost” territory and failing support in Taiwan for a union with China could push the conflict further into action in the next few years.

Blockchain and Digital Currencies

 

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended October 9 was XSwap, up 1,350.90 percent.

what could move bitcoin to $12,000
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  • Three of the largest asset managers are diversifying their funds to hold blockchain stocks, writes CoinDesk. Charles Schwab has begun purchasing shares of Riot Blockchain, joining Fidelity and Vanguard – already investors in Riot, HIVE Blockchain, Hut 8 and BC Group, the article continues. These financial filings with the U.S. Securities and Exchange Commission double down on the mutual fund managers’ equity investments and experiments in the space.
  • Square, the payments company helmed by Twitter CEO Jack Dorsey, announced this week that it has purchased 4,709 bitcoins, a $50 million investment representing 1 percent of the firm’s total assets, writes CoinDesk. “Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose,” Square said in a statement.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended October 9 was CBDAO, down 75.49 percent.
  • In a landmark decision issued early this week by the U.K.’s Financial Conduct Authority, companies in the country will no longer be able to offer cryptocurrency derivatives products such as futures, options and exchange-traded notes (ETNs) to retail customers, writes CoinTelegraph. The FCA claims that crypto derivatives are “ill-suited for retail customers due to the harm they pose.”
  • During the LA Blockchain Summit on October 6, Ripple co-founder Chris Larsen slammed the United States for falling behind in the race to design the “next generation of the global financial system.” In the tech cold war with China, Larsen claims that the Asian nation has outpaced American lawmakers in providing legislative clarity, allocating resources, building infrastructure and fostering innovation, writes CoinTelegraph.

Opportunities

  • Authorities in China could be behind a large spike in new bitcoin addresses, writes CoinTelegraph, after launching a “targeted marketing campaign.” Cole Garner, analyst and market cyclist highlighted in a series of tweets the two-year record increase in new BTC addresses last week.
  • Proof-of-stake blockchain NEW is preparing for a token migration in December alongside the public launch of the Symbol blockchain, writes CoinTelegraph. NEW CIO Dave Hodgson says that Symbol will host at least two products at launch. It will host the Wave Financial Whiskey Fund as well as LBCOIN – collectible crypto assets that commemorate Lithuania’s 1918 declaration of independence issued by the country’s central bank.
  • On Wednesday, activity in bitcoin potions listed on the CME surged, reports CoinDesk, as investors traded call options, or bullish bets. Data source Skew shows that the CME traded $48 million worth of options during the day, the highest daily volume figure since July 28.

Threats

  • John McAfee, the “74-year-old software magnate-turned-crypto-bull,” as CoinDesk describes him, has been arrested in Spain. According to the U.S. Department of Justice, McAfee has been detained on allegations of tax evasion and his extradition to the U.S. is pending. The announcement comes the same day the SEC sued him for allegedly pumping initial coin offerings (ICOs) without disclosing he was being paid to do so, the article continues.
  • Bitcoins stolen from major cryptocurrency exchange Bitfinex back in 2016 are on the move again, writes CoinTelegraph, as hackers shift another massive batch of funds to unknown wallets. On October 8, data from crypto transaction tracking service Whale Alert shows that hackers moved over $4.6 million in stolen BTC. These funds were sent to unknown wallets in two separate transactions.
  • After U.S. authorities charged its founders with failing to prevent money laundering and operating an unregistered trading platform illegally, the operator of BitMEX has announced a sweep of its top leadership, reports CoinTelegraph. On Thursday, BitMEx’s operator, 100x Group, announced that the exchange’s three co-founders, all of whom were charged in the case, will no longer hold executive roles at 100x.

