The Investment I’m Most Grateful For

Gold Starting to Look Like a Buy

The price of bitcoin swung wildly this week, along with gold, flirting with its all-time high on Wednesday before plunging more than $3,000. The digital currency looked ready for a correction after hovering in overbought territory for about a month, according to the 14-day relative strength index (RSI).

Gold, on the other hand, is starting to look oversold, especially after today’s selloff on hopes of a vaccine and broad economic recovery.

The yellow metal has also been under pressure from rising bond yields. The yield on the 10-year Treasury has been on the upswing, and as I’ve explained a number of times before, this can have a huge impact on the direction of gold prices. Take a look below. Gold hit its all-time high of nearly $2,070 an ounce on August 6, when the 10-year yield traded as low as 0.5%. Remember, this is the nominal yield. Adjusted for inflation, it’s below zero.

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I believe gold is a buy at these prices. The following 20-day and 60-day oscillator charts bear this out.

Looking at the 20-day, gold was trading down close to 2 standard deviations from its five-year mean, meaning its well within the “buy” range. The data says we may see a rally in prices in the short term.

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The 60-day oscillator chart also shows that gold is oversold, though not as pronounced. The metal was down 1.5 standard deviations from its five-year mean. This is about as oversold as gold has been since September 2018.

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Gold Miners Reporting Record Free Cash Flow

Like HIVE, gold miners have put cost controls in place as the price of the underlying metal rose to new all-time highs. This has resulted in record free cash flow, according to Metals Focus.

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In a report dated November 25, the London-based group said that cash flow after capital expenditures for the world’s leading gold miners reached a record high of $4.8 billion in the third quarter of this year. That’s a significant increase of $2.7 billion from the previous quarter, an even bigger increase of $3.3 billion from the same quarter a year ago.

According to Metals Focus, “costs have been contained, with companies remaining focused on maintaining operating and capital cost discipline to maximize value from their [existing] mines.”

This is very good news for investors as this may mean higher shareholder payouts in the future.

Still Haven’t Had a Chance to Watch the Mining Expo?

Many of you still haven’t gotten a chance to watch the Virtual Junior Mining Expo, which I co-hosted recently with StreetSmart Live! The event was a huge success, bringing 10 of the most exciting junior metal producers and explorers to curious investors such as yourself.

For those of you who missed it or want to watch it again, a recording is now available. Just click here!

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Gold Market

This week spot gold closed at $1,788.39, down $82.60 per ounce, or 4.41%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 4.18%. The S&P/TSX Venture Index came in up 0.50%. The U.S. Trade-Weighted Dollar fell 0.61%.

Strengths

• The best performing precious metal for the week was palladium, up 4.26%, perhaps on optimism for a stronger economy. Gold rose for the first time in three days on Wednesday, before ending the week lower. Applications for jobless benefits unexpectedly rose, demonstrating the new surge in virus cases in spurring more layoffs, writes Bloomberg’s Yvonne Yue Li.
• Bullion looks relatively cheap, according to Goldman Sachs. Analysts including Mikhail Sprogis and Jeffrey Currie wrote in a report that the recent gold correction is a “churn versus a turn” and prices should climb when more evidence of inflation emerges. “If we look at the ratio of value of mined gold supply to EM dollar GDP, which is our preferred measure of wealth, we see that the most recent move makes gold look relatively cheap.”
• Polyus shares rose as much as 3.7% in Moscow trading on Tuesday after announcing the repurchase of as much as $343 million in shares. Elemental Royalties Corp, a gold-focused royalty company, doubled in size after an agreement to acquire three gold royalties and one non-gold royalty in Australia from a subsidiary of South32 Limited.

Weaknesses

• The worst performing precious metal for the week was silver, down 6.63%, to be expected with the weak gold tape.
• Gold tumbled to just above $1,800 an ounce as the Dow Jones hit 30,000 for the first time on Tuesday. Ole Hansen, head of commodity strategy at Saxo Bank, says that with vaccine news occupying the headlines and other positive economic data, gold is “likely to struggle.” Bullion then fell below the key $1,800 level on Friday.
• The largest gold-backed ETF, the SPDR Gold Trust, is headed for its largest monthly outflow since 2017. The ETF has already lost over 50 tons of bullion so far in November. Gold is heading for a fourth straight monthly decline and ETFs are set for the first month of outflows this year, after holdings hit a record in October.

