USFunds.com • August 26, 2016

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

11 Reasons Why Everyone Wants to Move to TexasBy Frank HolmesCEO and Chief Investment Officer U.S. Global Investors

As a “Tex-Can”—born in Canada, lived in Texas the past 26 years—I’m so blessed to call Texas my home. I can’twait to tell you all the fascinating things I’ve learned that makes the state a truly remarkable place.

But first, you probably heard about the big gold selloff on Wednesday. I just flew in from meeting with gold fundanalysts in Toronto, Vancouver and New York, and a lot of our conservations touched on this subject.

Gold has been on a tear so far this year, so what’s the cause of this selloff? Turns out, most of the gold stock buyingcan be traced back to macro hedge funds like Bridgewater and quant funds. The generalists, in fact, have not beenbuying. I might have mentioned before that the S&P 500 Index is only 1 percent gold—Newmont Mining being theonly name in the high-cap index—so there’s not much general investment in the yellow metal. The Toronto StockExchange (TSE) is closer to 8 percent, but most Canadian institutions are substantially underweight. This has beena big drag on performance.

Some of these hedge funds and quantitative-based investment platforms use leverage in their strategies—some areeven triple or quadruple leveraged—which can cause the price of gold to react with big fluctuations. Many quant-based traders also track moving averages like the 50-day, and when gold falls below this mark, they quickly sellenough to lower their risk. So the selloff this week—which came ahead of Federal Reserve Chair Janet Yellen’shawkish remarks from Jackson Hole, Wyoming—has seen gold and gold stocks fall even more.

In the first quarter this year, the top 10 performing gold stocks—selected based on low SG&A (selling, general and

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administrative costs)-to-revenue—surged 88 percent. Compare that to the Philadelphia Gold and Silver Index(XAU), which jumped 53 percent during the same period. It appears, then, that one of the key factors triggeringquant-buying was low SG&A-to-revenue. Quants didn’t care about the mining properties and future goldproduction, which has historically been the case.

When selloffs such as these occur, it’s often hard not to get emotional. That’s why it’s important to keep in mindSgt. Joe Friday’s famous saying: “Just the facts, ma’am.”

I still maintain that the gold drivers are in place and am optimistic for the metals’ outlook. Stay tuned!

Having said all that, let’s talk about Texas, home to U.S. Global Investors!

1. Check out Our MettleThe 2016 Olympics Games in Rio de Janeiro now belongs to history, and by a very wide margin, Americancompetitors walked away with the most medals: 121 altogether. Looking at gold medals, the U.S. still ranked first,with 46 won. But if we took away what Texas collected, the Land of the Free would have fallen to third place,behind the U.K. and China.

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Houston was the winningest Texas city. Home to Olympic medalists Simone Biles, Simone Manuel, Kerron Clementand more, H-Town is now 10 gold medals richer.

2. MoneybagsTexas is competitive in more than just Olympic events, of course. The state has the second-largest gross domesticproduct (GDP) in the Union, following California. If it were its own country, Texas would clock in at number 12 inthe world, snuggled in between Canada and Australia.

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3. Tex-CanIf Texas were its own nation, in fact, its economy would be about the same size as Canada’s.

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4. This Is Oil CountryAnother thing Texas has in common with Canada? Black gold. Barrelsful of it.

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Last month, Oslo-based Rystad Energy shared a report that shows the U.S. as now having the world’s largestreserve of recoverable oil, with 264 billion barrels in existing fields, unconventional shale and as-yet undiscoveredareas. This is the first time such a report has moved the country ahead of both Saudi Arabia and Russia.

Were it not for the contributions of oil-rich Texas, however, this might not be the case. Thanks in large part tofracking in prolific fields such as the Eagle Ford Formation and Sprayberry Trend, the state leads all others in crudeproduction, annually gushing out more than a third of total U.S. output.

You can see how the fracking boom helped propel the state into the same league as major OPEC nations Iraq, Iran,United Arab Emirates and Kuwait.

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5. A Mighty WindTexas is more than oil, of course. The natural-resource-rich state is also known for its natural gas production (itleads the nation), coal, electricity (again, number one in the States) and renewable energy—specifically, windenergy.

