USFunds.com • January 27, 2017

Table of ContentsIndex Summary • Domestic Equity Market • Economy and Bond Market • Gold Market

Energy and Natural Resources Market • Emerging Europe • China Region • Leaders and Laggards

China Sets the Stage to Replace the U.S. as Global TradeLeaderBy Frank HolmesCEO and Chief Investment Officer U.S. Global Investors

Tomorrow marks the Lunar New Year, the most important date in the Chinese calendar. It’s also the start of thelongest holiday at two weeks, during which the largest mass migration of humans occurs every year as familiesreunite and go on vacations, both domestic and overseas.

2017 is the year of the 10th Chinese zodiac, the fire rooster, one of whose lucky colors is gold. Year-to-date,gold—the metal, not the color—is up 3.3 percent, which is below the 5.7 percent it had gained so far around thistime last year. Unfortunately, gold prices won’t find support from Chinese traders next week, as markets will beclosed in observance of the new year. If you remember, the yellow metal had one of its worst one-day slumps of2016 back in October during China’s Golden Week, when markets were similarly closed.

But there are other opportunities to get excited about. More than 3 billion trips are expected to take placedomestically this year—58 million by air alone. That’s up from 55 million last year and is equivalent to thecombined populations of Texas, Ohio and New York. China Southern Airlines, the largest carrier in Asia, added

as many as 3,600 flights to accommodate the demand.

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As disposable incomes rise in the world’s second-largest economy, travelers are more inclined to take their newyear celebrations outside the country. This year, 6 million Chinese tourists are expected to travel abroad andspend more than $14 billion in 147 destinations, the U.S. included. As I’ve mentioned before, China is home tosome of the biggest overseas spenders, with 128 million people spending a whopping $292 billion in 2015alone.

Betting on China’s Surging Middle ClassA theme I’ve written and spoken about frequently is the emergence of new investment opportunities as moreand more Chinese citizens join the middle class and build disposable incomes. The size of the Asian giant’smiddle class has already exceeded that of America’s. Looking ahead 10 years, the number of Chinesehouseholds with incomes over $35,000 is now expected to surge 300 percent, from 40 million today to 160million by 2025. That projection can be found in a January report from Oxford Economics, which points outthat these new middle-class Chinese consumers “will demand more of the services and higher-end productsthat American companies export.”

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“As China’s middle class expands, we expect demand for American-made goods and services to rise as well,”the economic advisory firm writes.

Among those goods are advanced-technology products (ATPs), made in American industries such as robotics,aerospace, electronics and pharmaceuticals. Chinese demand for such goods has indeed risen, from less than24 percent of total imports in 2002 to close to 34 percent in 2016. However, the U.S. has been losing marketshare in exporting ATPs to China, according to a report this week from BCA.

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Free Trade Has Benefited American Businesses and ConsumersBCA argues that President Donald Trump will need to work more cooperatively with the Chinese to regainmarket share for American ATPs if he’s truly committed to creating quality manufacturing jobs here in the U.S.At the moment, it’s unclear whether he’s serious about actually imposing sanctions on Chinese goods orwhether he’s using the threat simply as a negotiating tactic.

I agree with BCA’s analysis. Trump’s isolationist and protectionist leanings certainly raise the specter of a tradewar with China, which would likely end up being worse for U.S. businesses and consumers in the long run.According to Oxford Economics, our trade relationship with China supports about 2.6 million jobs in the U.S.and has helped put money in Americans’ wallets by keeping consumer prices lower than they otherwise wouldhave been. A typical American family making $56,500 in 2015 saved about $850 that year because of tradewith China, Oxford estimates.

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“Brewing trade tensions between the world’s two largest economies are undoubtedly negative for both theglobal economy and financial markets,” BCA writes, recommending that investors “should certainly hedgeagainst such a scenario… with long positions on the dollar, gold, and the VIX,” or the Chicago Board OptionsExchange (CBOE) Volatility index.

BCA makes a compelling case for gold. I’ve always recommended a 10 percent weighting—5 percent in bullion(coins, wafers and 18-22 carat jewelry), the other 5 percent in quality mining stocks and mutual funds.

Discover what’s driving gold!

