“Uptober” Doesn’t Disappoint as Bitcoin Touches $56,000

Bitcoin topped $56,000 on Friday for the first time since May as a number of positive crypto developments galvanized investors in the month of “Uptober.”

For one, legendary investor George Soros’s family office fund confirmed this week that it held Bitcoin in its nearly $6 billion portfolio. Speaking at a Bloomberg event, Soros Fund Management CEO and chief investment officer Dawn Fitzpatrick said that Bitcoin was more than an inflation hedge, having “crossed the chasm to mainstream.”

Indeed, there were an estimated 221 million people actively involved in the crypto ecosystem in June, according to Crypto.com. That’s more than twice the number of people who were trading and holding cryptos at the beginning of 2021, suggesting an exceptionally robust growth rate that’s far outpaced stock ownership.

Also supporting cryptos this week was an assurance by Gary Gensler, head of the Securities and Exchange Commission (SEC), that his agency does not have the authority or intention to ban cryptocurrencies as China has done in recent weeks.

Gensler, who’s under fire from certain U.S. lawmakers for signaling an interest in regulating the industry, said on Tuesday that a crypto ban would be “up to Congress.” However, I believe this is just as unlikely, given that there are a number of staunch pro-Bitcoin members of Congress, including Sen. Cynthia Lummis (R-WY) and Rep. Warren Davidson (R-OH).

Bank of America Introduces Coverage of Digital Assets

One of the most constructive bits of crypto news, as I see it, is Bank of America’s decision to introduce coverage of digital assets. In its maiden report this week, the second biggest U.S. bank said the $2 trillion crypto space is just “too large to ignore.”

Crypto strategist Alkesh Shah is particularly “bullish on the long-term prospects for the digital asset ecosystem as it enters the mainstream.” (There’s that word again!) “We anticipate significant growth as digital asset use cases move beyond Bitcoin’s store of value thesis to an industry characterized by product innovation, regulatory clarity, increased institutional participation and mainstream adoption.”

Bank of America also spends time discussing non-Bitcoin coins (altcoins), writing that digital assets that can “enable a platform to be built, like the Apple iPhone did for applications, are gaining the most value.”

The biggest altcoin is Ether with a current market cap of $427.7 billion, and it’s up 392% for the year. I’m pleased to share with you that HIVE Blockchain Technologies mines both Bitcoin and Ether, which helped it generate a record $37.24 million in revenue during the quarter ended June 30. That’s the highest revenue of any publicly traded crypto miner, and what’s more, HIVE appears the most attractive on a relative basis when looking at market cap-to-revenue.

In case you missed HIVE’s earnings webcast for the first fiscal quarter of 2022, I invite you to watch the replay below.

Bitcoin Now the Eighth Largest Asset

After this week’s price surge, Bitcoin’s market cap rose above $1 trillion once again. This put it above Facebook’s market cap, making Bitcoin the world’s eighth largest asset.

Of the assets shown above, Bitcoin was also the best performer for the year as of Friday. The digital currency was up more than 84%, followed by Alphabet (+62%), Microsoft (+36%) and Facebook (+23%).

2021 has been a challenging year for the two precious metals, gold and silver, with the former down 9.5% as of Friday, the latter down around 16.5%.

Much of this price action is due to institutional investors’ evolving preference for Bitcoin, if JPMorgan’s analysis is any indication. In a report this week, the bank said it believes big investors “appear to be returning to Bitcoin, perhaps seeing it as a better inflation hedge than gold.” JPMorgan adds that the success of the Lightning Network, which allows nearly instantaneous crypto transactions, and El Salvador’s adoption of Bitcoin as legal tender have helped convince investors that the digital currency can scale up to meet institutional demand.

Gold Miners Flush with Cash

Speaking of gold miners… A recent chart by “Bear Traps Report” founder Lawrence McDonald shows that the number of companies in an NYSE Arca Gold Miners ETF that are trading above their 200-day moving averages is coming off recent lows. As McDonald points out, “Historically this has led to strong returns in the following six months.”

In other words, this may be an opportune time to get exposure.