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Thanks to Competitive Renewable Energy Zones (CREZ) and $33 billion in invested capital, Texas ranks first in thenation for installed wind capacity and the number of megawatts generated by wind. In 2015, close to 10 percent ofthe state’s electricity production came from wind, according to the American Wind Energy Association.

With an estimated 17,000 Texans already employed in the state’s wind energy industry, Texas is in the process ofinstalling an additional 5,200 megawatts.

6. Men at WorkSpeaking of employment, that’s something else you can find a lot of in the Lone Star State. The oil industry mighthave taken a hit from falling crude prices, but the Texas economy has proven resilient. As you can see, the 2007-2008 global financial crisis had much less of an impact on state unemployment rates compared to other majorcountries and regions such as Canada, Australia, the European Union and United States.

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7. All Roads Lead to Texas

Important to keeping business and commerce flowing, as well as helping commuters travel to and from their work,are roads. Texas has them in spades. According to the U.S. Department of Transportation, the state is connected by313,596 miles of public road, the most of any state. With 18 numbered interstate highways, it also has moreinterstate miles than any other does.

If it were its own country, Texas would rank 13th by road network size, somewhere between Germany and Sweden.

At only $0.20 per gallon, the Texas gas tax is among the most reasonable in the nation. And because almost thatentire amount goes to public transportation—$0.05 is devoted to public education—Texas has some of the bestroads in the U.S.

While we’re on the topic of transportation, Texas also boasts the most airports of any state—1,415, according toStateMaster. Two of the four major U.S. carriers, American Airlines and Southwest Airlines, are headquartered inthe Lone Star State.

8. No Income TaxThere are only seven states without an income tax, Texas among them. (Alaska, Florida, Nevada, South Dakota,Washington and Wyoming round out the list.)

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Neither does the state impose a corporate income tax, and last summer, Governor Gregg Abbott approved $4billion in tax cuts for businesses and homeowners.

9. Gold Star State

Governor Abbott is also reponsible for what will be a first in the United States. More than a year after he signed alaw to repatriate $1 billion in Texas gold bullion from the Federal Reserve, construction will soon begin on theTexas Bullion Depository. Such a state-run gold depository doesn’t currently exist anywhere else in the U.S. It’s

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hoped that it will help turn Texas into a “financial Mecca,” in the words of one state senator.

10. Population DestinationLow taxes are one of the main appeals driving Texas’ rapid population growth. According to the Census Bureau, fiveof the 11 fastest-growing U.S. cities by population can be found in Texas. Ranking number two in the nation is NewBraunfels, a lovely town originally settled by Germans that lies midway between San Antonio and Austin.

Between July 2014 and July 2015, the Lone Star State added 490,036 new residents, the most of any state by awide margin.

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To put this in perspective, the number of new Texas arrivals alone between 2014 and 2015 exceeds the totalpopulations of several countries, including Malta (population: 429,366, as of December 2014), Brunei (411,900, asof July 2014) and Iceland (336,060, as of June 2016).

11. Bet on Tech

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It’s not just people moving to Texas, though. Companies are as well—specifically tech companies, and, to get evenmore granular, Silicon Valley tech companies. The San Francisco Chronicle reports that, in recent years, more than$1 billion in taxable income has flowed from the Bay Area to Texas, as tech firms have sought not just lower taxesbut also simpler regulation.

Indeed, the Lone Star State has emerged as a formidable tech hub to rival Silicon Valley. Employing more than270,000 people, the state’s tech industry supports firms ranging in size from hip Austin startups to massiveFortune 500 companies such as Dell, Texas Instruments and Rackspace Hosting (which just agreed to a $4.3 billionacquisition deal by private equity firm Apollo Global Management).

For the last three years, Texas has led the nation in high-tech exports—everything from semiconductors tocommunications equipment. Last year, in fact, the state’s total sales amount exceeded California’s by a whopping$6.3 billion.

No wonder so many people are choosing Texas as the place to hang their hat!

Index SummaryThe major market indices finished mixed this week. The Dow Jones Industrial Average lost 0.85 percent.The S&P 500 Stock Index fell 0.68 percent, while the Nasdaq Composite fell 0.37 percent. The Russell 2000small capitalization index gained 0.10 percent this week.

