Colombia at Risk of Electing Its First Socialist President

French voters head to the polls this weekend to decide between incumbent president Emmanuel Macron and far-right candidate Marine Le Pen, but the election investors should be keeping their eye on is happening next month in Colombia.

On May 29, the South American country could elect its very first leftist president should Gustavo Petro receive a majority of the vote. (A runoff election could determine the final winner.) The former congressman and mayor of the capital city of Bogotá, Petro is an unabashed admirer of U.S. senator Bernie Sanders, a self-proclaimed “democratic socialist,” and Hugo Chávez, the hardline socialist president of Venezuela from 1999 to 2013, when he died of cancer. 

The two were close friends, in fact, and Petro reportedly attended Chávez’s funeral. But the alarming similarities don’t end there.

Chávez and Petro, Cut from the Same Cloth

Before entering politics, both Chávez and Petro were members of militant rebel groups. As a candidate, Chávez vowed to end the expansion of Venezuela’s oil sector, despite it sitting on the world’s largest proven reserves. Petro, 61, similarly has promised to take an adversarial stance against the mining industry, saying in 2018 that companies involved in oil and gas “will not find a friendly government” if he becomes president.

This would devastate Colombia’s economy. Crude oil represents about half of its total exports and around 10% of its national income. That revenue could disappear overnight, with no replacement to pick up the slack.

It’s hard to imagine now, but at the time of Chávez’s election 23 years ago, Venezuela was the world’s fifth largest crude producer and the top exporter of oil products to the U.S. Today, under the Nicolás Maduro regime, its oil industry is practically nonexistent. In January, the country produced an estimated 668,000 barrels per day (bpd), a far cry from the 3.5 million bpd it regularly produced in 1998.

You can see the tragic results below. Facing worsening violence, hyperinflation and a poverty rate as high as 96%, some 4.5 million Venezuelans fled their country between 2015 and 2019, making them the world’s second largest refugee population at the time after Syrians. Approximately half of these freedom-seekers poured into neighboring Colombia, where about 4% of the population is now Venezuelan-born, up from close to 0% just a few years earlier.

A Wolf in Sheep’s Clothing

As former U.K. prime minister Margaret Thatcher once quipped: “The trouble with socialism is that eventually you run out of other people’s money.” Venezuelans have learned this lesson the hard way, and it troubles me that voters in Colombia, who have witnessed the influx of refugees fleeing poverty, might now elect a man who would institute the very policies that lead to such poverty.

Investors are understandably worried, and Petro’s advisers have been in damage control trying to ease their concerns. Earlier this month, the candidate signed a document stating he wouldn’t nationalize property if elected, but as many have pointed out, the document is not legally binding. It’s strictly political theater.

The same goes for Petro’s suggestion that Colombia could mine Bitcoin using waterfalls. Bitcoin is private property, something for which Petro, a socialist, has not shown much respect.

Bitcoin and Gold Are Incredibly Undervalued

I hope Colombian voters make the right choice next month, especially since authoritarianism is steadily making gains worldwide. According to Freedom House, nearly 40% of the global population now live in countries without basic freedoms, including financial freedoms. That’s the highest proportion since 1997.

It’s these people who could benefit the most from Bitcoin, I believe. As an open-source, decentralized digital asset, Bitcoin transcends borders and can bypass even the most restrictive currency controls, allowing peer-to-peer remittances to be made.

For this reason and more, Venezuela has among the highest “crypto” adoption rates, with some 3 million people, or 10.3% of the population, holding unspecified cryptocurrencies, according to CoinMarketCap. Other emerging countries with elevated inflation, including Sudan, Lebanon, Syria and Turkey, also report having comparatively high levels of crypto adoption.

2022 has proven to be a tough year for many, with inflation soaring to record levels in many countries and gas prices soaring fueling the spike in cost of living and a general cutback in personal spending.