Having come across this, I was curious to see which gold mining companies had the strongest cash positions right now. Specifically, I looked at free cash flow (FCF) yield, which tells you how well a company can meet its financial obligations, pay down debt and potentially raise its dividend. You can calculate the yield by dividing a company’s per-share FCF by its market cap. I like to see a number above 7% or 8%.

The results are below. For comparison’s sake, I also included the FCF yield for the gold mining index as well as the S&P 500.

As you can see, there are quite a few companies that have very strong cash positions at a time when investor sentiment for gold miners is very low. Again, when sentiment has been this low, returns have historically been attractive six months later. The companies above, I think, would be a good place for investors to start hunting for opportunities in anticipation of the next bull run. We invest in several of the names here at U.S. Global Investors.

Topping the list is Toronto-based Torex Gold, which reported this week that it produced 111,220 ounces of gold in the quarter ended September 30, and that it’s well on track to meet the upper end of its 2021 guided range of 430,000 to 470,000 ounces. Torex sold nearly 119,000 ounces during the quarter, at an average price of $1,785 per ounce.

If you’re familiar with crypto miners, you know that they HODL (“hold on for dear life”) most of the coins they produce. I wish more gold miners did this. Of the miners featured above, the only one I’m aware of that HODLs its gold is Gran Colombia. HODLing their metal would help them appeal to more millennial investors.

Check out my interview today with Stock Talk with Eli, by clicking here. We talk HIVE and go over the recent earnings presentation. Don’t miss it!

Index Summary

• The major market indices finished up this week. The Dow Jones Industrial Average gained 1.22%. The S&P 500 Stock Index rose 0.79%, while the Nasdaq Composite climbed 0.09%. The Russell 2000 small capitalization index lost -0.38% this week.
• The Hang Seng Composite gained 0.67% this week; while Taiwan was up 0.42% and the KOSPI fell -2.08%.
• The 10-year Treasury bond yield rose 4 basis points to 9.92%.

Airline Sector

Strengths

• The best performing airline stock for the week was Cathay Pacific, up 7.8%. European airline bookings continued to improve this week, driven by a spike in international sales after the U.S. announced an easing of travel restrictions from Europe. International net sales were up by 5 points to -63% (versus -68% in the prior week) and increased by 10% week-on-week to reach another post-pandemic peak.
• Daily website visits for EU airlines increased by 3 points to -16% (versus -19% in the prior week). Air France and Lufthansa were up the most by 13% and 9%, respectively.
• Chinese domestic air traffic recovered to 78% of normal in the second half of September (from 66% in the first half of September) as travel restrictions started to relax toward the end of August. Domestic unit revenues also stabilized at 82% of normal in the second half of September with domestic yield hovering at 100% of normal. Domestic traffic at major Chinese airports improved to 80-85% of normal in the second half of September, up from the weak 35-65% of normal in the first half of September.

Weaknesses

• The worst performing airline stock for the week was Easyjet, down 9.6%. Airline losses from the coronavirus pandemic are set to surpass $200 billion as travel curbs weigh on corporate and long-haul demand well into 2022, according to the industry’s main lobby. The combined $201 billion in net losses over the pandemic-blighted period eclipses close to nine years of industry earnings, based on International Air Transport Association (IATA) figures. While domestic and regional travel have begun to rebound, there’s been little recovery in the international business routes that are so crucial to many carriers.
• System net sales decelerated this week to -63.7% versus 2019 levels and versus last week’s level of -60.1% with a deceleration in both domestic (-36.4% versus 2019 levels compared to -26.5% last week) and international tickets sold. Domestic leisure and corporate bookings were -16.4% (versus -1.3% last week) and -60.3% (versus -55.3% last week), respectively.
• IATA has revised its 2021 forecasts downwards as well as providing their initial views on 2022. In terms of passenger traffic, IATA now forecasts 2021 traffic at 40% of 2019 levels versus the previous expectations of 43%. This compares to UBS’s global proprietary traffic model at 44% of 2019 levels and the Global Airline analyzer bottom-up forecast of 52%. Furthermore, IATA now expects greater net losses of $52 billion versus previous $48 billion and UBS’s $32 billion.