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The Hang Seng Composite dropped 0.25 percent this week; while Taiwan was up 1.08percent and theKOSPI fell 0.91 percent.

The 10-year Treasury bond yield rose 4 basis points to 1.63 percent.

Domestic Equity Market

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StrengthsFinancials was the best performing sector for the week, increasing by 0.36 percent versus an overalldecrease of -0.68 percent for the S&P 500.

Best Buy was the best performing stock for the week, increasing 21.14 percent. The company crushedearnings and the stock leaped. Same store sales beat expectations, rising 0.8 percent compared toexpectations of a 0.6 percent drop. Earnings per share also beat analysts' forecasts at $0.57 per shareagainst projections of $0.43 per share.

Toll Brothers, the luxury homebuilder, reported higher home orders, up 18.2 percent to 1,748 units from theyear before. It also raised its projection for the average sale price to $840,000 to $850,000 from $820,000to $850,000.

WeaknessesUtilities was the worst performing sector for the week, falling by -2.28 percent versus an overall decrease of-0.68 percent for the S&P 500.

Dollar General was the worst performing stock for the week, falling -16.90 percent. The company postedrevenue that missed analysts' estimates for the 2016 second quarter.

Retailer Express missed on earnings and the stock dived. Shares fell as much as 25 percent after it postedearnings of $0.13 per share against analyst expectations of $0.17 per share. Sales also fell by 8 percent instores open for more than one year compared to the same period in the prior year.

OpportunitiesAmerica is driving more than ever. Data released by the Department of Energy shows that vehicles in theU.S. drove a record 1.58 trillion miles in the first half of 2016, up 3.3 percent from the same period last year.This is bullish for auto-parts companies as wear and tear from increased driving will drive higherreplacement parts sales.

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Tesla CEO Elon Musk said Tuesday that the Model S and the Model X would offer batteries that will extendtheir ranges to 315 miles and 289 miles. Additionally, both models will receive an upgrade to their"Ludicrous Mode."

Amazon is in the planning stages of a subscription music service that would run through its Echo hardware,Recode reports. Amazon is reportedly deciding whether the service will cost $4 or $5 a month.

ThreatsShort seller Carson Block announced a new target and the stock tanked. Block's Muddy Waters Investmentssaid it is now short medical device maker St. Jude's Medical because the company has not spent enough toprotect its pacemakers from being hacked and tampered with. The stock fell over 5 percent for the dayfollowing the report's release.

Apple might owe Europe billions of dollars in taxes. The European Commission is expected to impose ajudgment against the tech giant in the next few months; Apple is accused of striking a sweetheart tax dealwith Ireland, and, per the Financial Times, JPMorgan says the judgment could be as high as $19 billion.

A new study should have Coke and Pepsi terrified. The American Journal of Public Health found that thesugary-beverage tax of a penny per ounce in Berkeley, California, lowered consumption there by 21 percent.

August 22, 2016These Olympian Gold RoyaltyCompanies Are InsanelyAttractive

August 18, 2016Gold Spending in India Is Set to Get aBoost from a Strong Monsoon Season

August 15,2016Go Gold!

The Economy and Bond MarketStrengths

Durable goods orders rose 4.4 percent from the month before, higher than the 3.4 percent increase expectedby economists.

New home sales surged to 654,000, the highest level since October 2007. The number smashed expectationsof 580,000 homes sold.

Initial jobless claims unexpectedly dropped. The number of people requesting unemployment insurance fellto 261,000 from last week's 262,000. This is also lower than economists' expectations of 265,000.

WeaknessesMarkit flash services PMI came in at 50.9, much lower than expectations of 51.8 and July's print of 51.4.This number is, however, still in expansionary territory.

Sales of existing homes fell by 3.2 percent in August from the month before, well below economists’expectations of a mere 0.4 percent drop.

Japan remains trapped in deflation. Core CPI fell 0.5 percent in July, making for the lowest reading sinceMarch 2013.

Opportunities

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While inflation remains below the Fed's target, it has also clearly bottomed for the cycle. Importantly,service sector inflation has rebounded sharply toward 3 percent. Given that service sector pricing is drivenmore clearly by domestic trends, this suggests that wage pressures are beginning to feed through intoinflation. Accordingly, the BCA bond team recommends an overweight position in TIPS relative to nominalU.S. Treasuries. TIPS benefit even if the rise in inflation is gradual, but importantly, TIPS breakevenscurrently appear too low relative to other financial instruments.

