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This AI Company Is the Future of Gold Exploration

Please note: The 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.

February 8, 2019

Press Release: U.S. Global Investors Announces Quarterly Results Webcast

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

Goldspot

Gold mining is one of the very oldest human occupations. The earliest known underground gold mine, in what is now the country of Georgia, dates back at least 5,000 years, when people were just starting to develop written language.

Over the centuries, a number of innovations have emerged that disrupted and forever changed how we explore and mine for gold and other metals. Think dynamite, or the steam engine.

Lately, however, innovation has slowed. Mining companies are in cost-cutting mode, and many producers have favored generating short-term cash flow, often to the detriment of longer-term value. In last year’s “Tracking the Trends” report, Deloitte analysts observed that “miners from 50 years ago would find little has changed if they entered today’s mines, a situation that certainly doesn’t hold true in other industries.”

Mining has consistently underspent in innovation relative to other industries
click to enlarge

Consider the earth-shattering change that’s taken place in oil and gas over the past two decades. Fracking and horizontal drilling have completely revolutionized how we extract resources from the ground, making hard-to-reach oil and natural gas accessible for the first time.

No equivalent technology exists in precious metals. Some companies are now using cutting-edge technology like blockchain to improve supply chain efficiency and transparency, but to date there’s no “gold fracking” method. As a result, metal ore grades are decreasing, and large-scale gold discoveries are becoming fewer and farther between.

One company thinks it has the formula to reverse this trend. I think it could be sitting on a gold mine, pun fully intended.

Meet Goldspot Discoveries

“Some people call it ‘peak gold,’ but I tend to think of it more as ‘peak discovery,’” says Denis Laviolette, the brains behind Goldspot Discoveries, a first-of-its-kind quant shop that aims to use artificial intelligence (AI) and machine learning to revolutionize the mineral exploration business.

A geologist by trade, Denis conceived of Goldspot while serving as a mining analyst with investment banking firm Pinetree Capital. His vision, as he described it to me, was to disrupt mineral exploration as profoundly as Amazon disrupted retail and Uber the taxi business.

Central Banks Haven't Bought This Much Gold Since Nixon Was President

“We have more data at our fingertips than ever before, yet new discoveries have been on the decline despite ever increasing exploration spending on data collection,” Denis continues. “We believe Goldpsot can change that. Harnessing a mountain’s worth of historic and current global mining data, AI can identify patterns necessary to fingerprint geophysical, geochemical, lithological and structural traits that correlate to mineralization. Advances in AI, cloud computing, open source algorithms, machine learning and other technologies have made it possible for us to aggregate all this data and accurately target where the best spots to explore are.”

Hence the name Goldspot—though I should point out that Denis considers the Montreal-based company “commodity agnostic,” meaning it collects and aggregates data for all metals, including base metals, not just gold.

Moneyball for Mining

Denis has the record to back up his extraordinary claims. In 2016, Goldspot took second place in the Integra Gold Rush Challenge, a competition with as many as 4,600 worldwide applicants. After consolidating more than 30 years of historical mining and exploration data into a 3D geological model, the company was able to identify several target zones with the highest potential for gold mineralization in Nevada’s Jerritt Canyon district, among several others.

Moneyball

Goldspot’s targeting approach was a complete success. New zones were discovered by AI, validating the company’s models of finding patterns in the data that humans alone couldn’t have seen.

The exercise stands as an example of what can be unlocked when machine learning is applied to geoscience.

“When I first entered the field, geologists were still using pen and paper, and I’m not even that old,” Denis says. “We were paying for all this data, but no one was really doing anything with it.”

 

Denis’ quant approach to discovery reminds me a lot of Billy Beane, the former general manager of the Oakland A’s and subject of the 2003 bestseller and 2011 film Moneyball. Beane was among the first in sports to pick players, many of them overlooked and undervalued, based on quantitative analysis. His strategy worked better than anyone anticipated.

Although the A’s had one of the lowest combined salaries in Major League Baseball—only the Washington Nationals and Tampa Bay Rays had lower salaries—the team finished the 2002 season first in the American League West.

Similarly, Goldspot seeks to help mining companies cut some of the costs and risks associated with discovering high-quality deposits—something it’s managed to do for a number of its clients and partners, including Hochschild Mining, McEwen Mining and Yamana Gold.

And speaking of teams, Denis has assembled an impressive roster of PhDs and experts in geology, physics, data science and other fields.

But Wait, There’s More…

The company, not yet three years old, does more than assist in exploration. It also invests in and acquires royalties from exploration companies, similar to the business model practiced by successful firms such as Franco-Nevada, Wheaton Precious Minerals, Royal Gold and others.>

The difference, though, is that Goldspot has developed an AI-powered screening platform to identify the very best and potentially most profitable investment opportunities.

For this, Goldspot has also received accolades. It was one of only five finalists in Goldcorp’s 2017 #DisruptMining challenge, for “revolutionizing the investment decision model by using the Goldspot Algorithm to stake acreage, acquire projects and royalties, and invest in public vehicles to create a portfolio of assets with the greatest reward to risk ratio.”