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Opportunities

• Credit Suisse wrote that the gold selloff after positive vaccine news is just “a bump in the road” as fundamentals are still intact to support the precious metal. Analyst Fahad Tariq said the factors in place include a weakening U.S. dollar, accommodative monetary and fiscal policy and lower real rates. Canaccord analyst Carey MacRury writes that gold’s selloff is just a “price correction rather than the start of a bear market.” MacRury added that reinflation will be the key driver of bullion over the next six to 12 months and recommends buying on the dips.
• World Gold Council (WGC) chief market strategist John Reade said at a conference this week that the virus vaccine will not cure the economy and that a recovery will take time and further monetary action. Reade emphasizes that a combination of risks, low interest rates and positive price momentum are among the factors supporting gold investment demand. “We continue to advocate that gold should make a strategic component for portfolios, even more so after the recent correction.”
• President-elect Joe Biden’s choice of former Fed chair Janet Yellen as Treasury secretary could set up another big round of stimulus for the U.S. economy. This spending and lower-for-longer interest rates could be a big boon for gold.

Threats

• According to research from International Crisis Group, more than $1.5 billion worth of gold is smuggled out of Zimbabwe each year, depriving the stricken economy of crucial foreign-exchange revenue. The report noted how gold is illegally shipped from small-scale miners to Dubai. Zimbabwean law requires miners to sell their gold to the central bank, paying 70% in dollars and the rest in local currency, which is worthless outside the country and is below black-market rates. Payments to these miners are “considerably lower” than the spot price of gold, prompting sellers to look for more lucrative markets.
• Iamgold is preparing to temporarily lay off 70% of its underground workforce at its Westwood gold mine after a seismic event disrupted operations. Bloomberg reports the cause of the seismic event is unknown and under investigation.
• Gold bull Eddie van der Walt published a bearish macro view on gold and is looking for a price collapse of more than 9%. Bloomberg’s Mark Cudmore notes that gold has lost one of its biggest supporters. The bearish views come amid a lack of demand for usual sources - in this case the outflows from gold-backed ETFs.

Index Summary

• The major market indices finished up this week. The Dow Jones Industrial Average gained 2.21%. The S&P 500 Stock Index rose 2.20%, while the Nasdaq Composite climbed 2.96%. The Russell 2000 small capitalization index gained 3.84% this week.
• The Hang Seng Composite gained 1.23% this week; while Taiwan was up 1.10% and the KOSPI rose 3.13%.
• The 10-year Treasury bond yield rose 2 basis points to 0.843%.

Domestic Economy and Equities

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Strengths

• Gross domestic product (GDP) grew at an unrevised 33.1% annualized rate, confirming the economy’s historic pace of expansion in the third quarter, after contracting 31.4% in the second quarter.
• The IHS Markit PMI indexes for the service and manufacturing rose in November to a combined five-year high despite a record increase in coronavirus cases that threaten to halt the economic recovery. News that a vaccine is on the way contributed to the surprisingly rosier picture.
• Occidental Petroleum was the best performing S&P 500 stock for the week, increasing 23.95% on higher oil prices.

Weaknesses

• First-time filings for jobless claims totaled 778,000 for the week ended November 21, ahead of the 733,000 expectation from economists surveyed by Dow Jones and up from 742,000 the previous week. The news comes amid an ongoing rise in coronavirus cases and worries that the national health system is becoming stressed. New daily cases have averaged 174,225 over the past week, and health officials worry that Thanksgiving could send that level higher as families across the country travel to celebrate the holiday.
• U.S. consumer confidence fell to 96.1 in November, down from 101.4 in October. The decline reflected a big drop in consumer expectations for income, business and labor market conditions. “Heading into 2021, consumers do not foresee the economy nor the labor market gaining strength. In addition, the resurgence of Covid-19 is further increasing uncertainty and exacerbating concerns about the outlook,” said Lynn Franco, senior director of Economic Indicators for the Conference Board.
• The Gap was the worst performing S&P 500 stock for the week, falling 10.86% on disappointing third-quarter earnings.

