Dollar Weakness Could Be the Catalyst Commodities Are Looking For

It’s that time of year again! Near the start of every year, I share with you our ever-popular Periodic Table of Commodity Returns, now updated to reflect the final results of 2019. To view the interactive table and download a copy of your own, click here.

Commodities as a whole had a mostly positive 2019, returning 16.53 percent as measured by the S&P GSCI. This far surpasses the five-year average of about negative 11.52 percent, between 2014 and 2018.

Precious metals were responsible for much of the growth. For the third straight year, and for the fourth time in six years, palladium was the top-performing commodity. The metal, used widely in the production of catalytic converters, increased an incredible 54.21 percent to end 2019 at $1,912 an ounce, a slightly higher price than gold’s all-time high set in September 2011.

As was the case in past years, palladium benefited from mounting global demand to curb emissions from gasoline-burning engines. It’s also among the world’s scarcest precious metals, mined primarily in Russia and South Africa, which means supply will potentially remain in deficit for years to come.

Having broken above $2,000 an ounce earlier in the week, palladium in now forecast by Citi analysts to hit $2,500 by the middle of this year.

Gold Price Up in Four out of Every Five Years

Gold, meanwhile, had its best year since 2010, climbing as much as 18.31 percent. The yellow metal’s role as an exceptional store of value shined brightly in the second half of the year when the pool of negative-yielding debt around the world began to skyrocket, eventually topping out at around $17 trillion in August. On the news this week that Iran launched a counterstrike against U.S.-occupied military bases in Iraq, the safe haven briefly broke above $1,600 an ounce for the first time since April 2013.

In the past two decades, gold has helped investors limit market volatility and portfolio losses. Between 2000 and 2019, the precious metal’s average annual price was down in only four years. Put another way, gold was up on average in four out of every five years—a remarkable track record.

Safe haven-seeking investors around the world piled into gold-backed ETFs in 2019, making it the best year on record for gold holdings. Assets under management (AUM) in gold bullion ETFs expanded 37 percent from the previous year, adding $19.2 billion, or 400 tonnes, according to the World Gold Council (WGC). During the fourth quarter, total holdings hit a jaw-dropping 2,900 tonnes, the equivalent of 102 million ounces, which is the most on record.

As of the end of this week, gold looks slightly overbought on a relative strength basis, meaning a correction wouldn’t be such a bad thing and in fact expected.

Has the Greenback Peaked?

Short of escalating tensions in the Middle East or a pullback in stocks, the catalyst for higher gold prices—and, indeed, commodity prices in general—may very well be a substantial weakening of the U.S. dollar. On Tuesday, the U.S. Dollar Index experienced a “death cross,” a bearish signal that takes places when an asset’s 50-day moving average crosses below its 200-day moving average. We haven’t seen this from the greenback since May 2017.

Other firms and analysts have recently made the case that the dollar is ready to decline in 2020, which would give gold and other hard assets the room to gain momentum. Below are just three such forecasts from the past couple of weeks:

“Our view is that the dollar is ready to decline in 2020 and will be encouraged to do so as negative interest rates abroad turn less negative while the Fed holds pat (or cuts)… In the event of an unlikely recession in 2020, U.S. fiscal and monetary policy will turn sharply expansionary, the dollar will decline further, and gold will do well.”

~Murenbeeld & Co., January 3

“We expect that U.S. dollar weakness will likely characterize global financial markets throughout 2020… A weaker dollar is always good news for commodity prices. We are particularly bullish gold at this point. Gold is a direct play on a weaker dollar and could also benefit from any major flare-up in geopolitical tensions.”

~Alpine Macro, January 6

“Starting 2020, the key setup from a macro perspective is the confirmed top in the U.S. Dollar Index as well as the U.S. Trade-Weighted Broad Dollar Index… The U.S. Dollar Index (DXY) has broken below the 97 support to trigger the bearish implication of the June-December topping pattern (head-and-shoulders top) and the U.S. Trade-Weighted Broad Dollar Index has broken below the early-November 2019 low as well as the 200-day moving average to confirm a similar topping pattern to the DXY.”

~CLSA, January 7

Bitcoin as a Safe Haven Asset

Gold isn’t the only asset that responded positively to geopolitical uncertainty involving Iran. The price of bitcoin, the world’s largest cryptocurrency by market cap, surged on the news that President Donald Trump had ordered a strike on Iranian general Qasem Soleimani, before commenting that the U.S. was targeting as many as 52 sites in Iran.