I’ll certainly have more to say about Goldspot in the coming weeks. For now, I’m excited to share with you that the company is scheduled to begin trading on the TSX Venture Exchange early next week. The future belongs to those that can mine data and harness the power of AI, and I’m convinced that what Denis and his partners have created fits that bill. Congratulations, and the best of luck to Denis Laviolette and Goldspot Discoveries!

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Gold Market

This week spot gold closed at $1,314.50 down $3.15 per ounce, or 0.24 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 1.00 percent. The S&P/TSX Venture Index came in off 1.75 percent. The U.S. Trade-Weighted Dollar gained 1.11 percent.

Date Event Survey Actual Prior
Feb-4 Durable Goods Orders 1.5% 0.7% 0.8%
Feb-7 Initial Jobless Claims 221k 234k 253k
Feb-13 CPI YoY 1.5% -- 1.9%
Feb-14 PPI Final Demand YoY 2.1% -- 2.5%
Feb-14 Initial Jobless Claims 225k -- 234k

Strengths

  • The best performing metal this week was palladium, up 3.63 percent as hedge funds boosted the net-long position to the most bullish in five weeks, CFTC data showed for early January. Gold traders and analysts remain bullish on the yellow metal for the 13th straight week, even as gold fell on a stronger dollar and weaker demand from Asia during Lunar New Year, according to the weekly Bloomberg survey. Neutral sentiment was the strongest in four weeks, but bullish respondents say gold will likely recover next week after investors in China return from the holidays. The Bullion Vault gold index, measuring the balance of buyers against sellers of gold, jumped to 52.6 in January, up from 51.8 in December. Bloomberg reports that this is the first increase in the index in six months.
  • The Perth Mint reported strong sales figures last month; 31,189 ounces of gold coins and bars were sold in January, up from 29,186 in December. Silver sales were also up significantly – 828,854 ounces last month versus 692, 971 ounces in December. In a reversal from last week’s selling of gold, Turkey’s central bank gold holdings rose $705 million this week from the prior period, according to official weekly figures from the bank in Ankara.
  • Gold Field’s Granny Smith gold mine in Western Australia is going to install one of the world’s largest renewable energy micro grids powered by solar panels and a battery system, according to a release by the company. Gold Fields has partnered with power company Aggreko to operate the renewable energy system. Managing Director of Aggreko George Whyte says that the system is projected to reduce fuel consumption by 10 to 13 percent, which is the equivalent of removing 2,000 cars from the road.

Weaknesses

  • The worst performing metal this week was platinum, down 2.84 percent, moving inversely to palladium where demand for the metal is outstripping production. Gold is set for its first weekly drop in three weeks after the dollar strengthened and holdings in metal ETFs fell, reports Bloomberg. Precious metals ETFs saw $709 million of outflows, down from $755 million of inflows last week. The yellow metal also saw “thin” trading this week due to Chinese investors being out for the week due to Lunar New Year celebrations.
  • Reuters reports that scrap gold supplies in India may increase this quarter due to a rally in prices leading consumers to sell old trinkets and jewelry. India, the world’s second largest consumer of gold, could see scrap supplies rise above 25 tons in the first quarter, up from 14.1 tons during the same period a year ago.
  • Venezuelan opposition lawmaker Carlos Paparoni said at a press conference this week that the country’s central bank sold 73 tons of gold in 2018 to Turkish and UAE based companies, writes Bloomberg’s Alex Vasquez. The Venezuelan government attempted to move funds from Portuguese accounts to Uruguay this week, but it was blocked due to cooperation by Portugal’s central bank and opposition leaders in Venezuela. In another blow to the troubled nation, the Bank of England is said to have frozen its gold assets worth $1.56 billion, according to Business Insider.

Opportunities

  • Central banks bought 651.1 tons of gold last year, the second highest annual total on record and up 74 percent from the year earlier, according to the World Gold Council. Goldman Sachs predicts that central banks will continue to be big purchasers of gold in 2019 due to elevated geopolitical tensions and less pressure on emerging market currencies. A model the company uses shows that central banks will purchase around 650 tons of the yellow metal this year – the same level as 2018. Many central banks could be purchasing gold on concerns that the U.S. is using the dollar to exert its dominance on the global financial system, writes the New York Times. Azerbaijan’s sovereign wealth fund is looking to nearly double its holdings of gold in 2019 to 100 tons, just after going five years without buying any prior to last year. Executive Director Shahmar Movsumov said in an interview that “we would not want to have something that is not someone else’s credit risk.”
  • Investec Securities compiled a list of their takeaways from the 2019 Mining Indaba roundtable discussion on palladium. They write that the discussion highlighted how the palladium deficit will likely continue even if China slows down, that there is still no substitution for palladium, that future recycling volumes may not be excessively high and that a new supply is still a few years away. Palladium has been strong so far this year and its price has also been higher than that of gold since early January.