Opportunities

• CRM pioneer Salesforce is reportedly in talks to acquire communications platform Slack. The Wall Street Journal, citing people familiar with the situation, reports that Salesforce has approached Slack with an acquisition offer and views the potential takeover as “a logical extension of its enterprise offerings.” The report claims any deal would likely value Slack at more than its current market capitalization of $17 billion, which means it would also be Salesforce’s largest acquisition to date following its $15.7 billion takeover of data visualization company Tableau in 2019.
• UBS said investors will benefit from buying fintech, healthtech, greentech and 5G stocks, as these four sectors will disrupt the technology industry and become the dominant investment themes throughout the next decade.
• Uber and Lyft have been awarded a federal contract worth up to $810 million to offer their services to public agencies and their more than 4 million employees.

Threats

• Fiscal stimulus has largely expired, and another rescue package is expected only after President-elect Joe Biden is sworn in on January 20. Growth estimates for the fourth quarter are below a 5% annualized rate. Despite encouraging developments on vaccines, spiraling COVID-19 infections as the cold season starts have led economists to sharply downgrade their GDP growth forecasts for the first quarter of 2021. Goldman Sachs cut its estimate to a 1.0% rate from a 3.5% pace.
• UK drug maker AstraZeneca saw its shares slide after announcing its COVID-19 vaccine candidate has proven to be 70% effective, much less than the 90%+ effective vaccines from Pfizer and Moderna.
• All department stores saw “steep” drops in online traffic ahead of Thanksgiving, according to CFRA Research. JPMorgan Chase & Co. recently cut fourth-quarter same-store sales estimates to below-consensus levels.

Energy and Natural Resources Market

Strengths

• The best performing commodity for the week was WTI crude, up 7.31%, after hitting the highest since March 6 on positive vaccine news spurring hope for a demand recovery. Brent crude rose near $48 a barrel on Friday ahead of an OPEC+ meeting.

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• Copper hit a seven-year high after rallying for four days to $7,511 a ton. Traders are bullish on the red metal in hopes of a vaccine boosting demand. All other metals on the LME were higher on Friday morning. Iron ore futures rebounded on Tuesday to the highest in more than six years amid strong demand from China for steel and lower shipments from top-producing Brazil.
• EU Energy Commissioner Kadri Simson said the bloc should create a euro-denominated benchmark for hydrogen as use it expected to surge in the coming decades. Bloomberg reports there is no widely used benchmark for trading hydrogen and BloombergNEF estimates it could be a $700 billion business by 2050.

Weaknesses

• The worst performing commodity for the week was sugar, down 2.56% after seven consecutive monthly gains. Gold continues to correct, falling below $1,800 an ounce this week, as vaccine news reduces demand for the perceived safe haven asset. The largest gold-backed ETF, the SPDR Gold Shares, has lost more than 50 tons of bullion so far in November.
• Another warm winter is set to weaken natural gas prices. Bloomberg reports a collection of long-range weather forecasts point to the southern and eastern U.S. being warmer than normal from December through February. Northern Europe is also expected to have milder temperatures. The 2019-2020 winter season was the second warmest in the 141-year record. Warmer temperatures reduce demand for the heating fuel.
• A 230-meter tall wind turbine collapsed in northern Sweden over the weekend. The cause of the accident is unknown and Vesta Wind Systems, who built the turbine, is investigating, reports Bloomberg.

Opportunities

• According to BloombergNEF, the power capacity of new solar installations could top 200 gigawatts by 2022, earlier than a previous forecast of after 2030. The move toward net-zero emissions has boosted demand for solar. A shortage of glass and rising metal prices have hurt production in 2020 but is expected to ease in 2021 as manufacturers bring more factories into use.
• Plug Power, a top provider of hydrogen engines and fueling solutions, raised nearly $1 billion to accelerate the first nation-wide green hydrogen network, according to a press release. The company recently announced plans to build five regional green hydrogen facilities in the U.S. and is working with several partners to source low-cost renewable power. The first two plants are expected to be operational in 2022 with the rest by 2024.
• Nano One durability test results for its high-voltage cobalt-free battery found it stable at elevated operation temperatures required for automotive, power tool and energy storage applications. The patented breakthrough high-voltage technology is 25% higher than commercial high nickel cathodes, providing improved efficiency, thermal management and power, according to a company press release.

