The world watches as a number of economies begin, or plan, to lift certain lockdown measures that were earlier put in place to slow the spread of the coronavirus. China may have been the first to do so last week when it reopened Wuhan, the industrial city of 11 million that was ground zero for the novel virus, though life there is still far from normal. This week, Italy began allowing small shops such as clothes retailers to reopen, with strict distancing guidelines still in effect, while Spain has allowed manufacturing and construction to resume operations. Germany is set to start gradually reopening its economy next week. he government of Quebec added mining to its list of essential services, giving producers such as Agnico Eagle, Eldorado Gold, Glencore, IAMGOLD, Yamana Gold and others
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The world watches as a number of economies begin, or plan, to lift certain lockdown measures that were earlier put in place to slow the spread of the coronavirus.
China may have been the first to do so last week when it reopened Wuhan, the industrial city of 11 million that was ground zero for the novel virus, though life there is still far from normal.
This week, Italy began allowing small shops such as clothes retailers to reopen, with strict distancing guidelines still in effect, while Spain has allowed manufacturing and construction to resume operations. Germany is set to start gradually reopening its economy next week.
he government of Quebec added mining to its list of essential services, giving producers such as Agnico Eagle, Eldorado Gold, Glencore, IAMGOLD, Yamana Gold and others the go-ahead to restart operations.
As for the U.S.—which saw a record 4,591 coronavirus deaths in the 24-hour period ended Thursday night—President Donald Trump unveiled guidelines for “Opening Up America Again,” a three-phase approach to be executed by state and local officials. Some governors—among them Ron DeSantis of Florida, Tony Evers of Wisconsin and Brad Little of Idaho—have already expressed interest in easing restrictions sooner rather than later.
On Friday, Texas Governor Greg Abbott set a path to lift some restrictions on retail shopping, provided that customers order ahead of time and pick up purchases curbside. U.S. retail sales plunged 8.7 percent in March from the previous month, the biggest one-month drop since the Census Bureau began tracking the data in 1992.
Other governors and mayors, meanwhile, are tightening restrictions, even requiring face masks to be worn in public. Starting today, the rule applies to all 19.5 million residents of New York. On Monday, everyone in San Antonio—home to U.S. Global Investors—will need to wear a face mask while in public, or else face a possible $1,000 fine or up to six months in jail.
Over 30 Million Infections Globally Over the Next 12 to 18 Months, CLSA Predicts
This all comes as new daily COVID-19 cases are believed to be peaking worldwide, though I should add that it’s still too early to celebrate or to call an end to the Great Lockdown. Even if we somehow managed to get the number of new cases down to zero, it’s likely that the virus would return in additional waves.
Two additional waves, to be more exact. That’s the projection, at least, of quantitative analysts at CLSA, working in conjunction with professors at the University of Toronto. In a research report dated April 17, the group, led by Head of Quantitative Research Jon Barden, states that until a vaccine is developed, the coronavirus could continue to reseed itself in human populations, with the second wave to peak in late August and the third in early 2021.
That shouldn’t surprise anyone. After all, the common flu returns every year.
The most shocking part of CLSA’s forecast is that more than 30 million people could contract the virus over the next 12 to 18 months. CLSA believes this could be the case since “current reported new cases do not yet include nearly 80 percent of the world’s population.” As I write this, the total cumulative number of confirmed cases tops 2.2 million, but the actual number is undoubtedly much higher.
The biggest contributors to the global infection rate over the long-term, says CLSA, will be Brazil, India and the U.S.
In late March, Brazilian President Jair Bolsonaro suggested that people in his country are naturally immune to the virus—which probably came as news to the more-than 30,000 infected Brazilians.
Unlike Bolsonaro, Indian Prime Minister Narendra Modi appears to be taking the virus seriously, but the problem, as CLSA sees it, is that a large percentage of its people live in extremely dense and poor areas, making it difficult to implement controls quickly and broadly.
How Big Is the Monetary and Fiscal Stimulus?
Something I’ve been tracking with regard to the coronavirus is the unprecedented, synchronized monetary and fiscal response by global central banks and governments. Last month I predicted that the total amount of liquidity pumped into the world economy would be $10 trillion, but we’ve already surpassed that, with more on the way.