Palladium has surged past gold this year
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  • Bellevue Gold announced a resource upgrade at the Bellevue surrounds project in Australia. The total inferred resources increased by 47 percent to 1.53Moz at 11.8 grams per ton, which is very high-grade. The company also believes that there is significant scope for further expansion. Bloomberg reports that Barrick Gold will be increasing its stake in Reunion Gold to 19.9 percent, up from 15 percent, as the miners form a joint venture to explore, develop and mine certain mineral projects in the Guiana Shield. Mark Bristow, Barrick Gold’s CEO, is very familiar with the geologic environment of these greenstone belts in Guiana Shield, which were once connected to the West African craton where Randgold achieved great success in growing their company.

Threats

  • Bloomberg reports that two months after Venezuela President Nicolas Madura met with President Tayyip Erdogan in Turkey, a mysterious company was formed named Sardes. By November last year when the U.S. imposed sanctions on Venezuelan gold, Sardes had moved $900 million of gold out of the South American nation. This shows that Turkey may no longer be a strong ally to the U.S., as this is not the first time that Turkey has been a work-around for countries facing U.S. sanctions.
  • A growing number of bank analysts are predicting the U.S. dollar will fall soon, however, traders and the market disagree. The dollar has strengthened almost 1 percent since the dovish comments from the Federal Reserve meeting in January and the outlook for the currency is getting stronger based on the options market, writes Bloomberg. Georgette Boele, a currency and commodity strategist at ABN Amro Bank NV, said “those who are negative on the dollar may need to have patience.”
  • UBS Financial Services agreed to pay Virginia’s State Corporation Commission $319,000 to settle charges that a former broker made unsuitable recommendations of gold and precious metals securities to 18 clients, reports Investment News. The state alleged that the client’s held an overconcentration and that the securities were not appropriate to certain client’s goals. Is this regulatory bias against the gold space? Would there be an investigation into having too much Apple stock in a client’s portfolio?

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Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 0.17 percent. The S&P 500 Stock Index rose 0.05, while the Nasdaq Composite climbed 0.47 percent. The Russell 2000 small capitalization index gained 0.29 percent this week.
  • The Hang Seng Composite gained 0.23 percent this week; while Taiwan was up 0.87 percent and the KOSPI fell 1.20 percent.
  • The 10-year Treasury bond yield fell 5 basis points to 2.64 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
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Strengths

  • Utilities was the best performing sector of the week, increasing by 2.00 percent versus an overall increase of 0.05 percent for the S&P 500.
  • Mattel was the best performing stock for the week, increasing 24.63 percent.
  • BB&T Corp. formed a deal to buy SunTrust Banks Inc., combining two regional lending powerhouses to create the sixth-largest U.S. retail bank and end a 10 year drought in big bank mergers. The all-stock deal is the largest U.S. bank merger since the financial crisis, which ushered in a stricter regulatory regime that kept banks on the sidelines of deal-making. Bank rules have loosened considerably following President Donald Trump took office, leading some to predict a flood of consolidations among smaller banks.

Weaknesses

  • Energy was the worst performing sector for the week, decreasing by 3.25 percent versus an overall increase of 0.05 percent for the S&P 500.
  • Anadarko Petroleum was the worst performing stock for the week, falling 13.64 percent.
  • Sony shares took a hit this week after a weak PlayStation sales outlook was released. Shares fell more than 8 percent in Tokyo on Monday after the electronics giant said sales of its PlayStation 4 console fell to 8.1 million, down from 9 million a year ago, Bloomberg reported.

Opportunities

  • Election cycle seasonality and prospects for improved market breadth from extreme December lows confirm Bloomberg Intelligence's macro-model outlook for double-digit U.S. stock gains in 2019, according to strategists Gina Martin Adams and Michael Casper. While the scars of 2018's equity meltdown are fresh, the outlook for stocks is anything but grim, as Bloomberg Intelligence sees it.
  • An outbreak of investor panic last year may have set up U.S. stocks for an extended rally, according to DWS Investment GmbH. The money manager cited a “value-to-fear” gauge, comparing the S&P 500 Index’s price-earnings ratio with the CBOE Volatility Index. The indicator peaked in January 2018 and tumbled 82 percent through Christmas Eve, according to data compiled by Bloomberg.
  • Gossamer Bio, a clinical-stage biopharmaceutical company, priced its initial public offering at $16 a share, raising about $276 million. Gossamer will trade on the Nasdaq under the ticker "GOSS."

Threats

  • This earnings season has seen the fewest number of "beats" in seven years, according to Peter Boockvar, the chief investment officer at Bleakley Advisory Group.
  • Facebook was hit by a landmark E.U. ruling that could mean major changes to the way it does business. Germany's antitrust regulator has told Facebook it must stop forcing users to allow it to collect and combine their data from sources outside Facebook.
  • Panasonic lowered its full-year profit outlook, saying the U.S.-China trade war had hurt demand for its auto components and factory equipment, according to Reuters.