China Champions Free TradeNow that Trump is rethinking America’s involvement in free-trade agreements such as NAFTA, having alreadywithdrawn the U.S. from the controversial Trans-Pacific Partnership (TPP), President Xi Jinping seemsinterested in positioning China as the global leader in free trade.

Earlier this month, Xi made the first-ever visit by a Chinese presidentto the World Economic Forum’s annual meeting in Davos,Switzerland, where he urged the world to “say no to protectionism.”

“Pursuing protectionism is like locking oneself in a dark room. Whilewind and rain may be kept outside, so are light and air,” he colorfullysaid. “No one will emerge as a winner in a trade war.”

It’s definitely a sharp departure from the norm of the past severaldecades that China should emerge as the world’s top defender ofglobal trade at a time when the U.S. is set to turn inward, but this isthe reality we live in now. I’m not the only one who feels this way.Speaking to Congressional Republicans in Philadelphia this week,U.K. Prime Minister Theresa May said that, while both countries arenow on a more isolationist trajectory, the U.S. and U.K. must resistthe “eclipse of the West.”

“We—our two countries together—have a joint responsibility to lead,” she said, “because when others step up aswe step back, it is bad for America, for Britain and the world.”

As if to reaffirm its commitment to being a global leader in trade and economic development, China just agreedto cooperate with the Philippines on 30 regional infrastructure projects valued at $3.7 billion, according toGlobal Trade Magazine. This comes despite the two countries sharing a traditionally strained relationship overterritorial rights.

What’s more, the China-led Asian Infrastructure Investment Bank (AIIB)—founded in 2015 to serve as analternative to Western creditors such as the World Bank and International Monetary Fund (IMF)—will bejoined by 25 new member-nations this year alone, including Ireland, Canada, Ethiopia and Sudan. The bank isleaving the door open for U.S. membership, but that appears unlikely under a Trump administration.

In its monthly investment report, HSBC recommends an overweight position in Chinese equities, citingimproved economic activity, policy stimulus and strong credit. As for a U.S.-China trade war, the investmentbank believes it to be unlikely. However, “rising trade protectionism or U.S.-China trade frictions mayaccelerate the development of high-valued industries in China,” it writes.

Explore investment opportunities in China!

Touring the World’s Largest Building

On a final note, I was in Vancouver this past weekend attending and speaking at the annual VancouverResource Investment Conference alongside old friends and colleagues such as Frank Giustra, Thom Calandraand many others.

While up there, my friend Marin Katusa of Katusa Research organized a tour of Boeing’s monolithic Everettfactory near Seattle, where the plane-maker builds its 747, 767, 777 and 787 Dreamliner jets.

At 13.3 million cubic meters, Boeing’s factory is recognized as the world’s largest building by volume. Wordsfail me in trying to describe how small and insignificant you feel in the presence of the site, which covers amassive 98.3 acres. The doors alone are the size of football fields. Among the world locations that couldcomfortably fit inside are the Pentagon, the Pyramids and all of Disneyland.

The thing is so monstrous, it has its own weather system.

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It’s helpful to think of the factory as a small enclosed city, complete with its own hospital, daycare center, fire

department and more. Security is very tight, and a strict “no photos” policy is enforced, for obvious reasons.

That’s why I recommend you go on the factory tour yourself the next time you’re in the Seattle area. Or make aspecial trip of it. Take a friend. It’s an impressive, awesome reminder of what American ingenuity andinnovation is capable of, and I’m grateful to Marin for the opportunity to visit it.

On behalf of everyone at U.S. Global Investors, I want to wish you a Happy Chinese New Year! May the Year ofthe Rooster bring you lasting happiness, strong health and good fortune!

Index SummaryThe major market indices finished up this week. The Dow Jones Industrial Average gained 1.34 percent.The S&P 500 Stock Index rose 1.03 percent, while the Nasdaq Composite climbed 1.90 percent. TheRussell 2000 small capitalization index gained 1.40 percent this week.

The Hang Seng Composite gained 2.10 percent this week; while Taiwan was up 1.25 percent and theKOSPI rose slightly by 0.87 percent.

The 10-year Treasury bond yield rose one basis point to 2.48 percent.

Domestic Equity Market

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StrengthsMaterials was the best performing sector of the week, increasing by 3.44 percent versus an overalldecrease of 1.02 percent for the S&P 500.

Seagate Technology was the best performing stock for the week, increasing 22.02 percent.

Microsoft beat on the top and bottom lines. Microsoft earned an adjusted $0.84 a share on revenue of$25.8 billion. Revenue from its Productivity and Business Processes unit, which includes the fast-growing Office 365 cloud productivity suite, jumped 10 percent versus a year ago to $7.4 billion.

WeaknessesTelecommunications was the worst performing sector for the week, falling 1.74 percent versus an overalldecrease of 1.02 percent for the S&P 500.

Qualcomm was the worst performing stock for the week, falling 13.74 percent.

U.S.-based miner Freeport-McMoRan Inc. reported weaker-than-expected fourth-quarter earnings. Thecompany warned of output and job cuts at its mine in Indonesia if it can't secure a permit to exportcopper concentrates, Reuters reported.

OpportunitiesFiat-Chrysler Automobiles CEO Sergio Marchionne is optimistic about President Donald Trump's plans.During the company’s earnings call on Thursday, Marchionne said, "there's no doubt that the fulldelivery of the set of financial – the set of economic parameters that President Trump has raised areoverall positive for us."

Verizon and Charter are exploring a merger. According to The Wall Street Journal, Verizon CEO LowellMcAdam approached officials "close to Charter," and they're in preliminary talks.

eBay's revenue jumped during the crucial holiday quarter. The online auction site reported revenueclimbed 3.1 percent in the fourth quarter versus a year ago. "During the holiday season, eBay was one ofthe top consumer shopping destinations in the world and the second most visited e-commerce site inthe U.S.," said Devin Wenig, eBay's president and CEO.

ThreatsStarbucks slashed its 2017 revenue forecast. The coffee giant announced first-quarter results that weremostly in line with Wall Street estimates but said it saw 2017 revenue growth of 8 percent to 10 percent,down from its previous estimate of a double-digit rise, Reuters reports.

RBS is setting aside more cash for its U.S. mortgage-backed security investigation. The bank announcedon Thursday that it would set aside an additional $3.92 billion in preparation for the settlement ofallegations it sold toxic mortgage-backed securities leading up to the financial crisis, Reuters says. Thebank has now set aside $8.3 billion to deal with those claims.

Caterpillar beat on fourth-quarter earnings but once again lowered its outlook for the year ahead. Theindustrial-equipment maker said it cut its outlook "due to the strengthening of the U.S. dollar."

The Economy and Bond MarketStrengths

Markit Economics' flash U.S. purchasing manager's index (PMI) rose to 55.1 in January. New orders

jumped at the fastest rate in two years, "thanks mainly to rising demand from customers in the homemarket," the report said on Tuesday.

U.S. economic data showed a third straight month of improved capital expenditures. Capex has beenparticularly sluggish in recent years, and an upturn in capital investment could contribute to bettercorporate profits down the road.

The Dow Jones Industrial Average closed above 20,000 on Wednesday for the first time in its 120-yearhistory.

WeaknessesAfter getting a major lift from a surge in U.S. soybean exports in the third quarter, U.S. economicgrowth slackened to an annualized pace of 1.9 percent in the fourth quarter from the 3.5 percentreading in the third quarter.

New home sales fell to a 10-month low in December, by 10.4 percent at a seasonally adjusted rate of536,000.

At least six oil-producing U.S. states are estimated to be in the midst of a recession, according to S&PGlobal Ratings. The ratings company said yesterday that Alaska, Louisiana, New Mexico, North Dakota,Oklahoma and Wyoming would likely see their economies contract between 2015 and 2016. This comesas a result of the sharp pullback in exploration and production during the past 18 months.

OpportunitiesPresident Donald Trump says he will soon begin renegotiating NAFTA. Trump has announced that heplans to speak with the leaders of Canada and Mexico to renegotiate the 23-year-old trade deal, Reutersreports. "We are going to start renegotiating on NAFTA, on immigration, and on security at the border,"Trump said on Sunday.

The Trump administration took a series of executive actions in its first week in office includingapproving the long-stalled Keystone XL and Dakota Access pipelines. Trump met with the CEOs ofseveral manufacturing companies, including the Big Three automakers, and encouraged them to buildnew plants in the United States. Trump also met with union leaders. The administration alsoannounced it will nominate a replacement for Supreme Court justice Antonin Scalia on 2 February.

Three of G7 central banks will hold policy meetings next week. Although no changes are expected, hintscould be provided in regards to the future path of monetary policy.

ThreatsSean Spicer, White House press secretary for President Donald Trump, said the administration isconsidering a 20 percent border tax on Mexican imports, according to the White House press poolreport.

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Growth in consumer spending slowed to 2.5 percent from 3.0 percent in the latest U.S. GDP report. Itwill be key to watch the outcome of the average hourly earnings release next week as it could be anindicator of future consumption.

Despite all the talk about economic reflation, the Conference Board's leading economic indicator (LEI) isnot yet signaling a major acceleration in GDP growth.

Gold MarketThis week spot gold closed at $1,191.59, down $18.98 per ounce, or 1.57 percent. Gold stocks, as measured bythe NYSE Arca Gold Miners Index, ended the week slightly higher by 0.17 percent. Junior tiered stocksoutperformed seniors for the week, as the S&P/TSX Venture Index climbed just 1.51 percent. The U.S. Trade-Weighted Dollar Index finished the week down by 0.16 percent.

Date Event Survey Actual Prior

Jan-26 Hong Kong Exports YoY 6.7% 10.1% 8.1%

Jan-26 U.S. Initial Jobless Claims 247k 259k 237k

Jan-26 U.S. New Home Sales 588k 536k 598k

Jan-27 U.S. GDP Annualized QoQ 2.2% 1.9% 3.5%

Jan-27 U.S. Durable Goods Orders 2.5% -0.4% -4.8%

Jan-30 Germany CPI YoY 2.0% -- 1.7%

Jan-31 Eurozone Core CPI YoY 0.9% -- 0.9%

Jan-31 U.S. Consumer Confidence 112.5 -- 113.7

Feb-1 U.S. ADP Employment Change 165k -- 153k

Feb-1 U.S. ISM Manufacturing 55.0 -- 54.5

Feb-1 FOMC Rate Decision 0.75% -- 0.75%

Feb-2 U.S. Initial Jobless Claims 250k -- 259k

Feb-2 Caxin China PMI Mfg 51.8 -- 51.9

Feb-3 U.S. Change in Nonfarm Payrolls 170k -- 156k

Feb-3 U.S. Durable Goods Orders -- -- -0.4%

StrengthsThe best performing precious metal for the week was platinum, up 0.74 percent. Silver also clocked apositive gain of 0.28 percent. Economic growth in the U.S. slowed more than forecast last quarter onthe biggest trade drag in six years, reports Bloomberg. Net exports subtracted 1.7 percentage pointsfrom expansion in the October – December period, as dollar strength likely was a drag on growth. Should the new Trump administration push for a weaker dollar, this could lend support to gold.

China purchased a net 47 tons of bullion in November, according to data from the Hong Kong Censusand Statistics Department and compiled by Bloomberg. Additionally, shipments of gold fromSwitzerland to China surged more than fivefold to 158 tons in December, Bloomberg continues, thehighest since at least January 2014. Appetite for gold is soaring ahead of the Lunar New Year.

According to Bloomberg, the four ETFs backed by gold that have attracted the most money this year areall based in Western Europe. Xetra-Gold, listed in Frankfurt, tops the list by bringing in around $544million last week. Europeans are turning to the gold on fears that Trump’s “America first” rhetoric willimpede global economic growth.

WeaknessesThe worst performing precious metal for the week was palladium, down 6.65 percent. The metal isheaded for its worst weekly drop in more than a year. CPM Group reported they see palladium andplatinum in surplus for the next few years and estimated there are 25 million ounces of palladium instockpiles, most held by investors.

Physical gold demand fell in 2016 to its lowest level since 2009, reports Reuters, as increased pricesweighed on appetite for the metal. GFMS, a research unit of Thomson Reuters, also notes that goldjewelry demand is at a 28-year low. Jewelry consumption is down 9.7 percent year-over-year at 551metric tons in the fourth quarter.

As U.S. equities looked to extend a rally on Friday, gold retreated for what might be a fourth-straightday of losses. However, real rates dropped a bit before the market open and gold eventually crawledinto positive territory. “Gold was due for a short-term pullback, after rallying almost non-stop sincelate December,” Jordan Eliseo of Australian Bullion Co. said. “Strength in equity markets, with the Dowtopping 20,000 points, soft physical markets and a greater focus on rate hikes from the Fed has seenthe metal sell off.”