Opportunities

• United Airlines announced that it plans to fly its largest domestic schedule since the start of the pandemic to meet an expected surge in holiday travel. In total, the airline plans to offer over 3,500 daily domestic flights in December, which would represent 91% of its domestic capacity compared to 2019. According to United, holiday travel flight searches on united.com are up 16% versus 2019 levels, and the airline expects the busiest travel days to be November 24, November 28, December 23, and January 2.
• Demand trends in Canada were mostly flat compared to last week with the 7-day average of passengers -58% year-to-year, per data by Canadian Air Transport Security Authority (CATSA). More recently, demand in Canada has surged from -90% year-to-year in early June to -53% year-to-year in early September; Canada reopened its border to fully vaccinated U.S. citizens for nonessential travel on August 9 and further relaxed the border restrictions on September 7 allowing the citizens from the rest of the world to enter Canada.

• Airlines stocks typically outperform the S&P from September to December, and this seasonal trade held firm in September with the group 3.5% versus the S&P -4.8%. Airline stocks continue to trade on the macro as opposed to industry fundamentals: the group traded flat with the market through most of the month until the week ending September 24 when the U.S. announced it will reopen its borders to international tourists in November and the U.S. 10-year Treasury yield spiked higher. In 2021, there has been a 0.94 correlation between airline stocks and the U.S. 10-year Treasury yield.

Threats

• Airlines are facing higher costs. Cost inflation, which was already a headwind for the third quarter before the Delta variant impact, hit the topline. Most airlines pointed to these reopening/ramp costs as transitory and have the risk of reducing guidance in the fourth quarter.
• U.S. airlines’ trailing seven-day website visits are 3% for the week compared to +5% last week. Website visits have remained up, in the low single digits versus 2019 levels for the majority of September but have not been able to return to summer levels. Following its strong pick-up last week due to its buy-one-get-one (BOGO) sale, Alaska Air declined to 5% versus 2019 levels (and versus +21% last week).

• Fourth quarter planned growth for U.S. carriers, based on current scheduling data, is 7 points lower, down 12% year-to-year (-5% domestic, -31% international) versus down 19% year-to-year (-7% domestic, -44% international) in the third quarter of 2021. Cuts were broad based over the last three weeks for both November and December months.

Emerging Markets

Strengths

• The best performing country in emerging Europe for the week was Russia, gaining 3.9%. The best performing country in Asia this week was Indonesia, gaining 3.6%.
• The Russian ruble was the best performing currency in emerging Europe this week, gaining 1.32%. The Indonesia rupiah was the best performing currency in Asia this week, gaining 0.35%.
• China’s Caixin Service purchasing managers’ index (PMI) spiked to 53.4 in September from 46.7 in August, following the China Service PMI (which last week unexpectedly crossed above the 50-level that separates growth from contraction). Stronger service activity pushed the China and China Caixin Composite PMIs back into expansionary territory.

Weaknesses

• The worst performing country in emerging Europe for the week was Turkey, losing 0.3%. The worst performing country in Asia this week was South Korea, losing 2%.
• The Hungarian forint was the worst performing currency in emerging Europe this week, losing 1.25%. The Indian rupee was the worst performing currency in Asia this week, losing 1.4%.
• Industrial production in Germany, Europe’s largest economy, weakened unexpectedly in August. Month-over-month, industrial production declined by 4% versus the expected contraction of just 50 basis points. Year-over-year, this number grew by 1.5%, well below Bloomberg economists’ prediction of 5%.