The Economy and Bond Market

 

Strengths

  • On Thursday the government reported that initial jobless claims declined by 19,000 to a seasonally adjusted 234,000 in the seven days ended February 2, reports MarketWatch. In a poll of economists conducted by MarketWatch, the forecast was for a 225,000 reading.
  • New orders for U.S. manufactured durable goods in November, up following two consecutive monthly decreases, increased $1.8 billion or 0.7 percent to $250.8 billion, the U.S. Census Bureau reported.
  • S&P lifted Pittsburgh’s GO rating one notch to AA- from A+ citing improved management practices and finances. The upgrade represents the "city’s significant strides during the past three years to improve overall finances and management practices," S&P said. "Budget performance has been positive and contributed to increasing reserves to what the rating service considers very strong levels."

Weaknesses

  • U.S. services industries are showing signs of cooling. The number of non- manufacturing industries reporting growth fell to a more than two-year low in January as a gauge of new orders dropped sharply, according to the Institute of Supply Management. The downshift is in line with forecasts for moderating growth this year as the tax-cut boost fades and the trade war weighs on business plans. With many key economic reports still delayed after the 35-day government shutdown, analysts may be looking more closely at figures from private groups, such as the ISM, to better gauge the outlook.

The number of US industries reporting growth fell to a two year low
click to enlarge

  • According to an article in Reuters this week, the number of companies struggling with their debt obligations is hovering near record highs. In fact, nearly 17 percent of publicly-traded U.S. companies had trouble making debt interest payments at the end of 2018, up from less than 10 percent in 2010, according to the Institute of International Finance Inc., a trade group for financial institutions.
  • U.S. factory orders unexpectedly fell in November, reports Reuters, amid sharp declines in demand for machinery and electrical equipment, government data showed on Monday. This suggests a slowdown in manufacturing as 2018 ended. Factory goods orders fell 0.6 percent, the Commerce Department reported, after an unrevised 2.1 percent drop in October.

Opportunities

  • Following the latest round of trade talks, China is vowing to purchase more U.S. goods, reports Bloomberg. Both sides have planned further discussions to reach a breakthrough with only a month to go before the Trump administration is set to ratchet up tariffs. President Trump will be sending two of his top negotiators to China following two days of talks with Chinese officials in Washington. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer will visit the country in mid-February.
  • Minneapolis Fed President Neel Kashkari said Fed Chairman Jerome Powell is “coming around” to the view to wait until wages and inflation rise before raising interest rates again, reports Bloomberg, and that the Fed’s latest pause will help keep a “fundamentally healthy” economy on track. “There are more people out there who want to work; let’s let the economy continue to strengthen and if we see signs then, wages pick up, inflation picks up, we can always tap the brakes,” Kashkari said. “Let’s just not tap the brakes prematurely.”
  • Well-diversified job gains and improving income prospects are two important signals of economic resilience. While there are concerning signs of global economic fragility emanating from China and Europe, the U.S. domestic economy looks to be a bright spot for 2019. Given the consumer-led dynamics of growth in the U.S. at present, it will be hard to destabilize growth momentum so long as the labor market remains on such sturdy footing.

Threats

  • One of Donald Trump’s most persistent economic promises has been to rewrite the U.S. relationship with China, reports Bloomberg. Yet as Trump approaches a potential deal, some of the very hawks who have cheered on the president’s trade war already fear he may end up falling short. “With less than a month before a March 1 deadline for either a deal or an increase in U.S. tariffs, hardliners inside and outside the administration fret Trump is being outplayed by Chinese President Xi Jinping and seduced by what they see as empty promises,” the article reads.
  • UBS surveyed 500 CEOs and CFOs of American companies to see what things they are most worried about this year, reports Business Insider. The survey revealed that American business leaders are most worried about rising costs.
  • "I still think that global growth could be lower than people expect, mainly due to the sharp slowdown in global trade," said the world’s most accurate economic forecaster this week. Christophe Barraud, chief economist at Market Securities, had that to say when asked why the outlook for investors isn’t as rosy as it appears, reports Business Insider.

Energy and Natural Resources Market

 