In a research piece this week, Morgan Stanley reports that the Federal Reserve’s balance sheet has expanded a staggering $1.9 trillion since February 26, just days after the S&P 500 peaked, while the U.S. government’s budget deficit, at 18 percent of GDP, is already the widest its been since 1940. If an additional $1.25 trillion relief package is authorized, to follow the $2.2 trillion package that was passed and signed last month, then the deficit would widen further to an estimated 24 percent—a full quarter of the U.S. economy.
Additional liquidity will be needed regardless, as the small business emergency loan program has already blown through its entire $350 billion.
Domestic airlines were able to secure help from the Treasury Department this week to continue making payroll. The 10 biggest carriers, including America, Delta, United and Southwest, will share the $25 billion Payroll Support Program. Commercial aviation is responsible for some 10 million jobs in the U.S., both directly and indirectly, making it one of the most important economic engines today.
Excessive Money Printing Good for Gold
This is all on top of the $2.3 trillion the Fed is pumping into the economy. As I discussed with you last week, all this extra liquidity has to go somewhere, and often gold has been a beneficiary, as well as gold equities.
Since the market’s peak on February 19, few industries have performed as well as gold mining, as investors are betting that higher precious metal prices will boost company earnings and cash flow. Senior producers, as measured by the NYSE Arca Gold Miners Index, were positive at 1.87 percent, as of April 16.
A number of mining companies have done very well during the Great Lockdown. Newmont leads the pack at more than 28 percent since February 19. In a recent note to investors, JPMorgan called the world’s biggest gold miner “a rare find” in the mining industry, adding that it “should generate strong free cash flows at current gold prices and still fund its healthy dividend (2 percent yield).”
But it’s not just the seniors like Newmont, Barrick and AngloGold that have performed well. Several junior producers have also jumped lately on positive drilling results and guidance. Toronto-based Teranga Gold has increased close to 27 percent following its recent acquisition of Massawa, a high-grade gold mine in the West African country of Senegal. Roxgold rose 14.6 percent, fueled by the release of an “exceptional” preliminary economic assessment (PEA) of its Séguéla mine in the Ivory Coast of Africa.
This week spot gold closed at $1,682.80 down $0.91 per ounce, or 0.05 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 5.48 percent. The S&P/TSX Venture Index came in up 5.43 percent, where the junior mining stocks are finally seeing some buying. The U.S. Trade-Weighted Dollar rose 0.19 percent.
|Apr-16||Germany CPI YoY||1.4%||1.4%||1.4%|
|Apr-16||Initial Jobless Claims||5500k||5245k||6615k|
|Apr-16||China CPI Core YoY||-10.0%||15.8%||—|
|Apr-17||Eurozone CPI YoY||1.0%||1.0%||1.0%|
|Apr-21||Germany ZEW Survey Expectations||-41.0||—||-49.5|
|Apr-21||Germany ZEW Current SItuation||-75.0||—||-43.1|
|Apr-23||Initial Jobless Claims||4500k||—||5245k|
|Apr-23||New Homes Sales||650k||—||765k|
|Apr-24||Durable Goods Orders||-11.8%||—||1.2%|
- The best performing metal this week was platinum, up 3.45 percent despite hedge funds cutting their net-long positions to an eight-month low. However, platinum mines in South Africa are to remain closed for time being. ETFs added 73,044 troy ounces of gold to their holdings in the trading session ended Thursday – marking the 19th straight day of inflows. Gold rose toward $1,800 an ounce this week, a level last seen in 2011, before ending the week lower. Joni Teves, strategist at UBS Group, said in a note that “gold’s journey has been quite bumpy so far, but given the macro backdrop we think the destination remains higher.” The index of South African gold producers surged as much as 12 percent Tuesday to its highest level on record. The price of gold in rand rose as much as 1.6 percent to the highest since Bloomberg began tracking in 1971. South African gold producers were up big for the day with AngloGold up around 6 percent and Gold Fields up 13 percent.
- The logistics nightmare in the gold market should be easing, according to London Bullion Market Association (LBMA) CEO Ruth Crowell. In a Bloomberg Radio interview, Crowell said, “the gold market isn’t broken” and there have been no drops in trading volumes. Suppliers are turning to chartered flights and insurance companies are now covering those flights to carry the metal, helping ease disruptions in the market that have led to big spreads in the prices between New York and London futures. Crowell reiterated that London gold vault operators have an agreement to support each other if one were to go down.
- India’s central bank announced that it will issue sovereign gold bonds with a tenor of eight years and the option to exit after the fifth year. The bonds will be sold through commercial banks, stock exchanges and post offices. Bloomberg reports that they will be issued in six tranches from April to September of this year.