But is it driving people toward embracing crypto as an alternative? (1/9) pic.twitter.com/xJ1Z1ZMGIu

— CoinMarketCap (@CoinMarketCap) April 7, 2022

Forty percent of the world’s population is about 3.2 billion people; meanwhile, the 19 millionth bitcoin was mined earlier this month. If you do the math, that comes out to one bitcoin per 170 people living in repressive regimes. Having said that, I believe Bitcoin is incredibly undervalued at $40,000.

I also believe gold is undervalued at $1,900 an ounce. You can see the precious metal’s true value when you price it in a currency that’s seen astronomical inflation, including the Turkish lira. Had someone in Turkey bought gold one year ago, they would have seen it double in value as of today. Citizens of Colombia who fear a Petro presidency might want to consider picking up some gold coins or 24 karat gold jewelry.

Gold Coins Sales Had Their Best Quarter Since 1999

Gold had a solid first quarter for many of the same reasons as Bitcoin, namely, high inflation and geopolitical risk. The metal’s price rose 8% in the first three months of the year, its best quarter since the second quarter of 2020, and inflows into gold-backed ETFs totaled $17 billion, according to the World Gold Council (WGC).

U.S. investors appeared to be most interested in physical gold, however. The U.S. Mint recorded the second highest first-quarter sales of gold American Eagle coins on record, following 1999’s first-quarter sales. When combined with American Buffalo coins, which were introduced in 2006, sales still came in second place.

As always, I recommend a 10% weighting in gold, with 5% in physical gold and 5% in high-quality gold mining stocks and ETFs. I believe a 1% to 2% weighting in Bitcoin and Ether also makes sense.

For more on Bitcoin and Ether, watch the replay of my panel on crypto mining at the Bitcoin 2022 conference by clicking here!

Index Summary

• The major market indices finished down this week. The Dow Jones Industrial Average lost 1.86%. The S&P 500 Stock Index fell 2.63%, while the Nasdaq Composite fell 3.83%. The Russell 2000 small capitalization index lost 3.22% this week.
• The Hang Seng Composite lost 4.51% this week; while Taiwan was down 6.55% and the KOSPI fell 9.16%.
• The 10-year Treasury bond yield rose 7 basis points to 2.44%.

Airline Sector

Strengths

• The best performing airline stock for the week was United, up 14.4%. System net sales improved this week, down 12.3% versus 2019 levels (and compared to -15.7% last week), with the improvement driven by domestic. Domestic pricing improved in all channels, and for the first time since the pandemic, consolidated system pricing crossed above 2019 levels and is now up 1% versus 2019. Similarly, domestic leisure tickets improved while pricing stepped up. In the latest data, international volumes and pricing improved slightly as well.
• European airline bookings, as a percentage of 2019, continued to improve in the week and benefited from a lower base. Intra-Europe net sales were up by five points to -26% versus 2019 and increased by 2% week-on-week. International net sales grew by two points to -29% versus 2019 but declined by 4% week-on-week. This led to a three-point increase in system-wide net sales. The improvement was driven by higher volumes while pricing remained broadly stable and above 2019 levels.

• A District Judge in Tampa, FL, overturned the federal mask mandate for public transportation this week and directed the CDC to reverse the policy. After the court ruling, the CDC mandate was made no longer in effect and the TSA will not enforce the mandate, reports CNBC. However, the CDC continues to recommend that people wear masks on public transit.

Weaknesses

• The worst performing airline stock for the week was Air Berlin, down 10.7%. According to Bank of America, Chinese domestic traffic fell to 15% of normal levels in the first half of April. The bank expects no major rebound for now with the daily number of Chinese flights holding at new lows since COVID. Bank of America cut its 2022/23 domestic traffic to 65% (the weakest year since COVID) of 2019 levels. It also pushed out the international recovery forecasts to 2023.
• Japan Airlines announced downward revisions of guidance this week. The airline is now guiding for a larger loss than it originally forecast for fiscal year 2021, specifically implying a loss in the fourth quarter. 
• Second quarter 2022 planned growth for U.S. carriers is 70 basis points lower at -8% versus 2019 levels (-4% domestic, -16% international) in the first quarter of the year. Very preliminary third quarter 2022 data indicates a decline of 1% versus 2019 (+3% domestic, -7% international), and 110 basis points lower.

