Today I’d like to start by lending my voice in support of those who seek to bring attention to and rectify the deeply rooted societal inequities that contributed to the senseless killings of George Floyd, Breonna Taylor, Ahmed Aubrey and others. Racism has no place in America. Full stop. Many Americans understand and empathize with the outrage, even if they don’t necessarily agree with the looting and violence that have defined some of the protests. A vast majority of the demonstrators want only to exercise their First Amendment rights peacefully, and it’s unfortunate when a few bad actors are allowed to hijack the protests. Like the coronavirus pandemic and economic downturn, the civil unrest has generated a lot of fear and uncertainty among Americans. But there are signs that the worst
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Today I’d like to start by lending my voice in support of those who seek to bring attention to and rectify the deeply rooted societal inequities that contributed to the senseless killings of George Floyd, Breonna Taylor, Ahmed Aubrey and others. Racism has no place in America. Full stop.
Many Americans understand and empathize with the outrage, even if they don’t necessarily agree with the looting and violence that have defined some of the protests.
A vast majority of the demonstrators want only to exercise their First Amendment rights peacefully, and it’s unfortunate when a few bad actors are allowed to hijack the protests.
Like the coronavirus pandemic and economic downturn, the civil unrest has generated a lot of fear and uncertainty among Americans.
But there are signs that the worst is behind us. The daily rate of new coronavirus cases in the U.S. has been steadily decreasing. And today, the Labor Department reported that the U.S. added a staggering 2.5 million payrolls in May, suggesting a strong economic recovery is underway.
Much work still needs to be done, but I’m equally confident a satisfactory solution to the unrest can be reached.
Airline Investors Rebuff Buffett
President Donald Trump addressed the blowout jobs numbers in a press conference today, comparing the U.S. economy to a “rocket ship.” Economists had been expecting the unemployment rate to jump higher in May, possibly to as much as 20 percent, but it ended up falling last month, from 14.7 percent in April to 13.3 percent.
Trump praised the domestic airline industry, saying carriers are recovering nicely with the economic reopening. On Thursday, shares of American Airlines stock exploded an unbelievable 41 percent, the most on record for a single day, after the carrier said it would increase July flights 74 percent compared with this month. Meanwhile, more and more planes are returning to the sky, with the number of parked passenger aircraft dropping below 50 percent of all fleets in the U.S., Europe and China, according to Bloomberg.
A one-time airline operator himself, Trump also singled out Warren Buffett, who announced in early May that he sold his positions in the four major carriers due to the spread of the coronavirus.
Buffett “should have kept airline stocks because the airline stocks went through the roof today,” the president said.
He’s not wrong. I normally urge investors to follow the money, but it’s a good thing that they chose not to follow Buffett’s lead this time. Since we learned of his departure, investors have flooded into airline equities, pushing them up 53.5 percent in intraday trading Friday.
In fact, the S&P 500 Airlines Index just increased 35 percent this week alone, its “biggest on record and seven times the broader stock market’s five-day gain,” writes Bloomberg’s Nancy Moran.
As I shared with you last month, a recovery in commercial air travel is well underway. At the end of each business day, the Transportation Security Administration (TSA) reports on the number of passengers it screened in U.S. airports. As of yesterday, that number was more than 391,882, a 350 percent increase in volume from the low of 87,500 on April 14. Wheels up!
Buying the Gold Dips Looks Attractive
It’s risk-on again for investors. Thanks to the unexpectedly strong U.S. jobs report, stocks rallied strongly on Friday, with gains led by energy producers Occidental Petroleum, Apache and Marathon Oil, as well as cruise lines such as Royal Caribbean, Carnival and Norwegian.
Gold sold off as a result, its price tumbling close to 2.5 percent. This marked the precious metal’s worst one-day decline since the end of March.
Based on fundamentals, the selloff was rational. Gold’s 60-day standard deviation over the past five years shows that the metal was nearing a sell signal in morning trading.
When it comes to selecting gold and precious metal mining stocks, we take a quant approach, focusing on a number of different factors.
Among those factors is free cash flow yield (FCFY), one of the best profitability indicators. General gold equity investors look for high free cash flow, which is why Newmont was one of the best performing S&P 500 stocks until recently.
I did some data mining on some of my favorite mining stocks and found that, year-to-date, the top 10 producers with a market cap between $200 million and $1 billion had a remarkable average of 33.2 in FCFY.
Australia-based Red 5 Limited was the best performing mining stock of the past 30 days, up almost 58 percent. This was followed by Fortuna Silver Mines, up nearly 40 percent, and Ramelius Resources, up 31 percent for the month.
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This week spot gold closed at $1,684.38, down $45.89 per ounce, or 2.65 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 5.36 percent. The S&P/TSX Venture Index came in up 0.57 percent. The U.S. Trade-Weighted Dollar fell 1.40 percent.
|May-31||Caixin China PMI Manufacturing||49.6||50.7||49.4|
|Jun-3||Durable Goods Orders||-17.20%||-17.70%||-17.20%|
|Jun-3||ADP Employment Change||-9000k||-2760k||-19557k|
|Jun-4||Initial Jobless Claims||1833k||1877k||2126k|
|Jun-4||ECB Main Refinancing Rate||0.00||0.00%||0.00%|
|Jun-5||Change in Nonfarm Payrolls||-7500k||2509k||-20687k|
|Jun-10||FOMC Rate Decision (Upper Bound)||0.25%||—||0.25%|
|Jun-11||Initial Jobless Claims||1600k||—||1877k|
|Jun-11||PPI Final Demand YoY||-1.30%||—||-1.20%|
- The best performing precious metal for the week was palladium, up 0.77 percent. ETFs added 241,076 troy ounces of gold to their holdings on Monday, bringing net purchases for the year to 17.2 million ounces, according to Bloomberg data. Total gold held by ETFs rose 21 percent this year to 100.2 million ounces – the highest level since June 2019. However, on Thursday the amount of bullion held in ETFs fell slightly, the first drop in 30 trading days. Silver is also seeing some love. ETFs added 4.62 million troy ounces of silver to their holdings on Monday. Total imports of gold to the U.S. topped $7.2 billion in May, the highest in records going back to 2003, according to the U.S. Census Bureau.