Threats

• Abu Dhabi, the UAE’s top oil producer, is spending $122 billion to boost oil and natural gas production over the next five years, despite OPEC+ seeking to cut output amid lower demand due to the pandemic. Like other countries, Abu Dhabi seeks greater oil output as a way to boost income and diversify its economy.
• China agreed to buy $1.5 billion of coal from Indonesia in a three-year supply pact as Indonesia aims to attract investment in the development of processing technology. Bloomberg notes this move could further weaken trade ties between China and rival coal supplier Australia. China has blacklisted a range of Australian commodities as tensions continue to intensify since Huawei was barred from building Australia's 5G network in 2018.
• According to a report by Wartsila OYJ Abp, the cost of building a large nuclear plant alongside renewable power would cost the U.K. as much as $877 million more a year compared with installing flexible energy technologies. Large nuclear projects can cost 20 billion pounds and take a decade to deliver, whereas wind farms cost a fraction and can be built in less than five years. Bloomberg notes that a grid dominated by renewable energy needs batteries to store wind and solar power, but at the moment the technology is unable to be deployed at scale.

Airline Sector

Strengths

• The best performing airline for the week was Air France-KLM, up 27.69%. The International Air Transport Association (IATA) is working on a mobile app that will help flyers show their COVID-19-free status. These so-called COVID “passports” could be one way to speed up the travel recovery. A test program will begin with British Airways by the end of this year before arriving to Apple in the first quarter and on Android devices by April.
• Vietnam’s Ministry of Finance is proposing extending the 30% cut in the jet fuel environmental tax through 2021 to help airlines, reports Bloomberg. The government earlier this month approved to provide financial support to national carrier Vietnam Airlines.
• Italy said it will open its borders to quarantine-free flights from the U.S. for the time since virus travel curbs were imposed earlier this year, reports Bloomberg. Delta says the waiver is backed by vigorous testing before departure and on arrival. Flights from Atlanta to Rome Fiumicino will trial the new rules from December 19 and is the first quarantine-exempt service from the U.S. to Europe.

Weaknesses

• The worst performing airline for the week was Hainan Meilan International, down 7.42%. IATA estimates global carriers will lose a combined $157 billion in 2020 and 2021 – five times the amount racked up during the 2008-2009 recession. Bloomberg notes this forecast is 60% higher than that in June. IATA calls the crisis “devastating and unrelenting.” The biggest threat for airlines is they will run out of cash before a vaccine is distributed and people begin to fly again.
• In a series of tweets, South Africa’s Finance Minister Tito Mboweni expressed his doubts about the need for a national airline just weeks after agreeing to find $685 million for a bailout of South African Airways, reports Bloomberg. The troubled airline has been in bankruptcy protection for nearly a year and has not flown a commercial flight since March.
• Despite warnings by the CDC to refrain from Thanksgiving travel, a post-pandemic record for U.S. passengers was hit on Sunday, with 1,047,934 people passing through airport security. From Friday to Sunday, more than 3 million people have flown, according to TSA data. Although negative that travelers are bucking the CDC warning, it does give hope to the air travel recovery.

Opportunities

• A surprising side effect of the pandemic has been progress toward digitizing aspects of flying. The push to reducing human touchpoints is reducing cabin weight and boosting cost-savings. British Airways has removed the in-flight magazine and is now available as a free download, saving a significant amount of weight. Bloomberg notes fuel is a major expense for carriers and just small changes can result in big savings. In 2018, United saved $290,000 in annual fuel costs by using a lighter weight of paper for its magazine.
• Willie Walsh, former head of British Airways (BA), will become director general of the IATA on March 31 when current chief Alexandre de Juniac leaves. Walsh is an industry veteran and has pushed against wholesale bailouts for airlines. The job is a tough one as the airline sector pushes through the pandemic. Bloomberg writes Walsh is a “famed cost-cutter” and led BA’s takeover of Iberia to form IAG SA.
• Both an opportunity and a threat: Qantas Airways’ CEO Alan Joyce said the carrier plans to require future international passengers to have a COVID vaccination prior to flying. Joyce added that “it’s going to be a common theme across the board” to require all travelers to take a vaccine. This is an opportunity to restore confidence in flying and a threat that travel won’t recover until a vaccination is widely distribution. Vaccines are still in final trial stages and might not be distributed until the first quarter.

Threats

• According to research from IBA Group, 42 airlines globally have entered bankruptcy so far this year. Norwegian Air Shuttle filed for insolvency last week. The group predicts the total will push through 70 by March next year. IBA’s Stuart Hatcher said in an interview: “Airlines will be trying everything to get through to Easter, when higher demand should coincide with the roll-out of the vaccine, but there comes a point when the money runs out.”

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• IATA forecasts European airlines will face the toughest task to survive due to dependence on international routes and higher expenses. Carriers could hit seat occupancy of 65.6% in 2021, which is below the breakeven level of 71.9%. IATA calculations predict a combined loss of $11.9 billion in 2021 for European carriers – the sharpest deficit among six regions.
• Airlines have touted that it is safe to fly amid the pandemic, yet top infectious disease experts say the findings aren’t conclusive. This is leaving travelers unsure of whether it is safe. The Department of Defense study from weeks ago writes that the risk of contracting the virus on a plane is low due to mask wearing and effective filters – yet scientists are warning the findings could be premature. David Freedman, University of Alabama professor who balked at appearing with an IATA event that cited his work, said “the airline industry got a little ahead of itself trying to say the risk is zero.”

Emerging Markets

Strengths

• The best performing country in emerging Europe for the week was Russia, gaining 3.1 percent. The best performing country in Asia this week was Indonesia, gaining 3.8 percent.
• The Czech koruna was the best performing currency in emerging Europe this week, gaining 1.4 percent. The South Korean Won was the best performing currency in Asia this week, gaining 95 basis points.
• China’s mainland stock market hit its highest level since 2015 this week. China might be the only major economy likely to expand this year. The pandemic seems to be under control, consumer spending is picking up and the government is turning its focus on long-term growth and discussing withdrawing the emergency stimulus provided earlier this year to shield the economy from the negative effects of the pandemic.

Weaknesses

• The worst relative performing country in emerging Europe for the week was Turkey, gaining 36 basis points. The worst performing country in Asia this week was the Philippines, losing 5.3 percent.
• The Turkish lira was the worst performing currency in emerging Europe this week, losing 2.6 percent. The Chinese renminbi was the worst performing currency in Asia this week, losing 23 basis points.
• With Europe recently imposing nationwide lockdowns to prevent the spread of the coronavirus infections, preliminary Eurozone PMIs for November were reported weaker, as expected. The manufacturing PMI was reported at 53.6 (versus 54.8 in October), the service PMI declined to 41.3 from 46.9, and the composite PMI dropped from 50.0 in October to 45.1 in November.

Opportunities

• Emerging European stocks outperformed the broad emerging markets recently, and they still have more room to climb higher and reach their pre-pandemic level. European equites most likely will be further supported by growing investors’ confidence about vaccines becoming available to the general public sooner rather than later. Moreover, Europe is starting to ease restrictions and is planning to open its economies for the Christmas season.

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• JPMorgan expects Indonesia and Thailand to outperform next year, raising both countries to an “Overweight” recommendation. Back in 2019, Thailand recorded $60 billion in revenue from 40 million visitors. In October, the country reported visitors coming back for the first time in six months.
• Bloomberg economists expect China’s PMIs to remain strong in November. The manufacturing PMI is estimated to rise to 51.5 from 51.4 in October, and the non-manufacturing PMI is expected to be reported at 56.0, slightly lower than the prior reading of 56.2, but still well above the 50.0 level that separates growth from contraction. Data will be released next week.