Strengths

  • The best performing major commodity for the week was nickel, which gained 2.53 percent as Macquarie Bank analysts noted that nickel supply looked to remain in deficit in 2019. Iron ore futures continue to surge and hit the highest level since 2014 this week on growing concern that Vale’s crisis in Brazil will continue to curtail global supplies of the metal, reports Bloomberg. The company lowered output forecasts by 40 million tons after the dam disaster, and then cut production another 30 million tons after its license was revoked to operate another dam in Brazil. London Metal Exchange zinc stockpiles fell 1.2 percent to the lowest level since January 2008 and surpassed a prior 10-year low experienced in December. Copper is on track for its fifth weekly gain, the longest run of weekly gains since September 2017, on hopes that the U.S. and China will come to a trade agreement soon. Citi analysts wrote in a note this week that “copper should rally by around 10 percent over [the next] three to six months” due to growing Chinese copper demand pushing the metal into a deficit in 2019.
  • The world’s oil supermajors – Exxon Mobile, Royal Dutch Shell, Chevron and BP – all beat analysts’ earnings estimates for the fourth quarter of last year. Bloomberg reports that these companies together generated nearly $43 billion of cash flow from operations, the highest in more than four years, and have given investors assurance that dividends and buybacks are secure.
  • Cameron has set a start date for its LNG terminal in Louisiana that is designed to ship U.S. shale gas across the globe. This will be the fourth such terminal in the U.S. and will help bring the nation closer to becoming the third largest supplier of the fuel, behind Australia and Qatar. The company is set to complete its first shipment away from the terminal in the next few weeks, according to CEO Farhad Ahrabi.

Weaknesses

  • The worst performing major commodity for the week was oil, which fell 4.69 percent over concerns that weak economic growth from Brussels to Beijing may mean less demand. Natural gas fell to its lowest level in 10 months after forecasts showed that the U.S. is going to be warner than usual along the east coast, hurting the outlook for heating demand, writes Bloomberg. Stockpiles are below average for this time of year, but prices are down from a four-year high in November. Coal also faced a tough week in Europe. European coal for 2020 saw its biggest weekly drop in a year due to weak demand and the Chinese market being closed for Lunar New Year. The premium that Asia has traditionally paid for LNG has fallen as a mild winter has hampered demand and boosted supply in Europe to records, writes Bloomberg. Shipments of LNG that would have gone to Asia have instead gone to Europe, which has pushed the price down.
  • The world’s top producer of cobalt, the Democratic Republic of Congo, is now implementing its revised mining rules and will not be opening the regulations for debate, according to Mines Minister Martin Kabwelulu. Several mining companies operating in the country have expressed criticism of the new rules that will make it more difficult and costly to mine there. An executive from China Molybdenum, which owns the nation’s largest cobalt and copper mine, said that the company faces “many challenges as a result of the bad business environment” in Congo, reports Bloomberg’s William Clowes.
  • The construction industry in the U.K. grew very little in the month of January as uncertainty surrounding Brexit saw firm hesitant to begin new projects. The IHS Markit UK Construction PMI Total Activity Index fell to 50.6, down from 52.8 in December and below expectations for a 52.5 reading.

Opportunities

  • Ivanhoe Mines founder Robert Friedland said at a conference this week that the company’s copper deposit being developed in the Democratic Republic of Congo has the potential to become the world’s second largest of the red metal. Friedland said that “grade is king” and that no other deposit comes close to Ivanhoe’s, which is estimated to produce 700,000 tons of copper each year. The company’s shares have risen 21 percent since it reported drill results at Kamoa North on January 30, reports Bloomberg.
  • The first deep-water oil discovery off the coast of South Africa was reported on Thursday by French oil company Total SA. This may prompt a rush of activity offshore by competitors, as the country works to cut its reliance on imported fuels, writes Bloomberg’s Paul Burkhardt. “This could be a discovery that kick starts a bit of gas strategy for South Africa,” says Andrew Lathan, vice president of global exploration at consultant Wood MacKenzie.
  • It was a big week for clean energy developments. According to BNEF research, corporate purchasing of clean energy doubled in 2018. Globally, companies bought 13.4 gigawatts of clean energy last year, which is double the previous record of 6.1 gigawatts in 2017. Over 63 percent of the activity has occurred in the U.S. Congressional Democrats introduced the Green New Deal this week that aims to fight climate change and introduce drastic measures to cut carbon emissions across the U.S.  and drive new economic growth. Drax Group, a U.K. power plant, has begun capturing carbon dioxide at one of its power plants in a pilot project to cut emissions. According to Bloomberg, an Australian court blocked the development of a coal mine due to its potential to contribute to climate change.

Global corporate clean energy buying hits record in 2018
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Threats

  • A report on the mining industry’s impact in South Africa shows that only 13 percent of people who live in the proximity of mines say it is seen as a benefit. ActionAid said in its report released this week that four out of five people see no positive impact at all and that 8 percent said mines brought “sickness, dispossessions and damages.” The South African government collected around $15.2 billion in taxes from mining companies in the last 10 years, but only 0.9 percent of that went back to the surrounding communities.
  • Bloomberg writes that oil fell this week due to ongoing concerns over the global economy overshadowing an unexpected decline in U.S. fuel stockpiles. WTI crude futures fell 1.7 percent on Thursday after falling 0.7 percent on Wednesday. The U.S. Treasury Department has informed some U.S. oil refiners that they will not be allowed to complete shipments of Venezuelan crude oil that they booked prior to the sanctions being imposed on the nation.
  • Ford Motor’s senior manager for energy storage strategy and research, Ted Miller, said this week that the cobalt supply situation could get “tricky” over the next few years due to battery production now being driven by automotive demand. World cobalt supply has kept pace with demand for rechargeable batteries, but that could change as the demand for automotive car batteries increases. Miller says that he fully anticipates that “we’re going to keep a lot of pressure on that cobalt production.”