OpportunitiesUBS says the dollar has peaked and is likely to decline this year under President Trump, reportsBloomberg. The wealth management unit at UBS expects the currency’s future weakness to boost theprice of base and precious metals. “We hold that view because we see real interest rates going deeperinto negative territory.” Earlier in the week Steve Mnuchin also commented on the dollar, defying twodecades of convention at the office of the U.S. Treasury Secretary by stating, “From time to time, anexcessively strong dollar may have negative short-term implications on the economy.” In a similar note,Brown Brothers Harriman noted a recent St. Louis Fed study which showed how a strong dollar from

2014 to 2016 was associated with a drag on growth from net exporters

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According to BlackRock, inflation is rising faster than many investors may realize, citing examples suchas rising housing prices, uncontained medical inflation, rising wages and more. So what does this meanfor investors? BlackRock says, “Should inflation expectations rise faster than nominal rates, gold islikely to continue to merit a place in most portfolios.”

The World Gold Council believes the Indian government should lower the taxes on gold, currently at 13percent, to help curb smuggling and promote transparency in local gold trade, reports Bloomberg. Witha high customs duty, gold is being imported through the unofficial channel, the article continues. IfIndia wants to eliminate corruption, a high tariff only encourages smuggling.

ThreatsBNP Paribas SA, the top gold and precious metals forecaster in the fourth quarter according toBloomberg, expects the Federal Reserve to go “rapid-fire” on interest rates, boosting them every quarterin 2018. This tightening will strengthen the U.S. dollar and push gold down toward $1,000 an ounce,reports Bloomberg.

The forecasted gold demand recovery from a seven-year low in India has been delayed, according to theWorld Gold Council. The WGC says gold consumption in the country will not return to normal levelsuntil 2018, as a liquidity squeeze tightens spending this year, reports Bloomberg. In a report publishedTuesday, the group estimates India’s usage between 850 metric tons to 950 tonnes by 2020 versusdemand of 650 to 750 tonnes in 2016.

Two of the biggest gold producers in South Africa, Sibanye Gold and AngloGold Ashanti, have beenaccused of putting workers’ lives at risk, reports Bloomberg. The Department of Mineral Resourcesargues that the companies are unwilling to follow the laws, while the two miners have criticizedgovernment inspectors for being too heavy-handed in temporarily closing mines for safety breaches, thearticle continues. AngloGold won a court ruling in October that blocked one such closure and Sibanye issuing Minister Mosebenzi Zwane and other officials for compensation after its Kroondal platinum minewas closed. Over the past decade AngloGold has reduced operating fatalities by more than 80 percent.

Energy and Natural Resources Market

StrengthsCommodities may continue to outperform on the back of a weaker U.S. dollar. UBS argues the U.S.dollar has peaked and is set to “roll over” refuting the case for a stronger dollar fueled by PresidentTrump’s plans to increase infrastructure spending and cut taxes. Instead the bank argued that theseplans will lead to a twin deficit situation which is negative for the currency and ultimately positive forcommodity prices.

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The best performing sector for the week was the S&P/TSX Composite Diversified Metals & Mining SubIndustry index. The index rose 7.9 percent after copper prices advanced 2.5 percent this week followingTrump’s inauguration.

Norsk Hydro, a Norwegian aluminum and renewable energy company, was the best performing stockthis week finishing up 10.4 percent. The stock rallied on the back of rising aluminum prices as supplyfor the metal is expected to decline as China shuts down capacity.

WeaknessesPalladium was the worst performing commodity this week falling 5.9 percent. The drop in the price ofpalladium was attributed to producers hedging as the commodity surged to a 22-month high last week.

The worst performing sector this week was the S&P/TSX Composite Oil and Gas Exploration andProduction Sub Industry Index. The index fell 0.1 percent as investors fear protectionist trade policiesinstituted by President Trump may limit U.S. demand for Canadian production.

The worst performing stock for the week was Eni S.p.A., the Italian integrated oil and gas company. Thecompany fell 4.9 percent on the back of falling oil prices and an order from the Nigerian court to give upcontrol of a jointly owned oil license with the country.