Threats

• The Turkish lira partially reversed last week’s sharp gains against the dollar after the Turkish central bank hiked its main rate by 475 basis points and simplified its monetary policy. This week, the Turkish lira crossed below its 50-day moving average. This technical event usually points to further weakness.
• Reuters reported that the U.S. administration is close to declaring 89 Chinse aerospace and other companies have military ties, a move that would require American parts suppliers to obtain licenses to sell items to the companies. Recently, U.S. investors were banned from owning 31 Chinese companies marked as having links to the Chinse military. Investors might see more measures against China in the next two months.
• Poland and Hungary continue to block the eurozone budget rejecting conditionality over EU funding. The disagreement between the EU’s members is delaying 1.8 trillion euros of EU spending that includes the seven-year budget and a 750 billion-euros coronavirus-relief fund.

Blockchain and Digital Currencies

Strengths

• Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended November 27 was Penta, up 5,915.46%.
• Following approval by Swiss regulators, Gazprombank Switzerland has piloted its bitcoin transaction service, reports CoinTelegraph. CEO Roman Abdulin says that the new service hopes to make crypto transactions “as easy as transactions with traditional assets.” The new crypto solution will be provided in collaboration with its long-running partners like fintech firm Avaloq and crypto custody provider Metaco, the article continues.
• On Tuesday, bitcoin passed $19,000, reports CoinDesk, after rallying $7,000 in one month. The surge comes after the price broke the $17,000 and then $18,000 level within the same week.

Weaknesses

• Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended November 27 was Flogory Coin, down 93.04%.
• Bitcoin plunged nearly $3,000, or around 6%, after flirting with its all-time high earlier in the week. This was the biggest slump since the pandemic hit in March as investors take profits amid the price surge.

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• A police crackdown on the PlusToken Ponzi scheme in China has resulted in nearly $4 billion worth of crypto seized, including 194,775 bitcoin and 833,083 Ethereum. CoinDesk reported all 27 masterminds of PlusToken were arrested this summer along with 82 other core members. The court ruling did not state how China will dispose of the confiscated cryptos.

Opportunities

• On Monday in an interview with CNBC, PayPal CEO Dan Schulman said bitcoin’s usefulness as a currency will ultimately prevail over the buy-and-hold ethos, reports CoinDesk. He added that central bank digital currency is a global inevitability and as it happens, “you’ll have more and more utility happen with cryptocurrencies.”
• Just in time for the 2021 bull market, the world’s first live-streaming platform dedicated to cryptocurrency is going live, reports CoinTelegraph. Ran Neuner, host of CNBC’s Crypto Trader show, has launched the first call-in media channel devoted exclusively to crypto, dubbed “Crypto Banter.” According to the article, the station features a blend of news, opinions, interviews and live discussions with industry leaders.
• Bitcoin’s revival has ushered in a slew of sky-high predictions from celebrity cryptocurrency fund-managers to Wall Street stalwarts of where it can go next, writes Bloomberg. In fact, forecasts have a very wide range, from $25,000 to $300,000 by the end of 2021. “It’s been a one-sided trade – it’s been remarkable, frankly, to look at,” said Keith Buchanan of Globalt Investments. “If you’re not paying attention to it, you’re kind of out of the loop.”

Threats

• Coinbase appears to have a capacity problem, writes CoinTelegraph. Users have pointed out for years that when bitcoin and other crypto assets are especially volatile, the exchange sometimes goes offline without warning, the article continues. Generally viewed as unfavorable by traders, these outages can prevent customers from buying or selling their crypto assets.
• Due to the ongoing COVID-19 pandemic, Bithumb – the largest cryptocurrency exchange in South Korea – is preparing to close some of its offices. As reported by CoinTelegraph, Bithumb noted in an announcement that the number of domestic confirmed cases of the virus has increased, causing local authorities to adopt more preventative measures.
• Billions of dollars are flowing out of gold while billions are flowing into bitcoin. Advocates are arguing that investors have finally seen the light and are moving into crypto and out of gold as a haven asset and hedge against inflation. Lawrence Lewitinn writes for CoinDesk that the flow into bitcoin is less of a play against gold, rather an increase in speculation as the economy recovers and investors can tolerate holding riskier assets again.

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