Leaders and Laggards

Weekly Performance
Index Close Weekly
Change($)
Weekly
Change(%)
10-Yr Treasury Bond 0.77 +0.07 +9.97%
Oil Futures 40.53 +3.48 +9.39%
Hang Seng Composite Index 3,823.14 +129.09 +3.49%
S&P Basic Materials 418.02 +20.35 +5.12%
Korean KOSPI Index 2,391.96 +64.07 +2.75%
S&P Energy 233.61 +11.06 +4.97%
Nasdaq 11,579.94 +504.92 +4.56%
DJIA 28,586.90 +904.09 +3.27%
Russell 2000 1,636.97 +97.67 +6.34%
S&P 500 3,474.36 +125.92 +3.76%
Gold Futures 1,934.20 +26.60 +1.39%
XAU 150.02 +7.18 +5.03%
S&P/TSX VENTURE COMP IDX 731.73 +23.13 +3.26%
S&P/TSX Global Gold Index 369.12 +7.54 +2.09%
Natural Gas Futures 2.76 +0.32 +13.08%
 
Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
Korean KOSPI Index 2,391.96 +16.15 +0.68%
10-Yr Treasury Bond 0.77 +0.07 +9.97%
Gold Futures 1,934.20 -20.70 -1.06%
S&P Basic Materials 418.02 +11.32 +2.78%
S&P 500 3,474.36 +75.40 +2.22%
DJIA 28,586.90 +646.43 +2.31%
Nasdaq 11,579.94 +438.38 +3.93%
Oil Futures 40.53 +2.48 +6.52%
Hang Seng Composite Index 3,823.14 +55.81 +1.48%
S&P/TSX Global Gold Index 369.12 -21.91 -5.60%
XAU 150.02 -4.78 -3.09%
Russell 2000 1,636.97 +110.49 +7.24%
S&P Energy 233.61 -18.60 -7.37%
S&P/TSX VENTURE COMP IDX 731.73 -11.53 -1.55%
Natural Gas Futures 2.76 +0.35 +14.59%
 
Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
XAU 150.02 +13.47 +9.86%
S&P/TSX Global Gold Index 369.12 +6.57 +1.81%
Gold Futures 1,934.20 +100.70 +5.49%
DJIA 28,586.90 +2,880.81 +11.21%
S&P 500 3,474.36 +322.31 +10.23%
Nasdaq 11,579.94 +1,032.19 +9.79%
Korean KOSPI Index 2,391.96 +224.06 +10.34%
Natural Gas Futures 2.76 +0.98 +54.97%
S&P Basic Materials 418.02 +59.41 +16.57%
Russell 2000 1,636.97 +238.05 +17.02%
Oil Futures 40.53 +0.91 +2.30%
Hang Seng Composite Index 3,823.14 -118.34 -3.00%
S&P/TSX VENTURE COMP IDX 731.73 +59.77 +8.89%
S&P Energy 233.61 -28.20 -10.77%
10-Yr Treasury Bond 0.77 +0.16 +25.73%

 

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

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

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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/2020):

Northern Star Resources Ltd
Barrick Gold Corp
Gazprom PJSC
Tencent Holdings Ltd
LUKOIL PJSC
easyJet PLC
United Airlines Holdings Inc
JetBlue Airways Corp
Tesla Inc
LVMH Moet Hennessy Louis Vuitton SE
Lululemon Athletica Inc
Remy Cointreau SA
Hermes International
Franco-Nevada Corp

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index. The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months. The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges. The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period. The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500. The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500. The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500. The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500. The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500. The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The MOVE Index is a well-recognized measure of U.S. interest rate volatility that tracks the movement in U.S. Treasury yield volatility implied by current prices of one-month over-the-counter options on 2-year, 5-year, 10-year and 30-year Treasuries. The S&P Global Luxury Index is comprised of 80 of the largest publicly traded companies engaged in the production or distribution of luxury goods or the provision of luxury services that meet specific investibility requirements. The NYSE Arca Airline Index is an equal-dollar weighted index of the most highly capitalized companies in the airline industry.

Share “Some Are Betting on Red, Some on Blue. I'm Betting on Gold”

Net Asset Value
as of 11/25/2020

Global Resources Fund PSPFX $5.33 0.05 Gold and Precious Metals Fund USERX $12.23 0.25 World Precious Minerals Fund UNWPX $4.72 0.10 China Region Fund USCOX $9.40 -0.27 Emerging Europe Fund EUROX $6.01 0.04 All American Equity Fund GBTFX $24.38 0.09 Global Luxury Goods Fund USLUX $19.42 0.04 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change