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Emerging Europe

 

Strengths

  • Romania was the best performing country this week, gaining 7.5 percent. Banks trading on the Bucharest exchange appreciated the most on hopes that the progressive tax on bank assets will be watered down. In addition, BRD bank reported strong fourth quarter results, gaining 17 percent and Banca Transilvania gained 18.5 percent.
  • The Russian ruble was the best relative performing currency this week, losing 40 basis points against the dollar. Russia’s annual GDP was reported at 2.3 percent, which was stronger than expected. Service PMI increased from 54.4 to 54.9 and inflation increased to 5 percent from 4.3 percent in January, mostly due to a VAT increase from 18 percent in 20 percent. 
  • Information technology was the best performing sector among eastern European markets this week.

Weaknesses

  • Hungary was the worst performing country this week, losing 3.1 percent. Richter Gedeon, a pharmaceutical company, declined the most among stocks trading on the Budapest exchange, losing almost 6 percent. The company reported a loss in the fourth quarter after booking a one-off impairment from Esmya, a drug that is subject to restrictions in Europe following a safety-probe last year.
  • The Polish zloty was the worst performing currency this week, losing 1.8 percent against the dollar. The dovish tone of its central bank pushed its currency lower. Poland sees rates increasing no sooner than 2020, versus expectations of tightening in the second half of this year.
  • Health care was the worst performing sector among eastern European markets this week.        

Opportunities

  • According to an article published in the New York Times, Russia has $472 billion in cash reserves, more than the country has combined in public and foreign debt ($453 billion) and nearly three times what the IMF recommends holding. The Russian government and companies have accumulated piles of money, because the law requires taxes from the export of oil to be saved when the price is above $40 per barrel. Russia is preparing to spend $100 billion on infrastructure projects and investing in roads, ports and hospitals.

Russia continues to save as Brent Stays well above 40 per barrel
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  • The European Commission cut its euro-area growth forecast to 1.3 percent for 2019, down from 1.9 percent, on worries over the Brexit deal and the trade war with China. Growth projections for all major western economies from Germany to France, Italy and Spain were lowered. The biggest down revision was in Italy, where GDP is expected to reach 0.2 percent versus the prior 1.2 percent. The E.U. views Eastern Europe as a bright spot and projects Poland to grow at 3.5 percent, Hungary at 3.4 percent and Czech Republic at 2.9 percent.
  • Ukraine’s parliament approved constitutional amendments to set membership in the European Union and NATO as strategic goals, moving closer toward Western integration. President Petro Poroshenko, who is seeking re-election next month, has pledged to make a formal application to join the E.U. in 2024.

Threats

  • Central banks are turning dovish once again. This week the central banks of the Czech Republic and Romania left its main rates unchanged after hiking rates the prior year. Poland maintained its dovish tone, keeping its monetary rate at a record low of 1.5 since 2015. Russia left its rate unchanged at 7.75 percent on Friday.
  • Turkey is working on a new law that will disallow political parties from holding shares of banks. Currently, the Republican People’s Party (opposition party) is controlling a 28.09 percent stake in Isbank, the largest Turkish bank by assets. The party inherited the shares of Isbank from the founder of the Turkish Republic, Mustafa Kemal Ataturk, and if the law is changed, Isbank will be nationalized and the shares will be transferred to the Treasury.
  • Reuters reported that equity investors in Europe are hanging on to unusually big cash piles, signaling growing unease over the market’s prospects. Fund managers are dismissing the January rebound this year as a false start, anticipating more turbulence ahead. Citing Morningstar research, net cash allocation has reached its highest level since May 2017. 

China Region

 

Strengths

  • India’s NIFTY Index closed up 49 basis points on the week; Singapore’s Straits Times Total Return Index climbed 49 basis points, and Hong Kong’s Hang Seng Composite rose 23 basis points. Mainland China, Taiwan and Vietnam were closed all week on holiday.
  • Indonesia’s fourth-quarter 2018 GDP reading came in slightly ahead of expectations at a 5.18 percent.
  • Last week, China’s official Manufacturing PMI beat expectations with a 49.5 print, coming in ahead of an anticipated 49.3 print. China’s Nonmanufacturing PMI also beat last week, coming in at 54.7, ahead of analysts’ expectations for a 53.8 print. And while the Caixin China Manufacturing print last week was short at 48.3, this week’s Caixin China Services PMI came in at 53.6, edging out expectations for only a 53.4 print.

Chinas January purchasing managers index
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Weaknesses

  • The Philippines’ PCOMP Index fell by 90 basis points on the week, while Korea’s KOSPI dropped by 1.20 percent.
  • Energy was the worst performing sector in the Hang Seng Composite for the holiday-shortened week, falling by 1.40 percent.
  • The Nikkei Singapore PMI dropped from 52.1 in its December print to a 50.1 showing for January, just barely hanging on to expansionary territory.