Opportunities

• The United States aims to launch new talks with China but will likely continue to press the Asian nation to carry out pledges it made as part of the “Phase One” accord signed in January 2020. On Wednesday, the U.S. and China reached an agreement for a virtual meeting between President Biden and Xi, opening doors for more cooperation from both sides.
• Hong Kong is exploring a plan to allow more yuan-denominated stocks to trade there as China is pushing for more acceptance of its currency throughout international markets. Chief Executive of Hong Kong, Lam, said the city was looking at ways to expand channels for yuan flow from the mainland and said having more yuan-denominated shares in Hong Kong could boost trading volumes.
• According to Greek government assumptions, the Greek economy should record a healthy 6.1% growth this year followed by 4.5% in 2022. On the fiscal front, the situation looks better, too. The government anticipates a primary deficit of 7.7% in 2021 and 0.9% in 2022 with the public debt-to-GDP dropping to 190% in 2022 from a peak of 205% in 2020.

Threats

• Poland unexpectedly joined Russia, Hungary, and the Czech Republic in its tightening policy. On Wednesday, the country’s central bank increased its rate from a record low of 10 basis points to 50 basis points. It was the country’s first hike since 2012 in hopes of tackling inflation, which spiked to 13-year high. Tightening monetary policy usually follows slower economic growth.

• High energy prices present a threat to further global economic recovery. Russia could be a main beneficiary of the energy crunch as the country’s main revenue still comes from the sale of oil and gas. The recently finished Nord Stream 2 pipeline may quickly pass its certification to allow more gas to flow into Europe. The big question remains whether or not Russia will use its vast resources of oil and gas as a barging tool.
• China Daily reported that the number and value of defaulted bonds in 2021 was 159% higher year-over-year to September. The number of defaults reached 39 versus 14 last year. This week China had several bond downgrades and another company, Fantasia Holdings, which is a mid-size builder listed on the Hong Kong exchange, missed its $206 million bond payment on Monday. Refinitiv data shows that the aggregate interest coverage ratio of 21 big Hong Kong-listed Chinese real estate developers fell to 0.94 at the end of June, the worst in at least a decade. This compares with 1.47 at the end of last year.

Energy and Natural Resources Market

Strengths

• The best performing commodity for the week was lumber futures, up 15.31%, on enthusiasm about a renewed housing market. European natural gas futures climbed back toward a record, as the region struggled to build up stockpiles for winter. Prices have almost doubled in the past month as rebounding economies boost demand amid restraints on supply. Europe’s gas inventories are at the lowest level for this time of year in more than a decade.
• Oil climbed to a seven-year high as traders assessed OPEC+’s decision to keep supplies fairly tight even as the world grapples with a natural gas crisis. At an OPEC+ meeting on Monday, Saudi Arabia and its partners opted for only a modest output increase of 400,000 barrels a day for November, taking many analysts by surprise as a spike in natural gas prices looks set to inflame demand for oil products this winter.

• Western lumber pricing moved higher with Canadian producers leveraging the premium in futures, increasing stumpage charges, and doubling the duty rate in November. Prices ended the week up 7% at $533, up 7% relative to the third quarter, down 39% year-to-year, and up 67% year-to-date.

Weaknesses

• The worst performing commodity for the week was wheat, down 2.95% on strong expected exports from Russia. In other news, Australia expects the iron ore price to stay at around $150 per ton until late 2021, before falling to $93 per ton by the end of 2022. The figure for 2022 has been revised downward from $109 per ton, as stated in a previous report published in June. Falling domestic demand for steel in China, due to slower construction activity and the implementation of a number of government policies, has resulted in weaker iron ore prices, Australia’s department of industry, science, energy & resources said in its quarterly resources and energy report.
• The heads of the world’s biggest commodity trading houses said record gas and power prices are starting to weigh on industrial production demand from Europe to Asia, threatening a nascent economic rebound. Russell Hardy, the head of Vitol Group, the world’s biggest independent oil trader, said energy prices are “becoming unaffordable” for consumers and “unaffordable for some industrial processes,” as well. “We are at a fairly critical juncture,” he said.
• The U.S. energy secretary raised the prospect of releasing crude from the U.S. Strategic Petroleum Reserve, as well as potentially banning U.S. crude oil exports. Such a comment follows the recent rise in U.S. retail gasoline prices to their highest level since late 2014. Such relief would, however, only be transient given the structural deficits that the global oil market will face from 2023 onward. An export ban would significantly disrupt the U.S. oil market, with a likely bullish impact on U.S. retail fuel prices that price off Brent.

Opportunities

• The U.S. steel market is starting to rebalance. Despite the closure of 6-7 million tons of capacity during COVID, the U.S. steel market has started to rebalance. Specifically, remaining mills have pushed production back to pre-COVID levels at around 1.9 million tons per week. In addition, imports have risen rapidly, now at 30 million tons per year. Specifically, imports continue to arrive at $1,500-$1,600 per ton versus $1,950 per ton spot, while there are reports of unlimited volume offers. Adding to that, over 20 million tons of projected North American capacity additions in the coming three years.
• Spot prices for fertilizers during the second quarter were roughly twice year-ago levels, but reported net realized prices fell well short of these levels due to forward sales. Now the fertilizer price rally is approaching 3X (NOLA urea $550 versus $220, Tampa DAP $670 versus $300, Brazil spot potash $730 versus $220). Further, there are several drivers of more supply disruption that could lead to 4X pricing (EU natural gas at $30/mm BTU, China’s export ban, and Belarus potash sanctions).
• According to RBC, with copper averaging $4.25/pound in the third quarter, they expect continued strong free cash flow from the copper producers and a focus on capital allocation including shareholder returns, accelerated growth projects, and potential M&A. On the other hand, cost inflation and supply chain issues could negatively impact results and copper remains range bound around $4.25/pound (after reaching $4.86/pound in mid-May). They think copper prices could continue ease into next year and they estimate $3.75/pound for 2022 as demand slows in China amid increased supply; although, low inventories and anticipation of medium-term deficits can keep prices supported.

Threats

• Chemical production in China continues to face meaningful headwinds on the back of limited power due to sharp increases in coal prices and reduced operating rates due to policies implemented across several provinces to limit energy consumption. According to ICIS, chemical products PVC, acrylic acid, and benzene face the biggest challenges, resulting in relatively “tight” supply/demand balances. ICIS estimates that 36% of China’s total effective capacity in 2021 may be in the regions being most impacted by the recently enacted policies, along with 38% of acrylic acid and 30% of benzene. Of note, there are several products that have more capacity at risk in the affected provinces, including 69% of polystyrene (PS), 63% of expandable polystyrene (EPS), 51% of LDPE, 47% of HDPE, 41% of ethylene, and 40% of polypropylene.
• LNG spot thermal coal and North American natural gas prices have risen further. LNG spot rose to $33.8/mm btu (up $7) and thermal coal to $203/ton (up $24). A cold winter could push diesel past $120/barrel and Brent past $100 per barrel. Rising crude oil prices benefit trading companies like Mitsui & Co. and Mitsubishi Corp. Conversely, rising prices are negative for chemicals companies as they lead to higher raw material and fuel costs. The impact is especially significant for paint firms, diversified chemical companies, and domestic industrial gas companies. Chemical manufacturers including Exxon Mobil Corp. and LyondellBasell Industries NV warned that a proposed 20% U.S. tax on virgin plastic resin would be “devastating” to the industry.
• According to Morgan Stanley, there are five reasons the European gas price spike should begin to ease in the coming weeks. 1) Russia’s excess gas production is currently being reinjected into domestic storages. The deadline for completion of this process is late October, meaning excess supply into Europe should free up by November. 2) Gazprom’s maintenance season typically meaningfully eases by November. 3) Gazprom began filling one string of its Nord Stream 2 pipeline – this could boost investor sentiment around the start of rising supply. 4) The gas price spike has triggered some demand destruction with inventories currently building at a normal pace. 5) Storage levels are not as low as the market fears. European gas storage levels are close to historical averages. This implies enough storage to cover the heaviest draw seen in the last decade.

Domestic Economy and Equities

Strengths

• Initial jobless claims dropped to 326,000 this week, below consensus for 348,000 along with the prior week’s upwardly revised 364,000. This means claims remain below 400,000 for the eleventh consecutive week. The biggest drops were seen in California, Texas, DC, Michigan, and Missouri, while claims ticked up in Pennsylvania and Virginia.
• The unemployment rate dropped to 4.8%, better than the expected 5.1% and the prior month’s rate of 5.2%. This low unemployment level was last seen in March of 2020.
• Phillips 66 was the best performing S&P 500 stock for the week, increasing 13.2%. Oil and gas stocks are moving higher with stronger commodity prices. On Friday, the company increased its quarterly dividend by 2% to $0.92 per common share and announced repaying a $500 million debt.

Weaknesses

• September nonfarm payrolls grew by only 194,000, well below consensus for 479,000 and August’s 366,000. “The disappointing 194,000 gain in non-farm payrolls in September probably still counts as ‘decent’ enough for the Fed to begin tapering its asset purchases next month,” Andrew Hunter, senior U.S. economist for Capital Economics, wrote.
• Private sector activity in the United States slowed down to a one-year low in September, according to a new report by IHS Markit released on Tuesday. The Composite purchasing managers’ index (PMI) was reported at 55 in September, down from 55.4 in August.
• Moderna was the worst performing S&P 500 stock for the week, losing 11%. Shares continued to slide lower, making Moderna the worst S&P 500 performer for the second week in a row. This week Sweden, Denmark, Finland, and Iceland suspended Moderna’s COVID shots for younger people due to the risk of heart inflammation as a potential side effect.

Opportunities

• Republicans and Democrats announced a deal on a debt-limit fix, with an additional $480 billion in borrowing capacity expected to carry through to December 3. This bill relieves immediate worry that the debt ceiling discussion will come up again soon, and it will give Democrats more time to work on details of their proposed stimulus bill.
• Bloomberg economists predict the University of Michigan Sentiment Index to increase to 73.5 in preliminary October readings, from 72.8 in August. They also forecast the current conditions and expectations to improve as the economy continues to recover supported by fiscal and monetary stimulus. The data will be announced next Friday, October 15.
• The big banks will kick off third quarter earnings season next week. JPMorgan is out on Wednesday, followed by Citigroup, BofA, Wells Fargo and Morgan Stanley on Thursday, and Goldman Sachs on Friday. Several banks flagged some potential green shoots for loan growth. A majority of the banks may continue to exceed consensus earnings per share expectations in the third quarter.

Threats

• Federal Reserve tapering continues to be flagged as one of the bigger risks for the market. This week we had mixed signals from the job market. The nonfarm payrolls numbers were disappointing but on the other hand unemployment fell to a new post-COVID low. The tapering will come, and the big question remains when it will start.
• Due to higher energy prices, inflation will likely remain elevated. Bloomberg economists predict consumer price index (CPI) data to stay at 5.3% in September with core inflation (excluding food and energy) moving higher to 4.1% from 4.0% in August.
• Bloomberg reported that middle-class financial security has eroded in the past decade and America’s middle class now holds a smaller share of U.S. wealth than the top 1% of earners. The middle 60% of U.S. households by income saw their combined assets drop to 26.6% on national wealth as of June, the lowest in Federal Reserve data going back three decades. For the first time, the super-rich had a bigger share, at 27%.

Blockchain and Digital Currencies

Strengths

• Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Nano Dogecoin INTC, rising 50,429,343,990%.
• According to Bloomberg, Bank of America (BofA) has now launched research coverage of cryptocurrencies due to growing institutional interest in the sector and massive appetite among retail clients. On Bloomberg Surveillance this week, head of global research from BofA Candance Browning said, “This isn’t just Bitcoin anymore, this is digital assets.”
• US Bancorp, the fifth-biggest retail bank in the nation, is joining rivals State Street and Bank of New York Mellon in offering crypto custody services. The bank is offering crypto custody services to institutional investment managers with funds in the U.S. or the Cayman Islands, according to Bloomberg.

Weaknesses

• Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Big Digital Shares BDC, down 81.47%.
• Central banks are becoming more concerned about cryptocurrencies, but particularly regarding stablecoins. The Bank of International Settlements, the organization that represents most of the world’s central banks, published guidance on how regulators can oversee them, writes CoinDesk.
• According to CEO of Galaxy Digital Mike Novogratz, “a central bank-issued currency would be a disaster,” reports CoinDesk. “Governments are not good at innovating, and I don’t think anyone in the West wants to give up as much privacy as the Chinese are willing to give up.” The article goes on to highlight the perceived risk if governments start meddling in cryptos.