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Stanley Fischer, the Federal Reserve vice chairman, says the Fed is nearing its targets. Speaking at aconference in Aspen, Colorado, Janet Yellen's right-hand man thinks the Fed is close to full employmentand 2 percent inflation, the two parts of its dual mandate, Reuters reports.

Next week is an important one for U.S. economic data. Personal consumption and perhaps more crucially,core PCE will be released on Monday.

ThreatsHome prices signaled a "potentially significant market shift." House prices in the U.S. only rose by 0.2percent in June, below expectations of 0.3 percent, according to the Federal HousingFinance agency. Andrew Leventis, FHFA supervisory economist, said this slowing in house priceappreciation was "a much more modest pace of appreciation than we've seen in some time"

Markit's flash manufacturing PMI fell to 52.1, missing expectations of a 52.7 print. While this is still inexpansionary territory and export data looked strong, weak order books during the month signaled a"warning light," according to Markit Chief Business Economist Chris Williamson.

Saudi Arabia threw cold water on the prospects of a freeze to oil output. Khalid Al-Falih, the Saudi energyminister, told Reuters late Thursday that the kingdom didn't "believe any significant intervention in themarket is necessary other than to allow the forces of supply and demand to do the work for us."

Gold MarketThis week spot gold closed at $1,321.50, down $19.76 per ounce, or 1.47 percent. Gold stocks, as measured by theNYSE Arca Gold Miners Index, fell 9.64 percent. Junior miners outperformed seniors for the week, as the S&P/TSXVenture Index fell 3.31 percent week. The U.S. Trade-Weighted Dollar Index was rose 1.00 percent, despite therally on Friday.

Date Event Survey Actual Prior

Aug-23 U.S. New Home Sales 580k 654k 582k

Aug-25 Hong Kong Exports YoY -2.0% -5.1% -1.0%

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Aug-25 U.S. Durable Goods Orders 3.4% 4.4% -4.2%

Aug-25 U.S. Initial Jobless Claims 265k 261k 262k

Aug-26 U.S. GDP Annualized QoQ 1.1% 1.1% 1.2%

Aug-30 Germany CPI YoY 0.5% -- 0.4%

Aug-31 U.S. Consumer Confidence 97.0 -- 93.7

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

Aug-31 ADP Employment Change 175k -- 179k

Aug-23 Caixin China PMI Mfg 50.1 -- 50.6

Sep-1 U.S. Initial Jobless Claims 265k -- 261k

Sep-1 U.S. ISM Manufacturing 52.0 -- 52.6

Sep-2 U.S. Change in Nonfarm Payrols 185k -- 255k

Sep-2 U.S. Durable Goods Orders -- -- 4.4%

StrengthsThe best performing precious metal for the week was gold, down slightly by 1.47 percent. Current marketconditions make it the perfect time to invest in gold, according to Heather Ferguson, an analyst atHargreaves Landsown. “There is a fixed amount of this precious metal in the world so central banks are notable to manipulate the gold market like they can with bonds and cash,” Ferguson explains. “In the currentenvironment of quantitative easing and increasingly extreme monetary policy, gold is highly sought after.”

UBS says the gold trade is not overcrowded, according to a note this week. The group believes that FederalReserve policy decisions relative to the metal are not as straightforward in this environment where globalyields are under pressure ahead of a rate hike.

Citigroup is also positive on the metal, raising its forecast for the second half of the year. The group citeselevated levels of U.S. election uncertainty and stickiness of ETF and hedge fund flows into gold products,reports Bloomberg.

WeaknessesThe worst performing precious metal for the week was platinum with a loss of 3.77 percent. Platinum soldoff when precious metals were bear raided on Wednesday, but did not get much of a bounce followingYellen’s speech on Friday.

“The past 48 hours have been an interesting period for gold…” writes Steven Knight of Blackwell Global.“As the metal has again seemingly fallen sharply following the liquidation of a $1.5 billion futures positionover the course of 60 seconds.” According to Knight, given the amount of gold derivatives floating around,the fairness of the COMEX exchange likely needs an additional level of scrutiny. In addition, the timing ofthis “flash crash” could potentially be revealing.