OpportunitiesThe fundamentals for copper have improved according to a research note released this week byMacquarie. The first wave of fourth quarter production reports were released this week and showedmajor producers missed output expectations. In addition, the prospect of a serious strike exists from theworld’s largest mine, Escondida, owned and operated by BHP Billiton. As demand factors are beginningto pick up, any disruption to the mining supply chain could potentially benefit and support highercopper prices.

Aluminum prices may continue to rise as production may be constricted this year as the Ministry ofEnvironmental Protection in Beijing attempts to curb pollution. In recent years, global production hasbecome a function of Chinese smelters which account for a third of global production to support thecountries rapid growth. If the country follows through on capping production, aluminum prices mayextend last year’s rally.

Hedge funds are bullish on oil prices, sending bets to the highest level on record according to regulatoryand exchange data. The rationale behind the appetite is to back a long awaited recovery in thedepressed market which will further be boosted by supply cuts from OPEC producers and other majorproducers such as Russia. A positive read-through for the whole energy complex.

ThreatsU.S. economic growth slowed sharply in the fourth quarter of 2016 on the back of falling exportsaccording to Reuters. The economy grew at 1.6 percent in total for 2016, the weakest pace since 2011 ascheap oil and a strong U.S. dollar are hampering global competitiveness. The slow pace of economicgrowth in the U.S. may temper appetite for commodity prices even as President Trump enacts pro-growth policies.

Baker Hughes, one of the world’s largest oil field services companies with operations in over 90countries, says only higher oil prices will spur international spending on equipment. The current pricesin oil acts as a cap towards spending on projects and infrastructure as producer’s margins arechallenged, negatively affecting service companies.

Gold fell 1.6 percent this week as sentiment shifted toward pro-growth sectors. The price of gold isfeeling the heat of Trump’s pro-growth fiscal policy. The risk of further pro-growth policyannouncements may pressure gold prices in the short term.

China Region

StrengthsThe Hang Seng Composite Index (HSCI) climbed to multi-month highs ahead of the Lunar New Yearholidays.

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The Philippines’ fourth-quarter GDP data came in at a robust 6.6 percent year-over-year growth rate,in line with expectations. Despite a slight miss on quarter-over-quarter numbers (1.7 percent actualversus 1.9 percent expected), the Philippines continues to hum along with one of the fastest GDPgrowth rates in the region. 2016 GDP growth was a solid 6.8 percent.

Year-over-year industrial production in Singapore surged at its fastest pace in years, jumping to 21.3percent for the December period.

WeaknessesYear-over-year industrial profits in China slowed to a pace of 2.3 percent growth for the Decemberperiod, behind the prior 14.5 percent.

Taiwan’s GDP data missed expectations. Preliminary fourth-quarter GDP came in at 2.58 percent,below expectations of 2.85 percent, while annual year-over-year GDP rose 1.4 percent, shy ofexpectations for 2.5 percent.

China’s central bank is ordering the nation’s lenders to curb new loans in the first quarter, BloombergNews reports, as part of continued efforts to crack down on leverage. The latest moves may make errantlenders pay more for deposit insurance.

OpportunitiesThe Lunar New Year holidays have begun. It will be a quiet week in many markets but soon investorswill see measurements and metrics on consumer habits leading into and around the holidays.

Next week we get purchasing managers’ index (PMI) readings. Official China Manufacturing PMIexpectations are for a reading of 51.2 (versus a prior 51.4 in December), with a Caixin ManufacturingPMI of 51.8, down slightly from 51.9 in December.

Bloomberg News reports that S&P Global Ratings stated in recent weeks that Indonesia’s credit ratingmay be raised in 2017 or 2018 if the country’s fiscal situation continues to focus on “deliver[ing] betterquality spending, deficits on a declining trend, moderate government debt, and limited contingent fiscalresponsibilities.”

ThreatsAs President Donald Trump concludes his first week in office, numerous details regarding China andtrade remain uncertain. Trump made good on his promise to terminate U.S. involvement in the Trans-Pacific Partnership (TPP), with no replacement on the horizon at this point. And while Trump seemskeen on the art of the deal, so to speak—and thus pragmatic—investors still do not know what shape

such pragmatism might take with respect to U.S. trade for the region, or what disruptions might becaused.

Yuan weakness—staved off recently as the currency strengthened somewhat— and capital outflows fromChina remain an ongoing longer-term threat.