Opportunities

• Federal Reserve Chairman Jerome Powell said that he has no intentions of banning cryptocurrencies. While testifying before Congress, Powell was asked by lawmakers if it was the Fed’s intention to ban or limit the use of digital assets, and Powell simply responded “no,” according to Decrypt.

• An article published by Bloomberg states that in the eyes of Bank of America
  (BofA) more regulation could be positive for cryptocurrencies. Once rules are established, the uncertainty over how to invest in crypto will be lifted, a strategist at the bank wrote.
• According to an article published by Decrypt, The U.S Department of Justice has announced a new cryptocurrency enforcement team. Attorney General Lisa Monaco stated that, “We have already made great stride in combating misuse of cryptocurrency platforms, and we’ve shown we won’t hesitate to go after those platforms that help criminals launder or hide their criminal proceeds.”

Threats

• Stablecoin backer Circle is under investigation by the SEC. In an article published by Bloomberg, Circle received an investigative subpoena from the SEC requesting “documents and information regarding certain of holdings, customers, programs, and operations.”
• Brian Armstrong, CEO of the largest crypto exchange in the U.S., Coinbase, is concerned that U.S. business leaders will start quitting due to the intense scrutiny that they face. “America could be losing some of its best talent from this, and it has some parallels to what is happening to successful CEOs in China” said Brian Armstrong in article published by Bloomberg.
• Gary Gensler confirms that the SEC won’t ban crypto, but Congress could. During his hearing at the House Committee on Financial Services, Gensler emphasized that prohibiting cryptocurrency does not fall within the SEC’s mandate, stating “that would be up to Congress,” reports CoinTelegraph.

Gold Market

This week spot gold closed the week at $1,757.13, down $3.85 per ounce, or 0.22%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 4.40%. The S&P/TSX Venture Index came in up 1.34%. The U.S. Trade-Weighted Dollar ended the week essentially flat.

Strengths

• The best performing precious metal for the week was palladium, up 8.19% despite hedge funds taken their net-short position to record levels. Gold extended gains after a key U.S. jobs report fell well short of expectations in September, complicating a potential decision by the Federal Reserve to begin scaling back monetary support before year end. The U.S. added fewer jobs than forecast for a second month in a row, pointing to weakness in the labor market recovery. Nonfarm payrolls increased 194,000 last month after an upwardly revised 366,000 gain in August, a Labor Department report showed Friday. The unemployment rate fell to 4.8%, partly reflecting fewer Americans looking for work. Meantime, average hourly earnings jumped. The dollar and Treasury yields slumped in response, boosting bullion’s appeal.

• On the back of production from Judd commencing this quarter, increasing operating flexibility and a very low capital cost expansion opportunity, K92 Mining has approved a 25% production increase to 500,000 tonnes per annum, an interim bump ahead of the larger Phase 3 expansion that will commence later in 2023. The company anticipates the low cost ($2.5M) expansion to commence commissioning in Q3 2022.
• Calibre Mining pre-reported strong third quarter production results, beating consensus expectations for the quarter. The company maintained 2021 guidance (170,000-180,000 ounces) and with the fourth quarter anticipated to be the strongest quarter of the year, the company expects to achieve the top end of the guided range. The company reported a strong quarter-end cash position of $72.9 million (with no debt), up $6.6 million from $66.3 million in the second quarter, and remains well positioned to generate significant free cash flow while progressing with its exploration and development programs.