From January 2, the day before the strike, to January 8, when Trump announced that Iran appeared to be “standing down,” bitcoin traded up as much as 21 percent to its highest level in six weeks. In addition, there were reports that local bitcoin sellers in Iran were charging three times the market rate in response to the threat of war with the U.S.

Google searches for “bitcoin” were also up. Cointelegraph reports that the search term “bitcoin Iran” exploded more than 4,450 percent in the seven days through January 8.

All of this tells me that bitcoin continues to mature as an asset, and that investors and savers increasingly trust it as a store of value in times of uncertainty.

Looking for the inside scoop on mining companies? Click here to read U.S. Global Investors portfolio manager Ralph Aldis’ interview with MoneyShow and get his favorite mining picks for 2020!

Frank Holmes at VRIC

Gold Market

This week spot gold closed at $1,562.34, up $10.14 per ounce, or 0.65 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 2.63 percent. The S&P/TSX Venture Index came in off just 0.87 percent. The U.S. Trade-Weighted Dollar rose 0.53 percent.

Date Event Survey Actual Prior
Jan-7 Eurozone CPI Core YoY 1.3% 1.3% 1.3%
Jan-7 Durable Goods Orders -2.0% -2.1% -2.0%
Jan-8 ADP Employment Change 160k 202k 124k
Jan-9 Initial Jobless Claims 220k 214k 223k
Jan-10 Change in Nonfarm Payrolls 160k 145k 256k
Jan-14 CPI YoY 2.4% 2.1%
Jan-15 PPI Final Demand YoY 1.3% 1.1%
Jan-16 Germany CPI YoY 1.5% 1.5%
Jan-16 Initial Jobless Claims 220k 214k
Jan-16 China Retail Sales YoY 7.9% 8.0%
Jan-17 CPI Core YoY 1.3% 1.3%
Jan-17 Housing Starts 1380k 1365k


  • The best performing metal this week was palladium, up 6.48 percent, notching its best weekly advance since June. While global car sales are weak, loadings for their catalytic converters are going up with regulatory requirements.Gold traders and analysts were spilt on their outlook for the yellow metal next week after this week saw big price swings due to U.S.-Iran tensions escalating then subsiding. Gold futures swung between gains and losses on Friday as traders assessed slower-than-expected hiring and wage growth against low unemployment. Bloomberg reports that nonfarm payrolls rose 145,000, below expectations of 256,000, and average hourly earnings climbed 2.9 percent – the first below 3 percent reading since July 2018.
  • The Perth Mint reported that gold coin and minted bar sales in December totaled 78,912 ounces – a big jump from November’s 54,261 ounces. BullionVault said the number of first-time precious metals investors using the service grew 25 percent to a two-year high in 2019. The growth was led by clients in the Eurozone. The Royal Mint announced that its bullion division saw a 572 percent boost in sales revenue and a fivefold increase in the average order value over the past weekend compared with the prior weekend, reports Bloomberg. Turkey’s gold reserves rose $2.4 billion from the previous week to bring the central bank’s holdings to $27.5 billion as of January 3.
  • Newmont Goldcorp announced on Monday that it is streamlining its name after last year’s megamerger with Goldcorp. The company will now go by simply Newmont, and has promised shareholders a 79 percent increase in its quarterly dividend. Centamin reported that its fourth quarter gold output at the Sukari mine was up 51 percent from the same period last year for a total of 158,387 ounces. The company said its 2019 total gold production was up 2 percent from the previous year. Bloomberg reports that Sibanye Gold Ltd has exercised its option to buy an additional 168 million shares in DRDGold to take controlling shareholding interest in the surface-tailings producer.


  • The worst performing metal this week was platinum, down just 0.28 percent on somewhat of a choppy trading week for the metal. Spot gold surged as much as 2.4 percent on Tuesday to cross the $1,600 an ounce mark for the first time since 2013 after news of the U.S. killing a top Iranian general spurred a retaliatory strike on U.S. interests. Geopolitical tensions are historically positive for the yellow metal as it is seen as a perceived safe haven asset. Relations between the U.S. and Iran cooled later in the week and gold subsequently fell back toward $1,540 an ounce. David Govett, head of precious metals trading at Marex Spectron Group, says the “focus will now return to economic drivers as opposed to conflict worries.”
  • The All India Gems and Jewellery Domestic Council said this week that the total business volume of gems and jewellery industry has posted a 30 percent decline in terms of demand over the last six months. Chairman Anantha Padmanabhan claims that due to the increase in customs duty, goods and services tax there was an increase in gold smuggling and customers are opting to purchase gold instead from neighboring countries.
  • Evolution Mining forecasts that its gold production for the full year will be at the low end of 725,000 to 775,000 ounces. The miner reported second quarter all in sustaining costs rose 9.9 percent year-over-year to A$1,069.