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Goldcorp fell the most in six months, reports Bloomberg, on the back of retreating gold prices and thediscovery of a leak at the company’s mine in Mexico. Less-than-stellar news was also reported from KinrossGold Corp this week, as it suspended operations at a mine in Chile ahead of schedule due to a disputeinvolving water use (causing 300 workers at the Maricunga mine to be laid off as a result). Lastly, OrezoneGold Corp told investors on Monday that it will likely slash the gold resources at its Bombore project by astaggering 30 percent, reports the National Post.

OpportunitiesWhen viewed against the aggregate balance sheet of the “big four” global central banks (Fed, ECB, BoJ andPBOC), the argument can be made if we view gold as a currency, that the metal is worth closer to $1,700 anounce (versus the spot price of $1,326 an ounce USD), says Deutsche Bank. Over the same period that theaggregate central bank balance sheet expanded 300 percent, the bank continues, global above ground stocksgrew by 19 percent in tonnage terms.

More than 500 million people are living in a climate of negative central-bank interest rates, according to astudy by Standard & Poor’s cited by HSBC this week. This represents around 25 percent of global GDP andis a clear sign of “economic and policy desperation,” – a bullish factor for gold. Francisco Blanch of Bank ofAmerica agrees, stating that central banks “are very scared of hiking rates and that is a very good story forgold.”

“Although we have seen a significant rally in gold, I think investors should still consider an allocation to theprecious metal,” Nick Peters, multi-asset investor at Fidelity, said. He continues by explaining that gold canfunction as a safe haven during times of market volatility and provide strong countervailing returns toequities.

ThreatsThe Reserve Bank announced today that sovereign gold bonds issued in February and March can be tradedon stock exchanges starting Monday. Four tranches of the bonds have already been issued, with a fifth likelyto be issued next month. Sovereign gold bonds provide an alternative to actual gold investing, offeringinvestors a choice to buy bonds worth 2 grams of gold going up to a maximum of 500 grams. The bondsare denominated in gold and pay 2.75 percent interest in physical gold.

Are the positive changes in the gold industry sustainable? This was the point of question from Gold FieldsCEO Nick Holland during a keynote presentation on Monday, reports Mineweb.com. Holland points outthat not only are companies cutting “fat,” but “muscle” as well. Stay-in-business capital (as a percent ofoperating expenditure) decreased from 46 percent in 2012 on a per ounce basis, to 26 percent in 2015. How

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can companies do this? “I believe that they have merely deferred capital that is going to come back, becauseif you want to sustain the business into the future, you need to spend the money,” Holland said. “That forme is a little bit of a concern.” The Industry is going to play catch up, which could yield poor capitalallocation decisions, particularly if the industry errors on the side of growing production ounces versusgrowing profitability.

In a note from BMO Private Bank this week, Jack Ablin points out that historically, options investors havebeen able to generate reasonable income by selling options to other investors looking for downsideprotection and upside opportunity. However, struggling yields have created an “outsized supply of yield-seeking options sellers who collectively outstrip buyers.” The result is that implied volatility has declined.But just because yields are low, doesn’t mean that actual risk has gone away, the note continues.

Energy and Natural Resources Market

StrengthsChinese July gold imports rose 20 percent from a year ago. Macquarie Research reports that gold importswere 126 tonnes in July, using data from Chinese Customs. Physical demand rose despite an 18 percenthigher gold price, a positive sign for the yellow metal, which has suffered somewhat weak physical demandfrom India this year.

The best performing sector for the week was the S&P Supercomposite Paper and Forest Products Index. Theindex rose 2.6 percent on the back of strong housing data, which showed new home sales reached at a nine-year high.

Syngenta AG, a Swiss major fertilizer and chemicals producer, was the best performing stock in the broadernatural resource space for the week. The stock gained 9.1 percent after a U.S. committee cleared theproposed $44 billion acquisition by ChemChina.

WeaknessesCrude inventories continue to rise, suggesting oil market remains oversupplied. This week's petroleuminventories update was bearish relative to consensus. Crude, gasoline, and distillates stockpiles rose by 2.7million barrels, vs. consensus estimates for a draw of 2.1 million barrels.