Weaknesses

• The worst performing precious metal for the week was gold, down 0.22%. Gold Road cut its production forecast. As a result of the lower production rates in the June and September quarters, annual guidance has been revised to between 250,000 and 260,000 ounces from original guidance of between 260,000 and 300,000 ounces.
• The World Gold Council (WGC) provided updated ETF data showing net outflows of 15.2 tons in September, with outflows in North America and Europe only partially offset by inflows in Asia. Global gold ETF holdings at September-end were 3,592 tons, the lowest level since April 2021.
• As U.S. approaches its debt limit, some analysts have suggested the Treasury Department could simply mint a platinum coin in a value of $1 trillion or more and deposit it at the Fed to give the government greater borrowing authority. “I’m opposed to it and I don’t believe that we should consider it seriously,” Treasury Secretary Janet Yellen said on CNBC about the idea of minting the coin to avoid breaching the debt limit. “It’s really a gimmick,” she says.

Opportunities

• According to Stifel, Great Bear Resources has upside with its Dixie gold project. They strongly expect this to be a 10-million-ounce deposit. With a four-kilometer strike length, drilling down to 400 meters regularly hitting the expected and predictable mineralization, high-grade and consistent domains within a much larger, lower grade mineralized envelope.
• The world’s top miners are confident they can eliminate emissions from their own operations by 2050 but aren’t yet sure their customers can do the same. The International Council on Mining and Metals’ 28 members, which include producers like BHP Group and Glencore Plc, on Tuesday pledged to cut so-called Scope 1 and 2 emissions from their own operations and the electricity they use to net-zero by 2050.
• If the 2021 production guidance is met, the collective production of the top ten global gold producers is expected to recover by around 13.5% in the second half compared to the first half, according to GlobalData. The company notes that total production is expected to be 14.9 million ounces in the second half, compared to 13.1 million ounces in the first half.

Threats

• Africa is losing new investments in gold mining to a resurgence in risks such as political instability and resource nationalism, Chris Griffith, chief executive officer of Johannesburg-based Gold Fields says. “The risks are increasing and post Covid, we are seeing some of these risks materially rising and because of that exploration is going to other countries. We could see much exploration in Africa but it’s being harmed by coups, resource nationalism”.
• Australian Mining reported on Newmont Mining $150 million invested to deliver the gold industry’s first Autonomous Haulage System fleet at Boddington, Western Australia’s largest gold mine. Expectations are that with the transition to a fully autonomous haulage fleet of 36 trucks, the company will improve mine safety and productivity, while extending mine life. Ramping up the truck fleet to full productivity as the site fine-tunes the technology for operation in a deep open pit mine has been a challenge. During commissioning, the project faced several challenges, including unusually severe weather and heavy rainfall, shovel reliability and operational delays associated with managing bench hygiene as mining moves into deeper sections of the pit. As a result, Boddington delivered lower ex-pit tons than expected, with full-year 2021 gold production anticipated to be approximately 140 thousand ounces, below original guidance estimates of 830 thousand ounces.
• Members of the National Union of Metalworkers of South Africa started a national strike on Tuesday following a deadlock in negotiations for a new wage deal.  Union members didn’t report for duty in five of the country’s nine provinces and will hold pickets and marches during the morning, Numsa spokeswoman Phakamile Hlubi-Majola said by phone. The union has about 155,000 members and the strike is expected to attract more than 300,000 workers, including from allied unions, she added. “The strike is on and nothing has changed,” Hlubi-Majola said. “As of this morning, workers didn’t go to work, so we are on strike.”

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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 (09/30/2021):

Deutsche Lufthansa AG
United Airlines Holdings Inc.
Gazprom PJSC
Tesla Inc.
Amazon.com Inc.
Apple Inc.
Torex Gold Resources Inc.
Centerra Gold Inc.
Gran Colombia Gold Corp.
Dundee Precious Metals Inc.
Pretium Resources Inc.
Endeavour Mining PLC
Barrick Gold Corp.
Eldorado Gold Corp.
SSR Mining Inc.
Silver Lake Resources Ltd.
Karora Resources Inc.
K92 Mining Inc.
Calibre Mining Corp.
BHP Group Ltd.

*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 period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The Caixin China General Services PMI (Purchasing Managers’ Index) is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private service sector companies. The index tracks variables such as sales, employment, inventories, and prices.
A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
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.
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.
Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE. Effective 8/31/2018, Frank Holmes serves as the interim executive chairman of HIVE.