Hong Kong has held on to the questionable title of the planet’s priciest market for homes: the averagehome in Hong Kong costs some 18.1 times median pretax income, according to Bloomberg News, andrepresents a “substantial deterioration” in affordability. (Second and third places, respectively, go toSydney, Australia and Vancouver, Canada.)

Emerging Europe

StrengthsRussia was the best performing country this week, gaining 4.9 percent. A possibly warmer relationshipwith the U.S. under the Donald Trump administration may lead to the removal of sanctions imposed onRussia after the annexation of Crimea. Putin and Trump will hold their first call this Saturday.

The Polish zloty was the best performing currency this week, gaining 70 basis points against the U.S.dollar. The Polish government expects inflation to pick up this year and exceed 1.5 percent. Grossdomestic product should reach 3.5 percent, and improvements in the tax collection process mayincrease state revenue by more than 10 billion zloty, helping to balance the budget.

The materials sector was the best performing sector among eastern European markets this week.

WeaknessesHungary was the worst performing country this week, losing 50 basis points. The National Bank ofHungary left the benchmark rate at a record low 0.9 percent, as expected. The rate could be keptunchanged until inflation reaches its target of 3 percent.

The Turkish lira was the worst performing currency this week, losing 2.9 percent against the U.S. dollar.Despite the central bank taking actions to support the lira, it is heading for its biggest drop in two weeksafter President Recep Tayyip Erdogan asked again for a rate cut.

The real estate sector was the worst performing sector among eastern European markets this week.

OpportunitiesThe first preliminary PMI surveys of 2017 suggest that the Euro area and its two largest economies,Germany and France, started the year strongly. January manufacturing PMI for the eurozone wasreported at 55.1, Germany at 56.5 and France at 53.4.

Russia overtook Saudi Arabia in 2016 to become China’s biggest crude oil supplier for the first timeever, customs data showed on Monday. Russian shipments surged to 1.05 million barrels per day, withSaudi Arabia coming in a close second with 1.02 million barrels per day. China is the world’s secondlargest oil buyer and the fastest growing major importer. Russia may maintain the top spot in 2017 as itexpands exports of its East Siberian-Pacific Ocean (ESPO) pipeline.

Deputy Prime Minister Mateusz Morawiecki said that Poland estimates it will attract 25,000 – 30,000new jobs from Britain this year in the sector of advanced business services. As the U.K. exits theeurozone bloc, big banks and their Euro clear operations may be moving to Frankfurt and Paris, whilethe lower wage countries in central and Eastern Europe may attract companies to resettle their back-office and other operations. UBS AG has one of its two global hubs in Krakow, Goldman Sachs willexpand its Warsaw office, and JPMorgan may move as many as 2,500 jobs to central Europe.

ThreatsIldar Davletshin, an analyst at Renaissance Capital, says there is limited upside for Russian oilproducers unless oil doubles. Russia has a progressive tax system and it means that most of oil pricegains since OPEC announced production cut have gone to the state budget. Producers only get a $2benefit when oil increases by $10 per barrel. Also, a stronger ruble is increasing costs on production,

reducing profits and free cash flow.

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Fitch will announce its credit rating decision for Tukey late on Friday. If it downgrades Turkey’s creditrating, all three rating agencies will rank the country below investment grade. Further equity andcurrency weakness may follow.

Marine Le Pen, National Front Leader, is ahead in a poll on the first round of France’s presidentialelection. A victory for Le Pen on April 23 would set up a run-off vote in May, raising the prospects thatan open critic of the euro could become the next president of the region’s second biggest economy.

Leaders and Laggards

Weekly Performance

Index CloseWeekly

Change($)Weekly

Change(%)

DJIA 20,093.78 +266.53 +1.34%

S&P 500 2,294.69 +23.38 +1.03%

S&P Energy 544.42 -2.99 -0.55%

S&P Basic Materials 332.04 +11.04 +3.44%

Nasdaq 5,660.78 +105.45 +1.90%

Russell 2000 1,370.75 +18.90 +1.40%

Hang Seng Composite Index 3,179.27 +65.26 +2.10%

Korean KOSPI Index 2,083.59 +17.98 +0.87%

S&P/TSX Global Gold Index 209.11 -2.52 -1.19%

XAU 89.58 +0.90 +1.01%

Gold Futures 1,193.10 -14.60 -1.21%

Oil Futures 53.14 +0.72 +1.37%

Natural Gas Futures 3.39 +0.19 +5.84%

SS&P/TSX Venture Index 809.60 +12.01 +1.51%

10-Yr Treasury Bond 2.49 +0.02 +0.69%

Monthly Performance

Index CloseMonthly

Change($)Monthly

Change(%)