Opportunities

  • Golden Week visitors from China were up 30.5 percent year-over-year through last weekend.
  • U.S. President Donald Trump and North Korean leader Kim Jong Un will meet in Vietnam on February 27-28.
  • The Philippine central bank stood pat this week, leaving rates unchanged as the latest CPI reading showed inflation coming in at 4.4 percent, below expectations for a 4.5 percent showing and down from last month’s 5.1 percent reading.

Threats

  • The threat of the U.S.-China trade war “truce” expiring unproductively with the deadline of March 1 tariff hikes remains a possibility. U.S. President Donald Trump announced this week that he will not meet with Chinese President Xi Jinping before the stated deadline at this point. Trade talks head back to Beijing next week. 
  • Venture capital raised in China fell 13 percent to 302.5 billion yuan in 2018 from the prior year, Shan Li and Yoko Kubota observed this week in a WSJ article entitled, “Chinese Startup Scene Put on Ice.”
  • Thailand’s exports “are projected to grow by 3-4 percent at best this year,” the Bangkok Post reported this week, citing economists at a recent forum organized by the Commerce Ministry’s Trade Policy and Strategy Office. An increasingly consensus silver lining amid the trade turmoil may be further cooperation and integration between ASEAN members.

Blockchain and Digital Currencies

 

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended February 8 was Bitcoiin, not to be confused with the popular bitcoin, up 246.99 percent.
  • Although a number of blockchain and cryptocurrency companies have succumbed to fraud and failure, reports Forbes, there are still a handful of blockchain-focused companies going strong this year. One software technology company, Chronicled, Inc., recently raised $16 million in Series A funding. The company gives industries and enterprises the tools to build blockchain-powered supply chain ecosystems.
  • Blockchain payments infrastructure firm Ripple announced on Thursday that it has partnered with another 10 top universities for its blockchain research program, reports Coindesk. The University Blockchain Research Initiative (UBRI), which is aimed to help grow the blockchain technology ecosystem, will be joined by Carnegie Mellon, Cornell and Duke, to name a few.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended February 8 was SnapCoin, down 75.44 percent.
  • Bitcoin has been in decline for five straight weeks, reports Bloomberg, and technical indicators for the digital currency suggest that the future price isn’t looking too bright. In fact, signals and sentiment indicators are pointing to an increased likelihood that bitcoin retests its December low, the article continues, which is nearly a 10 percent drop from its current price level.
  • There hasn’t been any significant movement in the price of bitcoin for the past few weeks, as the coin is stuck in a trading range of $3,183 to $4,234, reports MarketWatch. A break of this range would provide a marked change in sentiment, however, explains Naeem Aslam, chief market analyst at Think Markets UK. “On the flip side, the support of $3,000 is really important for us no one wants to see the price breaking below this because that will trigger a blood bath on the street,” Aslam commented.

Opportunities

  • On Monday, cryptocurrency exchange Kraken announced the acquisition of futures trading startup Crypto Facilities in a deal valued at $100 million, reports Coindesk. The acquisition will allow customers of Kraken to trade spot as well as open positions offering exposure to future price movements in digital currencies, all through a unified trading interface.
  • According to a panel of experts polled by Finder.com.au, a bitcoin “renaissance” could see the digital currency rise by as much as 84 percent by the end of 2019. COO of Digital Capital Management Ben Ritchie is one of the financial technology experts on the panel who offered their predictions. Ritchie was the most bullish in the group, forecasting a year-end price of $9,500. He says there are things to pay attention to: 1) whether there will be decoupling of the cryptocurrencies, and 2) what the impact of the traditional markets on cryptocurrencies will be.
  • On Wednesday it was announced that the Opera browser for Android would now allow users to buy ether cryptocurrency directly from its browser-based wallet, reports Coindesk. Opera has teamed up with regulated crypto brokerage Safello for the new service to provide the cash-to-crypto exchange. As the article explains, the new feature will allow payment with credit and debit cards, along with “trusted” payment networks including Swish in Sweden.

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Threats

  • Customers of cryptocurrency exchange QuadrigaCX are having trouble accessing $190 million in coins, reports MarketWatch. Founder Gerald Cotton reportedly passed away in December 2018, and with him took a costly piece of information – the access to customers’ digital currency, which is being held in cold storage. In a message on its website, the company suggests that efforts to recover these funds have been futile so far, the article continues.
  • Chainalysis, a blockchain monitoring company, recently released a new report entitled “Crypto Crime Series: Decoding Ethereum Scams,” reports news.bitcoin.com. In the report, the firm explains how Ethereum is the top choice for crypto-related scams throughout the ecosystem. Around $17 million worth of ETH was stolen in scams in 2017 and by 2018 roughly 0.01 percent of the coin was involved in swindles worth $36 million, the article continues.
  • Cameron and Tyler Winklevoss are stuck in an ongoing lawsuit that alleges entrepreneur Charlie Shrem failed to broker a series of promised cryptocurrency purchases on their behalf. Now, the Winklevoss twins are being ordered to pay back $45,000 in legal fees incurred by Shrem, reports Coindesk. This court filing is the latest in a recent lawsuit that has placed three high-profile cryptocurrency industry personalities, and former business partners, against each other in the headlines, the article continues.