  • Goldman Sachs Group Inc. said in a note this week that gold is a better hedge than oil in the Iranian crisis. “History shows that under most outcomes gold will likely rally to well beyond current levels. This is consistent with our previous research which shows that being long gold is a better hedge to such geopolitical risks.” The bank added that “additional escalation in U.S.-Iranian tensions could further boost gold prices.” According to Citigroup, spot gold prices might breach $1,625 an ounce this quarter due to elevated geopolitical risks sending investors to seek tail risk hedges.
  • Brazil plans to allow mining in Amazonian indigenous reserves. Bento Albuquerque, a Navy admiral, told Bloomberg News in an interview that “a majority of the 600 indigenous communities want this” and “nothing is more damaging to the environment than illegal activity.” Although a negative step toward protecting Amazonian lands, the new bill aims to reduce illegal mining, which is more harmful than legal mining operations. The Amazon Geo-Referenced Socio-Environmental Information Network estimates that there are 453 wildcat mines in the Amazon already.
  • Scottie Resources Corp. announced positive drill results this week at its Bow Property in British Columbia. Highlights include a drill hole with 73.32 grams per ton of gold and 71.01 grams per ton of silver over a 4.38 meter length. Just days after the results were released, Scottie announced a $2 million private placement financing with Eric Sprott.


  • 2019 was a great year for jobs, but it was also the worst since 2011. Friday data was released showing that employers added 145,000 jobs in December, down from 266,000 in November. Bloomberg’s Reade Pickert writes “the broader picture of a slowdown is in line with what many economists expected in the 11th year of the record-long U.S. expansion, with fading stimulus from tax cuts and headwinds from tariff uncertainty also weighing on hiring.” Pickert adds that a slowdown in jobs growth could weigh on President Trump’s re-election chances.
  • According to HSBC Holdings, there will be more joy for bond bulls in 2020 as sovereign bonds have smashed expectations in the last ten years. Steven Major, global head of fixed income research, says “low-for-longer interest rates are a reality, no longer a forecast.” In a Bloomberg Opinion piece, Brian Chappatta writes that the bond market looks incredibly expensive as the 30-year Treasury yield is just a few months removed from its all-time low of 1.9 percent. Chappatta cites the “Sherman Ratio”, which shows the amount of yield investors receive for each unit of duration, and it is close to the lowest level ever. This means it would take a smaller move higher in interest rates to wipe out the income return on a fund tracking the Bloomberg Barclays U.S. Aggregate Bond Index. Chappatta says the corporate bond market is “truly frightening” as the Bloomberg Barclays U.S. Corporate Bond Index hit a record-low yield-to-duration ratio that week after a relentless decline in 2019.

  • Tax shield investors are piling into funds that plan to take advantage of “opportunity zone” tax incentives that were introduced in the late-2017 tax overhaul signed by President Trump. Investors added $2.26 billion into funds, a 51 percent jump from December, reports Bloomberg. Noah Buhayar writes that opportunity zones were once heralded as a novel way to help distressed parts of the U.S., but they are now being slammed as a “government boondoggle.” The perks of such investing are being used to “juice potential investment returns in luxury developments” and “reports have shown that politically connected investors influenced the selection of zones to benefit themselves.” Meanwhile, an increasing number of hospital bankruptcies have left sick and injured with nowhere to go for treatment. According to data compiled by Bloomberg, at least 30 hospitals entered bankruptcy in 2019 as Americans are leaving rural areas in favor of urban centers. The American Hospital Association calculated that payments from Medicare and Medicaid lagged costs by $76.6 billion in 2018, leaving hospitals struggling to make up for the difference in government reimbursements.

Do You Know Which Countries Produce The Most Gold? Explore the Interactive Map

Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average gained 0.66 percent. The S&P 500 Stock Index rose 0.96 percent, while the Nasdaq Composite climbed 1.75 percent. The Russell 2000 small capitalization index lost 0.22 percent this week.
  • The Hang Seng Composite gained 0.88 percent this week; while Taiwan was down 0.71 percent and the KOSPI rose 1.38 percent.
  • The 10-year Treasury bond yield rose 3 basis points to 1.82 percent.


January 10, 2020

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

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