DJIA 20,093.78 +260.10 +1.31%

S&P 500 2,294.69 +44.77 +1.99%

S&P Energy 544.42 -12.96 -2.33%

S&P Basic Materials 332.04 +17.60 +5.60%

Nasdaq 5,660.78 +222.23 +4.09%

Russell 2000 1,370.75 +9.93 +0.73%

Hang Seng Composite Index 3,179.27 +221.19 +7.48%

Korean KOSPI Index 2,083.59 +59.10 +2.92%

S&P/TSX Global Gold Index 209.11 +18.78 +9.87%

XAU 89.58 +12.28 +15.89%

Gold Futures 1,193.10 +49.50 +4.33%

Oil Futures 53.14 -0.92 -1.70%

Natural Gas Futures 3.39 -0.54 -13.72%

SS&P/TSX Venture Index 809.60 +63.66 +8.53%

10-Yr Treasury Bond 2.49 -0.02 -0.96%

Quarterly Performance

Index CloseQuarterly

Change($)Quarterly

Change(%)

DJIA 20,093.78 +1,932.59 +10.64%

S&P 500 2,294.69 +168.28 +7.91%

S&P Energy 544.42 +33.65 +6.59%

S&P Basic Materials 332.04 +38.99 +13.30%

Nasdaq 5,660.78 +470.68 +9.07%

Russell 2000 1,370.75 +183.14 +15.42%

Hang Seng Composite Index 3,179.27 +69.03 +2.22%

Korean KOSPI Index 2,083.59 +64.17 +3.18%

S&P/TSX Global Gold Index 209.11 -9.15 -4.19%

XAU 89.58 +4.81 +5.67%

Gold Futures 1,193.10 -90.70 -7.06%

Oil Futures 53.14 +4.44 +9.12%

Natural Gas Futures 3.39 +0.29 +9.21%

SS&P/TSX Venture Index 809.60 +33.73 +4.35%

10-Yr Treasury Bond 2.49 +0.64 +34.47%

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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentionedin the article were held by one or more accounts managed by U.S. Global Investors as of 12/31/2016:BHP Billiton LtdBoeing Co/TheChina Southern Airlines Co LtdFreeport-McMoRan Inc. QualcommSibanye Gold Ltd .

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in theirindustry.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 theRussell 3000®, a widely recognized small-cap index.The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listedon 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 TaiwanStock Exchange.The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on theKorean Stock Exchanges. The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leadingcompanies 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 arecapped 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 subsetof the S&P 500.The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as asubset 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 the1941-43 base period.The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in theindustrial 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 consumerdiscretionary 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 theinformation 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 inthe 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 subsetof the S&P 500.The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as asubset 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 thetelecom 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 tradedcompanies 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 marketbasket of goods and services purchased by individuals. The weights of components are based on consumer spendingpatterns.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index isbased on five major indicators: new orders, inventory levels, production, supplier deliveries and the employmentenvironment.The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index ismarket capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used toremove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, whenincluded, will be greater than 0.05% of the index.

The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.The Bloomberg Dollar Spot Index (BBDXY) tracks the performance of a basket of 10 leading global currencies versus theU.S. Dollar. A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point isequal to 1/100th of 1%, or 0.01% (0.0001). Free Cash Flow (FCF) represents the cash that a company is able to generate after laying out the money required tomaintain or expand its asset base. Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market's expectation of 30-day volatility. The Conference Board index of leading economic indicators is an index published monthly by the Conference Board usedto predict the direction of the economy's movements in the months to come. The index is made up of 10 economiccomponents, whose changes tend to precede changes in the overall economy. S&P/TSX Capped Diversified Metals and Mining Index is an index of companies engaged in diversified production orextraction of metals and minerals. The S&P Supercomposite Oil and Gas Exploration & Production Index consists of all oil and gas exploration andproduction stocks included in the S&P Supercomposite 1500 Index.

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