Opportunities

• March was a record month for some airlines. Delta, who reported earnings this week, saw robust demand with the highest ever month for sales in the company’s history. The latest bookings data supports this and appears even more optimistic heading into the summer travel season, with some COVID laggards (corporate and international) making progress on the recovery to 2019 levels.
• According to UBS, better-than-expected second quarter TRASM (total revenue per available seat mile) trends are driving its upgrade on Delta Air Lines to “buy” on the back of higher estimates and price target. The implied 12% improvement in TRASM in the second quarter of 2022 versus the second quarter of 2019, implies a unit revenue gain 35% larger than the unit cost increases due to fuel highlighting the current ability of Delta to push through elevated costs.
• Trading updates from easyJet and Wizz Air show losses in the March quarter were better than expectations, driven by higher loads. easyJet’s summer bookings have trended ahead of 2019 levels for the past six weeks, with an even split between the U.K. and EU. Wizz Air has been “encouraged” by recent demand and expects summer bookings to build significantly post Easter.

Threats

• UBS is downgrading shares of United AIrlines to “neutral” on less compelling upside to the company’s unchanged target. This follows recent share performance (+30% this year) as confidence of strong bookings offsetting peak fuel have played out. Although the company sees strong pricing in the second quarter and beyond, the operational picture could be less smooth for United as the airline adapts to an aggressive growth strategy.

• U.S. airlines’ trailing seven-day website visits decelerated this week slightly to +12% versus +17% last week. This week, Southwest Airlines’ trailing seven-day website visits improved by 15% versus 2019, compared an improvement of 7% last week. On the other end, Spirit Airlines’ website visits stepped back a bit versus 2019 levels. A majority of the other carriers’ website traffic was flat or decelerated slightly.
• Pilots at several airlines are warning of rising fatigue among its crew members. Last week, the Southwest Airlines Pilots Association (SWAPA), which is a union that represents Southwest Airlines pilots, wrote a letter to top executives explaining that rising rates of fatigue among pilots is a threat to the airline’s safety. However, the issue is not unique to the company. On a similar note, Delta Air Lines’ pilots are expected to continue their fatigue protests with pickets scheduled at Seattle and Minneapolis-Saint Paul airports this week. This announcement comes soon after pilots at Alaska Airlines held informational pickets in numerous cities throughout the U.S.

Emerging Markets

Strength

• The best performing country in emerging Europe for the week was Hungary, gaining 0.41%. The best performing country in Asia this week was Thailand, gaining 1.16%.
• The Indian rupee was the best relative performing currency in Asia this week, losing 0.27%.

• The eurozone reported stronger economic data this week. Industrial production unexpectedly increased on a year-over-year basis. Bloomberg economists were expecting it to jump 1.5% in February, but a stronger increase of 2% was reported. Month-over-month industrial production increased by 0.70%, in line with the consensus. The preliminary Service PMI in April increased to 57.7 from 55.6, but the Manufacturing PMI declined to 55.3 from 56.5.

Weaknesses

• The worst performing country in emerging Europe for the week was Russia, losing 7.9%. The worst performing country in Asia was China, losing 5.79%.
• The Turkish lira was the worst performing currency in emerging Europe this week, losing 0.70%. The Malaysian ringgit was the worst performing currency in Asia, losing 2.72%.
• China reported weaker economic data. Retail sales declined 3.5% year-over-year versus consensus of 3.0%. Its gross domestic product (GDP) increased by 1.3% in the first quarter, above expected growth of just 0.70%, but below 1.6% expansion in the previous quarter. Covid lockdowns are negatively affecting business activity.

Opportunities

• China has been talking about providing more rate cuts and stimulus, but the People’s Bank of China (PBOC) action has so far been below market expectations. The reserve requirement ratio (RRR) for banks was lowered last Friday by 25 basis points while consensus was calling for a cut of 50 basis points. The PBOC also left the one- and five-year loan prime rates unchanged at 3.7% and 4.6%, respectively. More cuts will likely follow, especially now due to the worsening Covid situation.
• The Unites States will provide another military aid package to Ukraine. The new package will be similar in size to the latest one worth $800 million in military support. “The United States will continue to provide Ukraine with the capabilities to defend itself,” President Joe Biden said in a statement after a phone call with Ukrainian President Volodymyr Zelenskyy. Ukraine’s prime minister, Denys Shmyhal, said that it will cost $600 billion for his country to rebuild.
• The eurozone is feeling the negative effects of rising energy prices and inflation, but strong Service PMI data reported this week shows continued strength in the service sector. While China’s zero-Covid policy has pushed the country into a lockdown, slowing down economic activities, Europe and the U.S. adopted to Covid and post-Covid life more quickly. The upcoming summer travel season should benefit countries with relaxed Covid restrictions.

Threats

• A few brokers cut China’s growth forecast this week after weaker economic data for the first quarter was released. UBS downgraded China’s GDP forecast this year to 4.2% from 5%. Bank of America lowered its forecast to 4.2% from 4.8%. Barclays cut its forecast to 4.3% from 4.5%, in expectation that Covid disruptions will be prolonged. And Standard Charted lowered its forecast to 5.0% from 5.3%, also citing lockdowns.
• The World Bank this week lowered its estimates for global growth in 2022 to 3.2% from a January prediction of 4.1%. The decline was mostly due to its outlook revision for Europe and Asia. The global forecast for this year compares with a 5.7% expansion in 2021.
• China will report Manufacturing PMIs next week, we will most likely see further declines in manufacturing activity due to widespread Covid lockdowns. We expect both China and Caixin PMIs to fall more into contractionary territory.

Energy & Natural Resources

Strengths

• The best performing commodity for the week was lumber, up 14.91% on strong housing starts. Corn futures in Chicago hit a decade-high, reports Bloomberg, exceeding $8 a bushel and approaching a record high as war threatens global supplies, boosting demand for the U.S. grain. Prices have not touched $8 since September 2012, after devastating drought and heat damaged crops in the U.S. Midwest.
• Schlumberger reported stronger first quarter profits and boosted its dividend by 40% as high energy prices are driving greater demand for oil and gas services and equipment. Both Halliburton and Baker Hughes reported stronger margins for the quarter. Halliburton still has some assets in Russia but can’t repatriate the equipment due to export, re-export trade sanctions.
• Total liquified natural gas (LNG) exports have been robust so far in 2022, recently reaching new highs of over 13 billion cubic feet (bcf) per day. LNG exports have averaged 12.6 bcf per day year-to-date, including 12.8 bcf per day in March as Calcasieu Pass and Sabine Pass T6 ramped.

Weaknesses

• The worst performing commodity for the week was uranium, as proxied by the Sprott Physical Uranium Trust, down 13.53% on no news specific to the commodity but more so the entire commodity universe taking a hit from the Federal Reserve’s more aggressive inflation rhetoric. Earnings reporting from this past quarter for the miners, which have benefited from high metal prices, are now seeing their margins contract with rising input cost. Freeport-McMoRan, Anglo American and Alcoa all tumbled this week upon reporting.
• U.S. natural gas futures fell from a 13-year high after reaching its most overbought level in four years. U.S. natural gas is on a tear and prices have almost doubled this year to the highest since the shale revolution more than a decade ago. This is driving up energy costs and helping fuel the fastest inflation in 40 years.
• A lack of buying interest pulled urea benchmark prices lower for the third week in a row. Last week, potash demand waned in some regions with prices stable to trending downward apart from in Europe; potash net backs firmed on the back of lower freight rates. Key phosphate benchmarks traded sideways or even fell last week as buyers and sellers appear to be at a standstill amid tight supply/soaring prices and a lack of pressing demand needs.

Opportunities

• The U.S. rig count continues to climb, as a strong commodity price environment is prompting operators (particularly privates ones) to add more activity. The rig count is up 14% (an additional 94 rigs), of which over 60 were added by private E&Ps (64%). The Biden administration restarted permitting activity for onshore Federal lands, after a year-long moratorium. While the news is favorable, there may not be a sea change in tone toward the industry by the administration.
• Natural gas prices have recently hit a 13-year high but pulled back in the past week with the markets taking in Fed’s outlook on raising interest rates. Gas was already gaining favor over coal as an easy to do fuel switch to cleaner energy. With Russia perhaps looking to consolidate its hold in the south of Ukraine, Europe is not in a position to refuse to buy Russian gas so the market is likely to remain firm.
• In addition to fundamentally tighter balances, Bloomberg notes that the extended reallocation of U.S. LNG deliveries from Asia to Europe, owing to the ongoing tightness in European gas markets, has likely driven increased hedging This has helped exacerbate the Henry Hub rally beyond what is fundamentally justified, at current price levels the U.S. gas market lacks supply and demand response mechanisms to force prices lower, suggesting the current high-volatility environment is likely to persist for the next several months.

Threats

• Bloomberg noted warnings about a worsening global hunger crises as Russian and Ukrainian wheat are off market and that farmers are having to scale back purchases of fertilizer resulting in lower crop yields. The problem is compounded by the higher energy prices which adds costs to the transporting the produce to market. Africa and Asia are two of the biggest grain importing counties and could be hit worse.
• On April 19, a spokesperson for China’s National Development and Reform Commission (NDRC) stated that China plans to continue to reduce crude steel output in 2022, as in 2021. The spokesperson explained the 2022 policy as follows: 1) In 2021, China succeeded in reducing crude steel production by about 30 million tons, in line with its initial target. 2) In 2022, the government plans to continue to reduce steel output nationwide to ensure continuity of policy and strengthen the effect of the output cuts. 3) The focus will be on reducing crude steel output in priority areas for air-pollution prevention measures and reducing capacity of production systems with low environmental performance as the government pursues a good balance between “protection” and “reduction.”
• The U.S. shale revolution over a decade ago unlocked vast reserves of natural gas, which helped make American prices among the lowest in the world. Now that’s ending, as a global supply crunch and enormous effort to export the fuel will keep gas rates elevated. Futures in the U.S. jumped to the highest since 2008 this week due in part to an outlook for colder weather. But that rally was also fueled by surging exports from LNG export facilities stateside. Right now, 13% of all U.S. gas produced is exported via these LNG plants, compared to zero in 2015.

Domestic Economy & Equities

Strengths

• The construction industry in the U.S. rose in March to its highest level since 2006. Housing starts increased to 1,793,000 in March from 1,769,00 in the prior month. Building permits increased to 1,873,000, from 1,859,000.
• Jobless claims declined to 184,000 from the prior week’s 185,000, slightly above consensus for 184,000. Continuing claims declined to 1,417,000 from 1,475,000 last week, below consensus for 1,459,000. It was the lowest level since February 1970. Bloomberg economists predict unemployment to remain at 3.6% in April.
• United Airlines Holdings was the best performing S&P 500 stock for the week, gaining 14.03%. Shares gained after the company predicted to return to profitability in the second quarter on a robust operating revenue outlook. In the first quarter, the company reported a loss of $1.38 billion, or $4.24 per share.

Weaknesses

• The preliminary Service PMI declined to 54.7 in April from 58.0 in March. The Manufacturing PMI increased to 59.7 from 58.8. The Composite PMI dropped to 55.1 from 57.7.
• In April, the Philadelphia Fed Manufacturing Index, a regional Federal Reserve index measuring changes in business growth, declined to 17.6, below an expected reading for 21.4 and March 27.4 level. Shipments and new orders were lower, but the numbers are still positive.
• Netflix was the worst performing S&P 500 stock for the week, losing 37.77%. Netflix lost more than a third of its market value after reporting its first quarterly subscriber loss in more than a decade. The company also projected it will shrink its customer base by another 2 million in the current quarter. Netflix became the worst-performing stock of the year on the S&P 500 and Nasdaq 100 Index.

Opportunities

• According to Bank of America (BofA), consumers are spending more, reflecting a rise in account balances and loan balances even with inflation and interest rates climbing. Bank of America CEO Brian Moynihan said that bank customers spent 13% more from their accounts in March than a year ago, and spending in April so far is up around 18%. Spending is rising on travel, entertainment and food after pandemic lockdowns.
• Speaking at an International Monetary Fund (IMF) event, Fed Chair Jerome Powell said that a 50 basis point hike is on the table for May’s Federal Open Markets Committee (FOMC) meeting, saying that it’s appropriate in his view to be moving a little more quickly. He also noted that markets are processing what the Fed is seeing and that they are reacting appropriately.
• According to FactSet’s Earnings Scorecard, the blended growth rate for first quarter of S&P 500 earnings now stand at 6.5%, up from the 4.7% expected at the end of the quarter. However, just under 81% of reporters have surpassed consensus earning per share expectations, below the one- and five-year averages of 83%.

Threats

• The U.S. 10-year real Treasury yield went above zero this week for the first time since the pandemic began. The Federal Reserve’s aggressive policy stance has driven a remarkable turnaround in 10-year real yields. This yield was below minus 1% in March after Russia invaded Ukraine. Rising yields usually have a negative effect on the stock market, particularly on risky assets.
• According to the National Association of Realtors (NAR), home sales dropped 2.7% to 5.77 million in March on a month-over-month basis, a result of mortgage rate increases. Bloomberg economists were expecting a deeper drop in sales of 4.1%. Last week, the most common home loan, the 30-year fixed mortgage rate, hit 5% after being around 4% throughout this year.
• This week, Tesla, the world’s most valuable auto company with a $1 trillion market capitalization, reported its earnings for the first quarter. Thanks to strong demand for its electric vehicles, the numbers were better than expected. Its revenue soared 81% to $18.8 billion. Despite good results, the giant carmaker has concerns about the global supply chain challenge regarding critical parts and shipping shortages because of the Covid-19 lockdown in Shanghai and China. One out of every five container vessels globally is now waiting outside a congested port, of which 27.7% are in China.

Blockchain and Digital Currencies

Strengths

• Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Millennium Sapphire, rising 821.88%.
• Coinbase’s marketplace for non-fungible tokens (NFTs) is finally here in what could be key to reviving the crypto exchange’s growth prospects a year after its fizzling public debut, writes Bloomberg. A trial version of its long-awaited marketplace, designed to sell ownership of digital art and possibly other items, was unveiled on Wednesday in the company’s latest attempt to diversify its revenue and bring more predictability to the business. 
• Despite the recent bearish market, Cardano (ADA) seems undeterred and continues showing signs of activity, writes CoinQuora. This dip might be a perfect opportunity to buy ADA before its market price eventually rises. There are several types of activities that show Cardano’s resilience and persistence despite the cryptocurrency market dipping.

Weaknesses

• Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Movei Coin, down 99.97%.
• According to a Bloomberg article, Bitcoin looks soft in the era of hard assets to hedge inflation. A 50-day correlation coefficient for Bitcoin and gold is around minus 0.4, the lowest since 2018. So while demand for portfolio buffers against price pressures catalyzed commodity performance this year, Bitcoin has gone the other way, leaving backers of its store-of-value narrative with a tougher story to sell.

• The announcement of a flat 30% tax on income from cryptocurrencies and other virtual digital assets in Union Budget 2022 seems to have negatively affected Indian retail investors’ interest in crypto, search data from Google Trends over the past 90 days suggest. Searches for the term “cryptocurrency” were at all-time highs in the past 90 days on February 1, the Budget Day, with a reading of 100. Since then, readings have been in the range of 17-9 on most days.

Opportunities

• The New York Liberty announced that it would become the first team in Women’s National Basketball Association (WNBA) history to drop NFTs in the form of digital art. The release of the NFT will be on May 7 to coincide with the Liberty’s season opener against the Connecticut Sun, writes Bloomberg. 
• Rapper Snoop Dogg collaborated with metaverse platform Mobland to bring digital weed farms to the metaverse, according to Bloomberg. The platform will host branded digital weed farms in the form of NFTs and exclusive content from Snoop’s son Champ Medici. 
• Cryptocurrency traders are currently “itching” for a Cardano price rally, as their sentiment towards the asset is now at a high that hasn’t been seen since mid-November, when ADA was trading near the $2 mark. 

Threats

• Decentralized finance project Beanstalk Farms suffered one of the largest-ever flash loan exploits on Sunday, sending the price tumbling, writes Bloomberg. The credit-focused Ethereum-based stablecoin protocol suffered a total loss of around $182 million, and the attacker got away with around $80 million of crypto tokens. It isn’t clear yet whether investors who lost funds will be reimbursed or if so to what extent.
• Countries such as Russia and Iran may eventually use cryptocurrency mining to evade sanctions, the International Monetary Fund (IMF) warned in a report. There’s a risk that sanctioned nations will leverage their energy resources to power mining, said the IMF. By expanding their mining operations, governments could also generate revenue directly from transaction fees, reported Bloomberg. 
• The U.S Treasury Department imposed sanctions on crypto mining company BitRiver, targeting one of the industry’s largest data center service providers over its operations in Russia in its first such action, writes Bloomberg. The Switzerland-based firm offers energy sources, mining facilities and large-scale management solutions to Bitcoin miners across the world, including those in Eastern European and Russia.

Gold Market

Gold futures closed the week at $1,934.40, down $40.50 per ounce, or 2.05%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended lower by 8.75%. The S&P/TSX Venture Index came in off 6.26%. The U.S. Trade-Weighted Dollar rose 0.79%.

Strengths

• The best performing precious metal for the week was palladium, up 0.49% despite hedge funds raising their net short position to a 12-week high.
• Yamana Gold, which operates mines in four countries including Canada and Argentina, is seeking better terms from lenders including Bank of Nova Scotia and Citigroup Inc. after earning an upgrade from S&P Global Ratings. “We’ll definitely make sure it is being respected and acknowledged in all of our lending facilities,” Chief Financial Officer Jason Leblanc said in an interview. “We have ongoing discussions with them.”
• De Beers signed two mineral investment contracts with the government of Angola for license areas in northeastern Angola, according to a statement. The contracts are for the award and exercise of mineral rights covering all stages of diamond resource development and span a period of 35 years.

Weaknesses

• The worst performing precious metal for the week was platinum, down 7.02% with hedge fund managers flipping from net short to net long the metal with prices dropping. Gold slipped the most in three weeks as U.S. Treasury yields surged following stronger-than-expected U.S. housing data. New U.S. home construction rose unexpectedly in March to the highest level since 2006, boosted by multifamily projects as builders seek to replenish housing inventory.
• Diamond buyers across Dubai and Antwerp and processing centers for finished diamond in India are trying to understand how U.S. with war sanctions on Alrosa PJSC, the world’s biggest diamond miner, is going to affect trade in the gemstone market. Tiffany and Signet Jewelers have publicly stated they will stop buying diamonds mined in Russia. However, retailers in China, India and the Middle East are still open to purchases.
• Iamgold is down about 8%, on pace for its biggest decline since July, after BMO’s Jackie Przybylowski cut her recommendation on the miner to “market perform” from “outperform.” While the downgrade is primarily due to an elevated valuation, the analyst also expects a review of the Cote Gold project in Canada expected later this quarter to be negative, according to a note out premarket on Monday. BMO estimates nearly $2 billion in project spending for the project and sees a risk that the budget could increase more and/or the startup timeline could slip beyond early 2024.

Opportunities

• Gold is proving remarkably resilient, gaining almost 7% this year as investors shrug off surging real yields and strengthening dollar to focus on political and economic risks. While traditional yield and currency drivers suggest bullion is overvalued, demand for the haven asset remains strong. That’s because gold buyers piling into exchange-traded funds (ETFs) are taking a pessimistic view of the U.S. Federal Reserve’s ability to cool decades-high inflation without hurting the economy. For them, gold is a hedge against soaring prices and low growth.
• According to Credit Suisse, investors are more constructive on gold, despite still expecting higher interest rates. This is because of expectations of sticky high inflation, and the potential for Fed policy. A conservative approach by the Fed could lead to protracted high inflation, while an aggressive approach could cause a recession; either scenario would be positive for gold. Credit Suisse, assuming gold prices stay flat, also believes producers will be generating more free cash flow in the second half of 2022, at which point there may be announcements of higher dividends. Energy prices have increased significantly. Therefore, updated commentary on cost sensitivities at different oil prices, diesel hedges and the potential for overall cost per ounce to be at the high end/above guidance. As a reminder, energy is typically 5% to 10% of cash costs for gold miners.
• Bank of America reiterated its bullish view on gold from February and sees prices advancing to $2,175 per ounce, according to technical strategist Paul Ciana. That is a 9.9% jump from Monday’s closing price and would be a new all-time high. “We think the daily, weekly and monthly timeframes still indicate higher gold prices this year,” Ciana says in a note.

Threats

• Fed Chair Jerome Powell outlined his most aggressive approach to lowering inflation by letting the market know that a 50 basis point hike in its benchmark rate is on the table for next week’s meeting. Not to be outdone, Fed colleague James Bullard opened the door further with potentially debating a 75 bp increase to tame inflation. Obviously, the Fed is showing concern and yields have now surged such that a full 200 bp is factored in prices now, marking four raises of 50 bp. The last time the Fed raised rates by 50 bp was in May 2000.
• According to Raymond James, the first quarter of 2022 is expected to be one of the weaker operating quarters of the year for several producers for a variety of factors, ranging from weather and pandemic issues impacting mining operations, expected mine sequencing of lower grade and ramp ups at various sites expected to benefit production later in the year.
• Dickie Hodges of Nomura Asset Management is calling a top for inflation expectations that he believes on both sides of the Atlantic are starting to be overdone. The Nomura Global Dynamic Bond Fund has entered into swaps that stand to gain in value is market gauges of inflation fall over the next 10 years. He thinks bottlenecks in the supply chain will sort themselves out, but the European economy may go into recession from the fallout of the Russian invasion of Ukraine. Dickie rates in the top 2% of performance among its peer group over the last five years.

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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (12/31/2021): 

Delta Air Lines

easyJet PLC

United Airlines

Wizz Air Holdings

Alaska Air Group

Spirit Airlines

Southwest Airlines

Tesla Inc.

Schlumberger NV

Halliburton Co.

Anglo American Platinum Ltd.

Alcoa Corp.

Yamana Gold Inc.

IAMGOLD Corp.

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. 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 Russell 3000®, a widely recognized small-cap index.

The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock 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 Stock Exchange. The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.

The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies 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 are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index.

The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of 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 the 1941-43 base period. The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial 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 consumer discretionary 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 information technology 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 the consumer 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 of the S&P 500. The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset 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 telecom sector as a subset of the S&P 500.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

TRASM means the total revenue per available seat mile and is equal to the total revenues divided by total mainline and third-party regional carrier ASMs. 

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.