The worst-performing sector for the week was the NYSE Arca Gold Miners Index. The index of major goldproducers dropped 9.5 percent for the week, underperforming the commodity which dropped 1.5 percent forthe same period. The weakness has been attributed to increasing expectations for a Fed rate hike as the Fedgovernors gathered in Jackson Hole for their annual symposium.

The worst performing stock for the week in the broader natural resource space was Goldcorp Inc. The majorCanadian gold producer dropped 12.5 percent after tracking the weakness in gold prices. In addition, thecompany reported operational issues at one of its Mexican mines.

OpportunitiesNatural gas strength is set to continue as inventories have fallen back within normal range. Last week’s 11billion cubic feet (bcf) build was well below the five-year average of 66 bcf and is the smallest injection forthis time of year on record. Raymond James analysts highlighted that the small injection brings totalinventories back within their five-year range. In addition, the gas-directed rig count has tumbled to an alltime low, with only 81 active rigs, suggesting supply will remain tight.

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China’s trade data for July suggests demand for raw commodities remains healthy. Zinc and copperconcentrate imports picked up strongly in July. Coal and ferronickel imports came in better than expected.According to Macquarie commodities analysts, the data suggests the Chinese demand picture seen this year.

The paper and forest industry may see continued strength from strong housing data. Data out this weekshows new home sales surged to the best level since 2007. The Census Bureau reported new home sales rose12.4 percent in July to 654,000 units, the strongest print since October 2007.

ThreatsSelling pressure in crude intensifies as Saudi Arabia downplays OPEC deal. In an interview with Reuters,Saudi Arabia’s oil minister Khalid al-Falih said that he did not think that intervention in the oil market wasnecessary, raising questions about the viability of a deal in Algeria next month between OPEC and Russia.As OilPrice.com reports, the comments throw cold water on the chances of a freeze deal.

The thermal coal strength may fade as weak European data outweighs positive news in China. As DeutscheBank analysts point out, the decrease in seaborne demand from the UK and Netherlands is being felt bysuppliers from Colombia to Russia. European imports are tracking 17.4 million tonnes below last year’slevels, far outweighing the growing demand in China, which is up only 0.7 million tonnes.

The iron ore rally remains at risk as China takes steps to curtail steel capacity. China Iron & SteelAssociation argues that steel production in the Asian country will contract this year and shrink further in2017 as local demand slows. Lower steel output threatens to reduce iron ore demand at a time whenChinese iron ore inventories are near all time highs.

China Region

StrengthsAugust Vietnamese trade data beat expectations as exports came in slightly better than anticipated, rising5.5 percent year-over-year, while imports fell less than expected, dropping only 0.3 percent year-over-year.

Taiwan’s TAIEX was a top regional performer for the week, rising 1.19 percent over the last five tradingdays.

The South Korean won eked out a small total return for the week, among the best regional currencies in aweek that saw most regional currencies weaken against the U.S. dollar.

WeaknessesIn another otherwise quiet week for Chinese data, the Shanghai Composite fell 1.21 percent amid a slew of

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earnings reports and some difficult comps versus year-ago numbers.

Year-over-year industrial production in Taiwan missed expectations for a gain of 1.7 percent, declininginstead by 0.31 percent.

The weakest performer in the HSCI Index this week was Zhuzhou CRRC Times Electric Co. Ltd. (3898 HK),which fell more than 17 percent over the last five days after the company reported worse-than-expectedearnings and received a number of broker downgrades.

OpportunitiesFor the first time during the first half of 2016, thenumber of Chinese tourists to Indonesia surpassedthose of any other single nation, CLSA mentionedin a recent report on Indonesian tourism. Chinesevisitor arrivals slightly edged out those fromIndonesia’s neighboring city-state, Singapore.

Foreign acquisitions continue to remain relevantfor Chinese firms in this record-breaking year, asJianxi Copper, China’s biggest copper producer,reported that it too will look to M&A overseas afterlower metal prices ate into its first-half profits.

Bloomberg reports that the Shenzhen and HongKong stock exchanges plan to seek input frommarket participants in coming weeks as they finishdrafting preliminary rules for the new HK-Shenzhen stock connect program.