- The worst performing metal this week was silver, down 1.65 percent with hedge funds cutting their net-long position to a 10-month low and the gold-to-silver ratio exceeding 100-to-1, when a 60-to-1 RATIO is more in line with historic averages. Gold fell on Friday after reacting to news that the U.S. plans to slowly reopen the economy, along with many other countries. The disconnect between London and New York gold futures continued this week. Bloomberg reports that the premium for New York futures over the London spot price rose above $70 – the highest in 40 years.
- India’s Malabar Gold & Diamonds said in a statement that the country’s gold jewelry industry is facing an impending liquidity collapse due to zero net sales and negative cash flows. Bloomberg notes that retail sales have collapsed due to the coronavirus lockdown cancelling weddings and postponing festive occasion buying – both usually big drivers of sales.
- Prime Minister of Thailand Prayuth Chan-Ocha says that the country’s gold stores are running out of cash because so many people are selling ornaments, jewelry and bars amid an economic slowdown, reports Bloomberg. “I’m asking people to sell gradually, not in large amounts, as ships may face a cash crunch.” With gold prices high, people are trying to raise money by selling after massive job losses. The U.S. Mint announced on Wednesday that it is temporarily halting production at its West Point facility in New York due to risk of employees catching the coronavirus. This comes after the Mint reported in March it sold out of American Eagle silver coins.
- UBS raised its gold price forecast to $1,800 an ounce after the Fed announced that it will expanding existing credit support measures. “The two most important determinants of the gold price are real U.S. interest rates and expectations for the purchasing power of the U.S. dollar, both inverse relationships, and we reiterate our negative views on both at this point,” said analysts including Wayne Gordon and Giovanni Staunovo in a note dated April 13. Others are bullish that gold could rally to $1,900 an ounce this year, back to its high reached in 2011, if gold has already found its crisis-bottom.
- Canadian Imperial Bank of Commerce foreign-exchange strategist Bipan Rai expects gold to benefit from an increase in diversification away from the largest developed currencies in the wake of the current crisis. “The increase in budget deficits and reduction in longer-dated yields will only increase its allure to central bank reserve managers,” Rai said in a note. Bloomberg writes that central banks have been steadily increasing gold reserves over the last few years.
- Torex Gold Resources reported gold production of 108,530 ounces in the first quarter, a 39 percent increase year-over-year. Yamana Gold said that it will resume operations at its Canadian Malartic mine on Wednesday, following Quebec’s decision to authorize the resumption of mining. Barrick Gold purchased more than 800,000 antibody testing kits to screen its workers and the communities around its mine for COVID-19, reports the Financial Times.
- On Thursday, President Trump unveiled a plan for states to reopen economies in three phases. Trump told governors that some could open by May 1 or earlier. The concern is that not enough testing has been done nor is available to get an accurate gauge of the virus’ spread in the U.S. Prematurely reopening businesses and easing social distancing measures could increase the number of cases and cause even more stress to health care systems.
- Impala Platinum Holding’s head of operations in South Africa appeared in court on Friday for allegedly violating the country’s lockdown orders, reports Bloomberg. A company spokesman said the executive was released on 60,000 rand bail and the charges relate to the company asking staff to report for work before amendments allowed them to return. On Thursday, the government allowed mining companies to resume at half their normal capacity on the condition that they screen and test workers for COVID-19. The mining industry employs over 450,000 people in South Africa who are especially vulnerable to the virus due to cramped working conditions and overcrowded living conditions.
- The number of negative-yielding bonds continues to surge amid the pandemic. Billionaire hedge fund manager Ray Dalio criticized this on a Bloomberg webcast this week. Dalio said investors are “crazy” to hold government bonds right now. “If you’re holding a bond that gives you no interest rate, or a negative interest rate, and they’re producing a lot of currency and you’re going to receive that, why would you hold that bond?”
- The major market indices finished mostly up this week. The Dow Jones Industrial Average gained 2.21 percent. The S&P 500 Stock Index rose 2.94 percent, while the Nasdaq Composite climbed 6.09 percent. The Russell 2000 small capitalization index lost 1.43 percent this week.
- The Hang Seng Composite gained 1.15 percent this week; while Taiwan was up 6.01 percent and the KOSPI rose 4.27 percent.
- The 10-year Treasury bond yield fell 7 basis points to 0.649 percent.
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors