Hurricane Ian Highlights the Importance of Flood Insurance, a Hedge on Your Investment
On behalf of everyone at U.S. Global Investors, I’m extending strength and resilience to the people of Florida, where an estimated 2 million customers are currently without power. Hurricane Ian, which has made landfall in the Carolinas as I write this, is already believed to be among the costliest hurricanes in U.S. history. The upper range forecast of $70 billion in damages would put the category four storm in at least the top 10, adjusted for inflation.
Of particular concern is Florida’s systemic lack of flood insurance. Just 18.5% of homes in Florida counties that were told to evacuate have coverage through the National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA).
Most regular homeowners’ insurance policies don’t cover flood damage, which is why Congress created the NFIP in 1968. But at an average cost of $995 a year, according to Forbes, the insurance may be out of reach to many households.
I can’t stress how important it is to have this type of coverage, though, especially if you live in regions where flooding is possible, and you can afford the premiums.
I’m sure many of you have seen the videos of entire first floors of some Florida homes completely inundated with floodwater. According to FEMA, each additional inch of water that floods a home or business increases the total repair cost by a shocking multiple. Even one inch of water in a typical 2,500-square-foot house can carry a price tag approaching $27,000. That $995-per-year payment for NFIP coverage starts to look a lot more attractive.
As an investor, you may have hedged your securities to reduce the risk of loss in your portfolio. Some typical strategies include buying put options, futures contracts and other financial instruments, or investing in assets such as gold that have a negative correlation to stocks. It might be helpful to think of flood insurance as a hedge on the investment you’ve made in your home.
Ian Could Cost Insurance Industry $20 Billion at the Least
As for the insurance industry, Hurricane Ian will be an “historic event,” potentially costing it upwards of $20 billion, says Andrew Siffert, senior meteorologist with global insurance broker BMS. “This does not count litigation amplification that could result,” he writes.
Though you may disagree, Siffert asserts that Florida is a “textbook for disaster by design.” In the city of Cape Coral, for instance, many homes and businesses have been built along canals. This raises their value as expected, but it also raises the cost to repair or replace them. What’s more, a large percentage of these homes are owned by snowbirds who may not have had the chance to make the appropriate preparations before the storm made landfall.
Insurance Companies Have Underperformed on Average, but Not by Much
After learning that the insurance industry could be on the hook for $20 billion or more, you may well believe that shares of property and casualty insurance companies will crater in the coming days and weeks. Indeed, conventional wisdom says to avoid insurance stocks until after hurricane season, which can last between June and November.
The truth is that some industries have historically seen a greater negative impact from hurricanes. A 2018 analysis by Morgan Stanley found that the industry with the highest exposure to hurricanes was, believe it or not, “branded apparel and footwear.”
The reason for this may be that many retailers like to build along popular, heavily trafficked coasts and beaches frequented by affluent residents and tourists. Nearly a quarter of stores owned by PVH Corp., parent company of Calvin Klein and Tommy Hilfiger, can be found in hurricane prone areas.
I was curious to see the hurricane season’s impact on the performance of property and casualty companies—think Progressive, Travelers, Allstate and others. I looked at the 10-day and 30-day performance of the seven-member S&P 500 Property & Casualty Insurance Index following the 15 costliest hurricanes in U.S. history, and I compared this to the S&P 500 over the same periods. What I found is that, while the insurance group underperformed on average, it wasn’t by much. In fact, for the 10-day period, insurance companies outperformed slightly, by as much as 21 basis points (bps). For the 30-day period, insurance issuers underperformed the market by some 44 bps on average.
|Total Returns, 15 Costliest Hurricanes in U.S. History in Nominal Terms|
|S&P 500 Property & Casualty Insurance Index||S&P 500|
|10 Days Later||30 Days Later||10 Days Later||30 Days Later|
Source: National Hurricane Center, Bloomberg, U.S. Global Investors
Home Improvement Companies Could Benefit
On the other end of the spectrum are companies that could see increased sales as a result of hurricane season. These include hotel chains, construction companies such as Masco and C.H. Robinson, and used-vehicle retailers such as CarMax and Carvana.
Home improvement companies also stand to benefit. Shares of Home Depot, Lowe’s and Floor & Decor all jumped on Wednesday as Ian made landfall along the southwestern coast of Florida.
Home Depot, one of our favorite stocks, was on track to close the week up nearly 3%, even as it’s set to record its second straight month of negative returns.
Again, I want to emphasize that my thoughts and prayers are with those whose lives have been impacted by Hurricane Ian, as well as those who currently lie in its path.
You can help support disaster relief efforts by donating to the American Red Cross. Make a donation by clicking here.
- The major market indices finished down this week. The Dow Jones Industrial Average lost 2.92%. The S&P 500 Stock Index fell 2.91%, while the Nasdaq Composite fell 2.69%. The Russell 2000 small capitalization index lost 0.89% this week.
- The Hang Seng Composite lost 4.27% this week; while Taiwan was down 4.91% and the KOSPI fell 5.87%.
- The 10-year Treasury bond yield fell 13 basis points to 3.82%.
Airlines and Shipping
- The best performing airline stock for the week was Norwegian Air, up 8.7%. Airlines reported that traffic outside of Asia is mostly recovered to (or within a few percentage points of) pre-pandemic levels. The airlines are seeing significant pent-up demand for travel, which they expect will continue into the end of the year. There was some concern about a consumer-recession given the inflationary pressures that all are feeling, but bookings still appear strong.
- UPS’s new pricing plan will charge customers one consolidated rate based on weight and delivery zone instead of several, more complex delivery surcharges. The only surcharges that may still exist are for the handling of bulky parcels that need extra labor. The initiative is not as discounted as the original pricing version and could still be more costly to certain shippers, although they have the option to return to their original shipping plan.
- China domestic air passenger traffic in the past week was -58% versus the pre-Covid level, but better than -65% the week before. The recovery was mainly on a gradually improved pandemic situation. However, domestic air passenger traffic was still -30% versus pre-Covid levels in early August.
- The worst performing airline stock for the week was Jet2, down 13.6%. Alaska Airlines reached a preliminary agreement with its pilots’ union leadership (ratification votes typically take 6-8 weeks). The proposed wage rates are 6-9% above the current highest U.S. narrowbody pay levels, which would result in a 21% increase in average wages effective September 1, or a 3.3-point CASM-ex headwind versus 2019.
- According to Stifel, Poseidon Acquisition Corp, the consortium of buyers looking to take Atlas Corp private, increased its bid price from $14.45 per share to $15.50 per share. However, given the deteriorating conditions of the global container shipping market, this does not lend itself to multiple expansion. Furthermore, equity values for the container shipping/liner peer group have fallen 26% in the past 30 days.
- Over the last week, European airline stocks are down 9% on average. European airline stocks have been hit by the dramatic U.S. dollar appreciation against sterling and the euro, with airlines incurring significant USD costs (fuel, maintenance, leasing). European LCCs were hit the hardest in the last week (down 11% to 13%) as they have almost no U.S. dollar revenues to offset their U.S. dollar costs.
- According to Morgan Stanley, if the zero-Covid policy is unchanged, Spring Air is well positioned to sustain market share gains. The group also sees relatively lower book erosion risk versus the “Big 3” airlines, thanks to its low-cost business model. If China reopens but air travel demand remains soft, Morgan Stanley expects Spring Air to outperform, as it believes the airline could turn profitable in this scenario, while Big 3 airlines are likely to stay loss-making.
- FedEx Express is cutting costs by $1.5-$1.7 billion by reducing flight frequencies by 11% on the transpacific, 9% on the transatlantic and 17% between Asia and Europe. It will still maintain connectivity by parking aircraft and deferring maintenance spending. The equivalent of eight narrow-body aircraft will be parked temporarily. FedEx Ground is cutting costs $350-$500 million by closing select sort operations, suspending certain Sunday operations and other expense reductions including not opening several facilities that were scheduled to open.
- Morgan Stanley still believes Airbus is entering a multi-year “sweet-spot” for profit growth, with rising deliveries, a strong U.S. dollar, and no need to invest in new aircraft since its key product, the A321, is selling well and has a strong backlog.
- According to Bank of America, Cathay Pacific cargo generated an estimated HK$15-$20 billion profit in 2021, but the bank sees the market moving into a downcycle ahead on weaker demand (global macro + ocean falling fast) and rising supply (conversions, new deliveries and Chinese belly returning). The group forecasts cargo yields falling to 50%/25% above normal in 2023/2024, which factors higher unit fuel costs.
- Ocean container shipping rates (China to U.S. West Coast) were down 80% year-over-year, and the rate of the year-over-year decline accelerated versus last week, presenting further downside risk.
- The U.S. Transportation Department (USDOT) proposed requiring airlines to disclose fees for baggage, ticket changes and family seating the first time an airfare is displayed. This is the latest in a series of rules that the Biden administration has proposed to boost airline consumer protections.
- The best relative performing country in emerging Europe for the week was Hungary, losing 2.1%. The best relative performing country in Asia this week was India, losing 1.2%.
- The Czech koruna was the best performing currency in emerging Europe this week, gaining 1.4%. The Chinese yuan was the best performing currency in Asia this week, gaining 0.2%.
- China’s Manufacturing PMI surprised to the upside, crossing into expansionary territory. The reading came in at 50.1 versus 49.7 expected. However, the Caixin Manufacturing PMI, which measures manufacturing activity among smaller/private companies, dropped to 48.1 in September from 49.5 in August.
- The worst performing country in emerging Europe for the week was Russia, losing 6.4%. The worst performing country in Asia this week was the Philippines, losing 8.2%.
- The Russian ruble was the worst performing currency in emerging Europe this week, losing 4.6%. The Indonesia rupiah was the worst performing currency in Asia this week, losing 1.4%.
- Profits of China’s major industrial firms fell 2.1 percent year-on-year in the first eight months of 2022, official data showed on Tuesday. China’s Service PMI dropped to 50.6 in September, from 52.6 in August, and below the expected reading of 52.4.
- The West will announce more sanctions on Russia for escalating the war in Europe. The European Union is planning to implement a price cap on Russian oil imports and widen the range of products covered by export bans. Further, the West is also planning to restrict Russia’s access to technology and chemical products and is imposing more individual sanctions of people involved in staging the recent referendum in Ukraine.
- The Hong Kong government has announced the ending of formal quarantine for international travelers after more than two-and-a-half years of stringent pandemic controls. New rules that took effect September 26, state that incoming travelers will be required to undergo three days of self-monitoring upon arrival. With easier travel restrictions, more people will take the journey.
- This week the dollar has reached its highest level since 2002. It has been weakening since reaching its peak earlier in the week but remains in overbought territory. Based on our technical indicators, the dollar should correct in the coming days/weeks, providing some relief to emerging market equites and currencies.
- Russians declared victory in deeply questionable elections held September 23-27. According to the results, announced by Russia, the majority of people approved adding the four occupied regions of Ukraine to Russia. The referendum has been denounced by Ukraine and its Western allies as illegitimate.
- Taiwan is considering control measures if significant outflows continue. Bloomberg reported that $43 billion worth of Taiwan stocks have been sold by global funds so far this year, on the course to be the largest ever single-year outflow. Among measures being considered by the central bank in Taiwan is a ban on short selling and forex controls.
- Natural gas prices rose in Europe again as the Nord Stream pipeline was reported to be leaking in several places. At the same time, the supplier of gas to Europe through the pipeline in Ukraine are at risk because of a legal dispute over transit payments. Spiking energy prices will continue to push inflation higher. The Eurozone reported CPI at 10% this week, and the region could see further price increases.
Energy and Natural Resources
- The best performing commodity this week was uranium, up 10.08%, as proxied by the Sprott Physical Uranium Trust. After an apparent dip in July, Indonesia’s nickel supply continues to ramp up quickly. China’s customs stats show a 116% increase year-to-date in nickel imports from Indonesia, with August surpassing the 100,000-ton mark for the first time.
- U.S. natural gas consumption was up 6% year-over-year this past week, driven by higher power demand and industrial demand. On a week-over-week basis, total demand was 0.3 billion cubic feet per day (BCF/day) higher as an increase in industrial demand was partially offset by a decrease in power demand.
- Per Rystad data, the pace of Permian frac efficiency gains has decelerated materially from 2019-2020 levels. For example, Delaware/Midland frac efficiency was increasing at a rapid clip in the 2019-2020 timeframe, averaging 24%-28% annual increases during that period versus just 9%-5% in 2021 and 4%-1% in the first half of this year. This means the Permian is today pumping 24% more sand than it was at a prior peak in the first quarter of 2020, despite 7% fewer active frac crews.
- The worst performing commodity this week was crude palm oil, down 8.57%, marking its worst quarterly plunge since 2008 as rising inventories and concerns over a global recession soured the outlook. The oil price is set for its first quarterly loss in more than two years. Not only have spot oil prices dropped more than 20% in barely two months, but forward curves have flattened, physical differentials have narrowed, and refining margins have retreated. Global oil demand remains under pressure from a sputtering China and the ongoing slowdown in OECD economies
- Despite Europe’s ongoing energy crisis, the European thermal coal price has sold off $100 per ton (-25%) since the beginning of September. Part of the European coal price correction is likely driven by the comparable move lower in Europe’s natural gas benchmark, but coal-specific drivers play a role as well. Europe’s coal import demand is softened by high Benelux port inventories (built up in the run-up to the European Union’s Russian coal sanction), while the restart of Germany’s idled hard coal plants appears to be a slow process.
- Nitrogen benchmarks gave up last week’s gains, while phosphate and potash continued moving lower. First, global urea benchmarks were lower with NOLA down $40 per ton to $625 per ton, on average. Second, phosphate prices were lower again with Brazil MAP down $40 per ton to $725 per ton and NOLA DAP down $30 per ton to $730 per ton as historically high prices continue to limit activity, along with the fact that Indian and Pakistan demand has been largely satisfied already. Third, global potash prices were also lower with Brazil down $20 per ton to $705 per ton, as high prices and inventories continue deterring buyers.
- BMO expects Henry Hub prices to average $6.75 per million British thermal units (MMBtu) in 2023 versus $7.20 in 2022; however, the group believes that prices could trade higher through the winter heating season and the bias is to the upside given the ongoing energy crisis and Russia’s willingness to use energy as a weapon.
- Global aluminum output reached a record high on a monthly basis in August, up 200,000 tons or 3.5% year-over-year. China accounted for more than 100% of the increase as new capacity ramps up, while North America and Europe posted month-over-month declines as high electricity prices drove curtailments. Midweek, the London Metal Exchange (LME) floated the idea of banning Russian aluminum by blocking new supplies of Russian origin from delivery to its network of warehouses.
- According to Morgan Stanley, following substantial activity and pricing growth, the group thinks the biggest debate in North American services is how far service companies can push 2023 pricing, and what they will do with 2023 free cash flow. Leaving pricing aside for the moment, Morgan Stanley thinks that shareholder return frameworks will be increasingly adopted by North American services companies. The evidence on the value the marketplaces on disciplined capital spending and capital return is clear, from refiners in the prior cycle, to E&Ps in 2020-2022.
- Europe is amid an energy crisis that could materially worsen over the coming months. Europe has aggressively increased liquified natural gas (LNG) imports to help offset the loss of Russian imports. To date, these have been accommodated by higher U.S. exports and lower LNG deliveries to China. Recovering Chinese import requirements could lead to increased price competition between Europe and Asia, which could then translate to higher natural gas prices.
- In the iron market, Chinese steel output remains volatile, falling sharply through July, but showing a recovery in August/September. Global steel production may be essentially flat in 2023. Higher ore supply, with demand steady, will likely see prices testing cost curve support in the second half of 2023.
- According to Morgan Stanley, a substantial recession is becoming increasingly discounted, and crude prices are coming closer to levels that would cause them to revise their activity forecasts lower. Yet, given the current robust run-rate, and still-strong crude prices, the group’s revisions, for now, are positive.
- Louis Vuitton announced its strategic and innovative partnership with Aura Blockchain Consortium to offer its clients a new and exciting experience. Now consumers will be able to track every chapter of each diamond’s journey, which will be stored on the blockchain. They will also receive a digital certificate with all of the diamond’s information (the stone’s unique characteristics, provenance, and journey). The new collection is called LV Diamonds Collection.
- The Business of Fashion (BOF) has created a new case study, “Inside the $7 Billion Dior Phenomenon,” where the group outlines how the 75-year-old brand tripled its revenue in just four years. According to the report, by overhauling its commercial offer, racing into e-commerce, and investing in flagships, Christian Dior Couture has radically accelerated its business, transforming itself into a “homegrown Chanel challenger within LVMH.”
- Melco Resorts & Entertainment, an Asian company that owns and operates casinos, restaurants, bars and resort facilities, was the best performing S&P Global Luxury stock for the week, gaining 25.09%. This is due to the announcement of the emission of e-visas and group tours from mainland China since November 2022. The new gaming regulation is also more generous than expected.
- According to Bloomberg, the secondhand luxury goods market is booming, and brands such as Gucci and Burberry have joined in. However, not all high-end giants want to follow the trend, which is splitting the industry. Not following the latest secondhand trend, means potentially forgoing new clients. Inflation is forcing typical consumers of luxury items to look for less expensive products. For example, now you can purchase a Gucci handbag for $250 rather than $2,000.
- Based on Bloomberg data, China reported its BoP Current Account Balance (overall international transactions with the rest of the world) for September. The number was $77.5 billion versus $80.2 billion in the previous month. This represents a decrease of 3.37%, potentially due to lockdowns in China. Still, this is impacting not only China’s economy, but the global market too as the Asian nati0on is one of the leading buyers of luxury goods.
- Seoul Auction, an Asian company that operates auctions to trade artworks of paint and manage art galleries, was the worst-performing S&P Global Luxury stock, losing 22.39%. Its shares fell 7.3%, declined to 21,550 won from 23,250 won, and was the worst performer among its peers.
- According to CNBC, Apple is producing the new iPhone 14 in India, the first time the company has decided to deliver its latest model there. Since 2017, India has been producing older Apple models. The company is looking to diversify production away from China. As China continues to implement its zero-Covid policy, lockdowns continue to happen. An analyst with JPMorgan said that Apple plans to move 25% of iPhone production to India by 2025 and is looking to reduce a supply chain crisis.
- Casa Komos Brands Group (CKBG), which creates luxury, one-of-a-kind spirits and alcoholic beverages, has appointed luxury brand leader Leslie Serrero as International Managing Director, based in Paris. Serrero joins CKBG leadership team after 10 years with the executive suite at LVMH, reports Yahoo! Finance, having leadership roles most recently at Fendi and Dior.
- According to Market Screener, consumers have started to pay more attention to, and drive their purchasing decisions based on, the sustainability responsibility of brands. In fact, 74% of millennials and 62% of centennials prefer to buy and pay more for sustainable brands. Because of this, many brands, including luxury ones, have committed to creating limited or entire lines that are sustainable. So far, several luxury brands including Louis Vuitton, Prada, and Valentino, have begun adopting sustainability-centric logos, green trademarks, and product origin marks to attract new consumers and add loyalty to the existing ones.
- Even though the luxury goods industry has been one of the most resilient, facing high inflation levels and significant interest rate increases in recent times has turned the global market outlook dim on the sector. According to an article from “This is Money” (a financial outlet from the UK), the S&P Global Luxury Index is down 25% since the start of 2022. Continued lockdowns in China is one contributing factor to this, as the Asian nation is the leading market for the luxury goods sector. Additionally, travel bans and high levels of unemployment in the country are affecting the purchasing power of Gen Z customers, who are a top market in China.
- According to Apple, the luxury watch market is facing a challenging situation. Even wealthy consumers are having trouble buying luxury watches in official retail stores because inventories are so low. As a result, they are reportedly turning to the so-called “gray market,” where sales are not authorized, and prices can climb to prohibitively expensive levels for the same watch.
- Golden Week in China kicks off tomorrow, October 1, and the country’s transport ministry estimates a considerable drop in the number of trips booked (around 50%) due to strong Covid restrictions. The group estimates around 210 million trips will be made by road next week, which is lower compared to 2021. This also means a decrease in commercial activity and a direct impact on the luxury goods market there.
Blockchain and Digital Currencies
- Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Quant, rising 33.86%.
- The U.K.’s Financial Conduct Authority has approved the crypto operations of Revolut, a key step for the British fintech’s ambitions to expand in the space, reports Bloomberg. The registration comes after Revolut spent months relying on temporary permission to operate its crypto-asset business. The firm was among a dozen others that received an extension to get their applications or affairs in order after a March deadline passed, the article explains.
- Bitcoin is poised for a bit of a victory this quarter, reports Bloomberg, even if the scale may not seem much for an asset class where outsized gains were, until recently, the order of the day. Bitcoin is up 3.4% which could be a further sign that crypto prices may have stabilized following dramatic declines at the start of the year.
- Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Chiliz, down 10.29%.
- “Unfortunately, crypto pricing has become correlated with risk assets, which I honestly don’t think has to be true,” Dan Morehead from Pantera Capital said. He hopes that crypto will decouple from the macro markets, but until the correlation remains at elevated levels, crypto traders are looking to see if Bitcoin will hit a new low for the year.
- Cryptocurrency-exposed stocks slumped on Thursday amid a broad-based selloff in risk assets which sent Bitcoin briefly sliding back below the $19,000 level. Crypto stocks that declined on Thursday include: Core Scientific -7.6%, Coinbase -7% and Riot Blockchain -5.6%. Wells Fargo analyst Jeff Cantwell initiated coverage on Coinbase with an underweight rating, saying it faces headwinds from rising competition, according to Bloomberg.
- Binance is seeking a license to operate in Japan, four years after retreating from the country as it didn’t have a permit, according to people familiar with the matter. The nation’s easing approach to crypto and substantial potential for user growth are the key reasons for Binance’s renewed interest in the world’s third-largest economy, writes Bloomberg.
- FTX US won the auction for the assets of bankrupt crypto brokerage Voyager Digital Ltd. The agreement is valued at about $1.4 billion comprising an “additional consideration” worth about $111 million and the $1.3 billion market value of all the cryptocurrency at the bankrupt platform, reports Bloomberg. Customers will be able to transfer to the FTX US platform after the conclusion of the bankruptcy process.
- There’s a side of crypto that gets less attention: the segment of the community that is interested in the way the technology that powers crypto can decentralize decision making, make institutions more transparent and transform the way organizations are governed. That’s the side that is far more interesting, writes Bloomberg.
- South Korea said Interpol requested law enforcement worldwide to locate and arrest Terraform Labs co-founder Do Kwon, who faces charges related to the $60 billion wipeout of cryptocurrencies he created. Prosecutors in Seoul said Monday in a text message that the international police organization has issued a Red Notice for Kwon, the latest inglorious chapter of a $2 trillion rout in digital assets that exposed hugely risky practices, writes Bloomberg.
- Anatoly Yakovenko, the founder of Solana, sees a long road ahead when it comes to potential mainstream adoption of crypto, reports Bloomberg. Adoption “really happens” when a person “figures out how to generate a key and store it securely, and then sign transactions. That’s a really slow process,” Yakovenko said.
- A senior Singapore central bank official is repeatedly warning cryptocurrency firms that policymakers will clamp down hard on crypto players who fan speculation in the country. Sopnendu Mohnaty, chief fintech officer at the Monetary Authority of Singapore, reminded traders to be careful about how they lure customers, writes Bloomberg.
This week gold futures closed at $1,669.90, up $14.30 per ounce, or 0.86%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 5.92%. The S&P/TSX Venture Index came in up 2.63%. The U.S. Trade-Weighted Dollar slid 0.90%.
|Sep-26||Hong Kong Exports YoY||-9.7%||-14.3%||-8.9%|
|Sep-27||Durable Goods Orders||-0.3%||-0.2%||-0.1%|
|Sep-27||Conf. Board Consumer Confidence||104.6||108.0||103.6|
|Sep-27||New Homes Sales||500k||685k||532k|
|Sep-29||Germany CPI YoY||9.5%||10.0%||7.9%|
|Sep-29||Initial Jobless Claims||215k||193k||209k|
|Sep-29||GDP Annualized QoQ||-0.6%||-0.6%||-0.6%|
|Sep-29||Caixin China PMI Mfg||49.5||48.1||49.5|
|Sep-30||Eurozone CPI Core YoY||4.7%||4.8%||4.3%|
|Oct-4||Durable Goods Orders||—||—||-0.2%|
|Oct-5||ADP Employment Change||205k||—||132k|
|Oct-6||Initial Jobless Claims||205k||—||193k|
|Oct-7||Change in Nonfarm Payrolls||250k||—||315k|
- The best performing precious metal for the week was palladium, up 4.90%, on what looks to be a firmer picture for precious metals recently. Palladium production was already restrained with recent flooding near the Stillwater mine, and this week the South African miners warned of possible supply issues related to power availability.
- Barrick Gold Corp.’s long-term profile at NGM highlights 3.5 million ounces of production consistently over 15 years. This represents a meaningful improvement from the 2018 plan prior to the formation of NGM, and an extension of production from the current-published, 10-year plan to 2031. This upside is driven by near-mine resource extension, which is viewed as being relatively straightforward given the existing infrastructure in place and an improved geological understanding of the asset base.
- According to BMO, Newmont has sold its 18.75% stake in the MARA copper-gold project to joint venture partner Glencore for $124.9 million up-front, plus $30-$50 million on achieving commercial production. This purchase price is well above the $67 million consensus value.
- The worst performing precious metal for the week was platinum, but still up 0.09%. As of Thursday’s close, total holdings in gold ETFs show that investors remain in redemption mode in regard to the yellow metal. However, the price of gold today is slightly higher than the day before the Federal Reserve raised interest rates.
- The latest European Union sanctions package against Russia did not include a ban on diamond imports from Russia, for its invasion of Ukraine, as reported in the Brussels Times. The proposed ban would cut off an additional €7 billion of Russian imports but rough diamonds were not included in the final list. Belgium is one of the larger Russian diamond buyers.
- Labor remains tight – this is broadly viewed as the next leg to drop, inflation wise, in mining. Newmont has 500 openings for workers at NGM and the younger generation appears not to be as keen to work in mining, despite average wages being triple that of Vegas jobs. Skilled labor (engineers, etc.) is even harder to come by. Mining labor costs are proving fairly steady (not seeing a huge demand for big raises).
- Despite a 75-basis point interest rate hike by the Fed last week and a surging U.S. dollar, there are other factors emerging that support gold. The Bank of Japan spent $19.7 billion last month to slow the yen’s slide against the U.S. dollar. Gold got a second boost this week from earlier losses, reports Bloomberg, after the Bank of England (BOE) restarted its pandemic-era bond buying program, citing a risk to the U.K.’s financial stability as the pound plunged to record lows on the newly proposed budget.
- Investors poured money back into precious metals stocks over the past week on the heightened risk of a policy mistake, particularly as other central banks struggle with their devalued currencies. Silver mining stocks were some of the best performers over the past week. The relative strength indicator for major gold stocks touched its oversold line on September 27 and investors reacted. Bloomberg reported that the price of deeper, out-of-the-money insurance in equities is falling, implying lower demand for crash insurance. Its analysis suggests that the market believes the Fed put is getting closer. Any deviation from the current telegraphed interest rate path forward would likely trigger money flows back into gold.
- Skeena is developing its 100%-owned Eskay Creek Gold/Silver Project in the Golden Triangle of northwestern British Columbia that hosts a total resource of 5.6 million ounces of gold, including open pit reserves of 3.9 million ounces at 4 grams per ton gold. Earlier this month, the company announced results of a feasibility study that confirms Eskay Creek is the premier, undeveloped open pit, precious metals project in Canada.
- Bloomberg reports that the biggest platinum miners are dealing with an unreliable power supply that has disrupted operations. Electricity is critical to keeping the mines ventilated and running refrigeration systems to cool the air. Eskom, which manages the grid, implemented Stage 4 on September 10, taking 4,000 megawatts from the grid. The industry noted that if this continues it will hit mine output and there will be consequences in terms of jobs.
- Gold may face another difficult week, with holdings in bullion-backed ETFs at risk of contracting to the lowest level in more than two years. Should the dollar hold its ground or manage another push higher, further sales of paper gold may herald a test of $1,600 per ounce. Worldwide holdings in ETFs are on course for a fifth monthly drop in September as the Fed’s stance, U.S. currency’s ascent, and positive real rates dull the metal’s allure.
- NBF reports that current math indicates that IAMGold’s current level would be 8% shy for maintaining its membership in the S&P/TSX Composite Index. Its membership in the NYSE Arca GDM Index (GDX ETF) may be at risk too if its full market cap falls below $450 million by early December – deletion from the GDM would add on an additional supply of est. 26.4 million shares.
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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 (06/30/22):
Alaska Air Group
Cathay Pacific Airways Ltd
Barrick Gold Corp
Burberry Group PLC
LVMH Moet Hennessy
AP Moller – Maersk A/S
*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.
The S&P Global Luxury Index is comprised of 80 of the largest publicly traded companies engaged in the production or distribution of luxury goods or the provision of luxury services that meet specific investibility requirements.
Free cash flow indicates the amount of cash generated each year that is free and clear of all internal or external obligations.
The Bloomberg Dollar Spot Index tracks the performance of a basket of 10 leading global currencies versus the U.S. Dollar.
Standard and Poor’s 500 Property & Casualty Insurance Index is capitalization- weighted index. This is a GICS Level 4 Sub-Industry group.
The Shanghai Containerized Freight Index is the most widely used index for sea freight rates for import China worldwide. This index has been calculated weekly since 2009 and shows the most current freight prices for container transport from the Chinese main ports, including Shanghai.
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