ThreatsPresident Rodrigo Duterte and the Philippines made headlines once again this week after the recently-elected populist president threatened to leave the United Nations over criticisms for his violent crackdownagainst drugs.

Bloomberg reported that insurer China Life (2628 HK) suggests it will limit equities exposure in the secondhalf of 2016, attempting instead to boost fixed income and alternative investments while boosting overseasproperties.

Forest fires in Indonesia have led to a state of emergency in six provinces in that island nation. The smokeis also pushing down Singaporean and southern Malaysia’s air quality to unhealthy levels.

Emerging Europe

StrengthsRussia was the best performing country this week, gaining 1.7 percent. Gains in the Moscow Stock Exchangewere led by strong Sberbank performance. Sberbank almost tripled its profits in the second quarter, boostedby a drop in bad loans and signs of an economic recovery. This year’s 61-percent rally in London trading ofSberbank shares has boosted the market capitalization of Russia’s biggest lender to $50.3 billion, surpassingthat of Gazprom PJSC’s depository receipts for the first time ever.

The Hungarian forint was the best relative currency this week, losing 65 basis points against the U.S. dollar.Emerging Europe currencies weakened as the dollar climbed higher on Friday after the Federal Reservecommented that the case for a rate hike has strengthened in recent months.

The health care sector was the best performing sector among Eastern European markets this week.

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WeaknessesTurkey was the worst performing market this week, losing 1.3 percent. Fitch revised its outlook to negativefrom stable on 18 Turkish banks. This is a consequence of the ratings agency’s revision of the outlook onTurkey’s sovereignty to negative from stable on August 19. Political tension after the failed coup attemptand increased military activity puts pressure on equities.

The Russian ruble was the worst performing currency this week, losing 1.5 percent against the U.S. dollar.Ruble price movement is highly correlated with the price of oil; Brent crude oil lost 2.3 percent during thesame period.

The industrial sector was the worst performing sector among Eastern European markets this week.

OpportunitiesTurkey proposed a national wealth fund, totaling as much as $200 billion, which would finance projectsincluding airports, seaports, roads and railroads across the country. The government planned the wealthfund after a failed coup attempt on July 15. It will include sate-owned companies and lands, as well asproceeds from privatization. Most importantly, it will finance transport projects.

The August flash purchasing managers’ index (PMI) indicates that the eurozone remains on a steady growthpath in the third quarter, with no signs of recovery being derailed by Brexit uncertainty. EurozoneComposite PMI, which gives an overview of the Service and Manufacturing PMI, was reported at 53.3versus the prior figure of 53.2.

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Poland sold its first bond in yuan currency to reduce its reliance on European investors and seize ongrowing demand from Asia. The 3 billion yuan ($450 million) notes, due August 2019, were priced to yieldat 3.4 percent. The issuance ultimately allows Poland to diversify its funding sources.

ThreatsAccording to the Russian newspaper Vedomsti, the decision to increase oil and gas sector taxes in 2017 hasbeen made. Details on the additional Mineral Extraction Tax will likely be released in September or Octoberas part of next year’s budget preparation. What is known now is that the government aims to collect extraRUB 200 billion from the oil sectors and RUB 170 billion from Gazprom. Pavel Kushnir from DeutscheBank comments that the oil sector in Russia remains profitable and cash generative due to positive effectsof the ruble devaluation and progressive tax system, although the extra tax will put pressure on revenue.

Moody’s Investors Service said that Poland’s escalating political crisis threatens investment spending andeconomic development. The crisis over Poland’s constitutional court is “credit negative” as it escalatestension with the European Union and tempers growth. Moody’s cut its outlook on Poland’s A2 rating to

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negative in May and is scheduled to review the country’s sovereign rating in two weeks.

FICO’s Credit Health Index, which measures Russia’s overall credit health based on the number ofconsumer loans that are overdue by more than 60 days, was at 90 last month, unchanged since July 2015and the highest since it began compiling data in 2007. Many analysts predict that Russia will return togrowth by the end of this year, but the decline in real incomes will continue to put pressure on people’sability to repay debt, according to Russia’s National Bureau of Credit Histories.