- Pandora A/S, the world’s biggest jewelry firm, announced that it will stop relying on newly minted gold and silver and instead use only recycled precious metals starting in 2025. CEO Alexander Lacik of the Copenhagen-based company said in a statement that “metals mined centuries ago are just as good as new…the need for sustainable business practices is only becoming more important.” Bloomberg notes that Pandora shares jumped 5 percent when trading began on Tuesday.
- Gold sales in China rose 54 percent in May from April, according to a survey from China Gold Association. The World Gold Council said in April that demand for gold jewelry, bars and coins in China will likely pick up in the second quarter after a big drop in the first quarter due to lockdowns. Perseus Mining announced a $60 million takeover of neighbor Exore Resources amid more deal-making in the gold sector, reports Bloomberg. Perseus will gain control of Exore’s gold project in northern Ivory Coast and a 2,000 square kilometer land package.
- The worst performing precious metal for the week was gold, down 2.77 percent. Gold tumbled on Friday after better-than-expected U.S. jobs numbers. Payrolls rose by 2.5 million and the jobless rate fell to 13.3 percent from 14.7. Bullion is heading for its longest run of weekly losses since September. The yellow metal’s haven appeal shrunk in May as major economies slowly reopened.
- Gold Fields said in a statement that an employee died at the South Deep mine in South Africa after falling down a reef ore-pass. “This is the first fatality at Gold Fields in a year and comes amid significant improvements in the group’s safety performance over the past six years.” South Africa’s ultra-deep mines are known to be dangerous.
- Central bank net purchases of gold in the first quarter of this year totaled 145 tonnes, which was 8 percent lower than the same period a year ago, according to the World Gold Council (WGC). Six central banks were net buyers, compared with 10 a year ago. Despite lower purchases, the WGC expects buying to pick up in the second half of the year.
- The Brasher Doubloon, the very first gold coin made in the U.S., is being offered privately at a $15 million asking price, according to PCAG Inc. who is marketing the coin on behalf of a collector. The coin dates back to 1787 – 11 years after the Declaration of Independence was signed. Bloomberg notes that the coin was originally worth $15. It went on to sell for $625,000 in 1981, $2.99 million in 2005 and $7.4 million in 2011.
- According to Metals Focus Director Nikos Kavalis, gold could climb near its record high in the second half of 2020 as yields will likely remain low and real rates stay negative. “Even if equities rally further from current levels, we still think allocating to gold makes sense, given what you get for your fixed-income holdings at the moment.” Even as investors’ risk appetite improves, Australia & New Zealand Banking Group has a similar view that gold could hit an all-time high. “The expansion of central banks’ balance sheets shows no sign of abating, while geopolitical tensions escalate. We think those investors who continue to raise their allocation to precious metals are sitting on a gold mine.” JPMorgan shifted its view on gold from underweight to overweight due to central bank stimulus, a weaker dollar and as a hedge against market risks.
- Although gold hasn’t had the best start to the month, it did perform strongly in 2020 through May 14. As seen in the chart below, gold priced in local currency outperformed the respective domestic stock index in that country. For example, in the U.S., gold rose 14 percent through May 14 while the S&P 500 was down 12 percent for the same period. As highlighted in the annual “In Gold We Trust” report by Incrementum, gold often moves in the opposite direction of wider equities and can be a hedge against volatility.
- Despite better than expected payroll increases in May, local government payrolls fell. According to U.S. Bureau of Labor Statistics data, local government payrolls dropped by 571,000 to 18.3 million in May. Bloomberg notes that in April and May, states and cities have cut more jobs than they did after the last recession. If these job cuts are maintained, it could exert a drag on the country’s economic recovery. States alone are expected to face a $765 billion shortfall over the next three years based on projections by the Center of Budget and Policy Priorities.
- U.S. and China tensions escalated again this week over flights. Responding to China’s announcement on Thursday that limits U.S. carriers to one flight per week each to the county, the U.S. Department of Transportation said it would only permit two flights a week in total from Chinese airlines, reports Bloomberg. Both countries severely limited flights and air traffic in response to the coronavirus pandemic and both seem reluctant to open more flights back up unless the other does so first.
- The outbreak of COVID-19 continues to remain a threat. Latin America has emerged as the new virus epicenter, threatening to disrupt mining operations as more workers test positive for the virus.
- The major market indices finished up this week. The Dow Jones Industrial Average gained 6.81 percent. The S&P 500 Stock Index rose 4.91 percent, while the Nasdaq Composite climbed 3.42 percent. The Russell 2000 small capitalization index gained 8.11 percent this week.
- The Hang Seng Composite gained 7.45 percent this week; while Taiwan was up 4.91 percent and the KOSPI rose 7.50 percent.
- The 10-year Treasury bond yield rose 24 basis points to 0.891 percent.
June 5, 2020
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors
You can read the full article at http://www.usfunds.com/investor-library/investor-alert/airline-stocks-just-posted-their-best-week-on-record/