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Leaders and Laggards

Weekly Performance
Index Close Weekly
Change($)
Weekly
Change(%)
S&P/TSX Global Gold Index 192.47 +2.59 +1.36%
Gold Futures 1,317.90 -4.20 -0.32%
Natural Gas Futures 2.61 -0.12 -4.54%
S&P/TSX VENTURE COMP IDX 611.09 -11.77 -1.89%
10-Yr Treasury Bond 2.64 -0.05 -1.86%
Nasdaq 7,298.20 +34.33 +0.47%
Oil Futures 52.73 -2.53 -4.58%
Hang Seng Composite Index 3,740.17 +8.50 +0.23%
S&P 500 2,707.89 +1.36 +0.05%
DJIA 25,106.33 +42.44 +0.17%
Korean KOSPI Index 2,177.05 -26.41 -1.20%
Russell 2000 1,506.40 +4.35 +0.29%
S&P Energy 463.84 -15.60 -3.25%
S&P Basic Materials 330.30 -5.19 -1.55%
XAU 75.75 -0.16 -0.21%
 
Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
Natural Gas Futures 2.61 -0.37 -12.53%
S&P/TSX Global Gold Index 192.47 +12.36 +6.86%
10-Yr Treasury Bond 2.64 -0.08 -2.80%
Oil Futures 52.73 +0.37 +0.71%
Gold Futures 1,317.90 +19.40 +1.49%
S&P 500 2,707.89 +122.93 +4.76%
S&P Energy 463.84 +4.17 +0.91%
Hang Seng Composite Index 3,740.17 +236.83 +6.76%
DJIA 25,106.33 +1,227.21 +5.14%
Korean KOSPI Index 2,177.05 +112.34 +5.44%
Nasdaq 7,298.20 +341.12 +4.90%
S&P Basic Materials 330.30 +4.38 +1.34%
Russell 2000 1,506.40 +67.59 +4.70%
S&P/TSX VENTURE COMP IDX 611.09 +12.98 +2.17%
XAU 75.75 +2.97 +4.08%
 
Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
Natural Gas Futures 2.61 -0.93 -26.33%
10-Yr Treasury Bond 2.64 -0.60 -18.62%
DJIA 25,106.33 -1,084.89 -4.14%
Oil Futures 52.73 -7.94 -13.09%
S&P 500 2,707.89 -98.94 -3.52%
Gold Futures 1,317.90 +80.50 +6.51%
S&P Energy 463.84 -43.72 -8.61%
Nasdaq 7,298.20 -232.69 -3.09%
Korean KOSPI Index 2,177.05 +84.42 +4.03%
S&P Basic Materials 330.30 -18.34 -5.26%
Russell 2000 1,506.40 -71.81 -4.55%
Hang Seng Composite Index 3,740.17 +204.74 +5.79%
S&P/TSX Global Gold Index 192.47 +28.42 +17.32%
S&P/TSX VENTURE COMP IDX 611.09 -55.97 -8.39%
XAU 75.75 +10.36 +15.84%
 

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

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

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

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

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 (12/31/2018):

Integra Resources Corp.
Hochschild Mining PLC
McEwen Mining Inc.
Yamana Gold Inc.
Franco-Nevada Corp.
Wheaton Precious Metals Corp.
Royal Gold Inc.
Banca Transilvania SA
Royal Dutch Shell Plc
Chevron Corp
BP Plc
Ivanhoe Mines Ltd
Total SA
Anglo American Plc
Gold Fields Ltd
Bellevue Gold Ltd
Barrick Gold Corp
Reunion Gold 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.

IHS Markit UK Construction PMI Total Activity Index is a diffusion index that tracks changes in the total volume of construction activity compared with one month previously. The survey is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 150 construction companies. Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market's expectation of 30-day volatility. 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 NIFTY 50 index is National Stock Exchange of India's benchmark broad based stock market index for the Indian equity market. The Philippine Stock Exchange PSEi Index is a capitalization-weighted index composed of stocks representative of the Industrial, Properties, Services, Holding Firms, Financial and Mining & Oil Sectors of the PSE.

Net Asset Value
as of 08/16/2019

Global Resources Fund PSPFX $4.26 -0.02 Gold and Precious Metals Fund USERX $9.11 -0.19 World Precious Minerals Fund UNWPX $3.15 -0.05 China Region Fund USCOX $8.10 0.13 Emerging Europe Fund EUROX $6.61 -0.04 All American Equity Fund GBTFX $23.99 0.31 Holmes Macro Trends Fund MEGAX $16.86 0.30 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change