Leaders and Laggards

Weekly Performance

Index CloseWeekly

Change($)Weekly

Change(%)

DJIA 18,395.40 -157.17 -0.85%

S&P 500 2,169.04 -14.83 -0.68%

S&P Energy 511.22 -6.93 -1.34%

S&P Basic Materials 305.00 -1.72 -0.56%

Nasdaq 5,218.92 -19.46 -0.37%

Russell 2000 1,238.03 +1.26 +0.10%

Hang Seng Composite Index 3,089.27 -7.72 -0.25%

Korean KOSPI Index 2,037.50 -18.74 -0.91%

S&P/TSX Global Gold Index 240.68 -23.85 -9.02%

XAU 95.80 -11.89 -11.04%

Gold Futures 1,324.40 -21.80 -1.62%

Oil Futures 47.38 -1.14 -2.35%

Natural Gas Futures 2.86 +0.27 +10.53%

10-Yr Treasury Bond 1.63 +0.05 +2.91%

Monthly Performance

Index CloseMonthly

Change($)Monthly

Change(%)

DJIA 18,395.40 -76.77 -0.42%

S&P 500 2,169.04 +2.46 +0.11%

S&P Energy 511.22 +11.78 +2.36%

S&P Basic Materials 305.00 -2.02 -0.66%

Nasdaq 5,218.92 +79.11 +1.54%

Russell 2000 1,238.03 +19.10 +1.57%

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Hang Seng Composite Index 3,089.27 +109.03 +3.66%

Korean KOSPI Index 2,037.50 +12.45 +0.61%

S&P/TSX Global Gold Index 240.68 -30.50 -11.25%

XAU 95.80 -11.79 -10.96%

Gold Futures 1,324.40 -10.10 -0.76%

Oil Futures 47.38 +5.46 +13.02%

Natural Gas Futures 2.86 +0.18 +6.89%

10-Yr Treasury Bond 1.63 +0.13 +8.48%

Quarterly Performance

Index CloseQuarterly

Change($)Quarterly

Change(%)

DJIA 18,395.40 +522.18 +2.92%

S&P 500 2,169.04 +69.98 +3.33%

S&P Energy 511.22 +11.84 +2.37%

S&P Basic Materials 305.00 +9.42 +3.19%

Nasdaq 5,218.92 +285.41 +5.79%

Russell 2000 1,238.03 +87.58 +7.61%

Hang Seng Composite Index 3,089.27 +300.02 +10.76%

Korean KOSPI Index 2,037.50 +68.33 +3.47%

S&P/TSX Global Gold Index 240.68 +36.31 +17.77%

XAU 95.80 +16.39 +20.64%

Gold Futures 1,324.40 +102.40 +8.38%

Oil Futures 47.38 -1.95 -3.95%

Natural Gas Futures 2.86 +0.69 +31.67%

10-Yr Treasury Bond 1.63 -0.23 -12.26%

U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission ("SEC"). Thisdoes not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in anyrespect 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.

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not beappropriate to every investor.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in thearticle were held by one or more accounts managed by U.S. Global Investors as of 06/30/2016:China Life Insurance Co Ltd/TaGazprom PJSCNewmont MiningSberbank of Russia PJSCSyngenta AGAmerican AirlinesSouthwest Airlines

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 the Russell3000®, a widely recognized small-cap index.

The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed onStock 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 StockExchange.The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the KoreanStock 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 subset ofthe S&P 500.The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subsetof 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 the informationtechnology 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 theconsumer 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 ofthe 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 the telecomsector 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 companiesinvolved 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 is basedon 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 ismarket capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to removecompanies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, willbe greater than 0.05% of the index.

The "core" PCE price index is defined as personal consumption expenditures (PCE) prices excluding food and energy prices.The employment cost index (ECI) is a quarterly economic series detailing the changes in the costs of labor for businesses inthe United States economy.The COMEX is a commodity exchange in New York City formed by the merger of four past exchanges. The exchange tradesfutures in sugar, coffee, petroleum, metals and financial instruments.FICO’s Credit Health Index measures Russia’s overall credit health based on the number of consumer loans that are overdueby more than 60 days.The S&P Supercomposite Paper & Forest Products Index is a capitalization-weighted index.The TAIEX Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.The Shanghai Composite Index (SSE) is an index of all stocks that trade on the Shanghai Stock Exchange.

Local DiskWeekly Investor Alert by U.S. Global Investors, Inc.