It’s Always Darkest Before the Dawn

For the billions of observant Christians and Jews across the globe, Holy Week is the most religious time of the year. Whereas Christians observe and celebrate Christ’s crucifixion and resurrection, Jews commemorate the Hebrews’ exodus from enslavement in Egypt to the Promised Land.

In both cases, it’s a time of renewal and rebirth—something the U.S. and world need now more than at any other period in modern memory.

Even if they’re not among the 430,000 people in the U.S. who are confirmed to have contracted the coronavirus as of Thursday morning, a great number of Americans are hurting this Easter and Passover. Some 6.6 million additional workers filed for jobless claims this week, bringing the three-week total to nearly 16 million after last week’s figures were revised up to 6.9 million, an all-time record.

CNBC estimates that after factoring in the most recent tally, the U.S. has lost 10 percent of its workforce due to business closures.

However, it’s always darkest before the dawn, as they say, and there’s reason to keep hope alive that conditions will be improving sooner than expected.

The U.S. recorded its highest number of single-day deaths involving COVID-19 on Tuesday, but it’s important to remember that, as tragic as they are, deaths are a lagging indicator. The numbers to watch are new cases, and by most accounts, those are beginning to flatten. In New York City, the epicenter of the outbreak in the U.S., hospitalizations are slowing.

A World Without Hand-Shaking?

With the curve potentially beginning to flatten, a lot of people may be wondering when businesses can open again and life return to normal. A better question, I think, is what “normal” will look like in a post-COVID-9 world. As I discussed in an earlier post, businesses will undoubtedly need to rethink every part of operations, from marketing to global supply chains.

Dr. Anthony Fauci, the top U.S. scientist on infectious diseases, told the Wall Street Journal this week that Americans may need to stop shaking hands, even after social distancing measures are relaxed.

“When you gradually come back, you don’t jump into it with both feet,” Fauci said. “You say, what are the things you could still do and still approach normal? One of them is absolute compulsive hand-washing. The other is you don’t ever shake anybody’s hands.”

For many—especially those in business and politics—avoiding hand-shaking is likely a bridge too far.

Wuhan, China Reopens…To an Extent

Compared to what residents of Wuhan, China must do, keeping your hands to yourself may be preferable.

As you may have heard, Wuhan, the central Chinese city of 11 million where the novel coronavirus originated, officially ended its lockdown this week—but life there is still far from “normal.” To move freely in and out of the city, which was sealed off on January 23, residents must show authorities a government-sanctioned phone app that indicates their risk of infection based on a number of datapoints, including their home address, recent whereabouts and medical history.

Obviously such a solution wouldn’t be tolerated here in the U.S., as it raises a host of privacy and personal liberty issues. But whatever measures China is taking appear to be producing favorable results, if its daily reports are to be believed. On Tuesday, the country reported no deaths related to COVID-19 for the first time since January.

Evercore ISI analysts believe that the success of China’s “health code” app in slowing the spread of infection has given Beijing another reason to surveil and collect data on its citizens. The government “will want to track the footsteps of every citizen… so that preventive and control measures will be implemented more efficiently next time an epidemic hits,” writes Donald Straszheim, head of Evercore’s China research team. “The cause of big data is set to benefit, and ultimately public and commercial service sectors [may] become more efficient due to more data collected.”

Majority Believe Travel Will Normalize Next Year

Readers may also be wondering when air travel and hotels will return to a pre-COVID-19 “normal.” That’s precisely the question Evercore ISI analysts were given this week. More than 50 percent of respondents believe that hotels and leisure air travel will return to normal by year end 2021. To a lesser extent, analysts believe the same about corporate air travel.

Duane Pfennigwerth, airline equity researcher, explains that there’s a reason why leisure could bounce back faster than business: “Travel policies and a reluctance to host or travel to large group events may be a headwind to corporate travel for some time.”

As such, whereas there’s the potential for a V-shaped recovery in the broader economy, Pfennigwerth believes we’re more likely to see a U-shaped recovery in air travel. What’s more, “domestic leisure will recover more quickly than long-haul international.” Those carriers include Allegiant, Spirit, Alaska, JetBlue and Southwest, with Southwest having entered with this crisis with the strongest balance sheet, according to Pfennigwerth.

Buybacks and Dividends to Be Reduced (Or Cut Altogether)

We can file this under “No Surprise,” but I’ll share it with you anyway. In a note to clients this week, Goldman Sachs says it expects stock buybacks by S&P 500 companies to be cut in half this year to some $371 billion from $730 billion in 2019. Since the start of March, as many as 51 firms have suspended their share repurchases to preserve capital. Companies that have prioritized buybacks have actually lagged so far this year, Goldman analysts say, with investors rewarding those in the process of reducing debt and improving their balance sheets.

As for dividends, an estimated 21 S&P 500 companies have announced they would be cutting or suspending payouts for the second quarter, including Royal Caribbean Gap, Kohl’s, Ross Stores, Starbucks and MGM Resorts. According to Bloomberg, companies are slashing dividends at the fastest pace since 2009 as they try to preserve capital. Consumer discretionary is expected to make the deepest cuts with a decrease of as much as 25 percent between the first and second quarters.

In light of this, our friends at Visual Capitalist have created a helpful infographic of dividend stocks that are still offering strong yields. I urge you to check it out!

Did you catch the latest news about our airlines ETF? If not, read the press release by clicking here!

I wish everyone a blessed Easter and Passover!

Gold Market

This week spot gold closed at $1,683.63, up $62.92 per ounce, or 3.88 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 14.43 percent. The S&P/TSX Venture Index came in up 9.91 percent. The U.S. Trade-Weighted Dollar fell 1.04 percent.

Date Event Survey Actual Prior
Apr-9 PPI Final Demand YoY 0.5% 0.7% 1.3%
Apr-9 Initial Jobless Claims 5000k 6606k 6867k
Apr-10 CPI YoY 1.6% 2.3%
Apr-16 Germany CPI YoY 1.4% 1.4%
Apr-16 Housing Starts 1313k 1599k
Apr-16 Initial Jobless Claims 6606k
Apr-16 China Retail Sales YoY -10.0%


  • The best performing precious metal for the holiday shortened week was silver, up 7.26 percent, likely on the waves of money printing that’s just getting started. Gold rose above $1,700 an ounce for the first time since 2012 on Tuesday after March’s panic selling to raise cash has subsided. ETFs backed by gold added 263,504 troy ounces on Wednesday, bringing net purchases for the year so far to 9.06 million ounces. According to Bloomberg data, this is the 13th straight day of growth.
  • European Union (EU) finance ministers failed to agree on a strategy to mitigate the economic impact of the coronavirus, sending sentiment in Europe down and aiding safe havens, reports Bloomberg. Gold has benefited from its status as a perceived safe haven asset. UBS strategist Joni Teves said in a note that gold’s uptrend remains intact. “Further deterioration in economic data, continued policy easing and the compression in real rates should make room for further gains in the weeks and months ahead.”
  • The current cycle of easing might not be over yet. The copper-to-gold ratio has a strong correlation with 2-year Treasury yields, and with the preference for gold over copper growing, it suggests that rates could fall even further, reports Bloomberg. The preference for one metal over the other gives an idea of expectations for future growth and policy decisions. Copper is often viewed as a pro-cyclical industrial output and gold is seen as a haven.


  • The worst performing precious metal for the holiday shortened week was palladium, up 0.03 percent. India’s biggest jeweler by market value, Titan Co., said in an exchange filing that revenue in March fell by 5 percent due to lost sales, but that in the first two months of the year revenue actually increased by 16.5 percent. The company said total revenue growth was impacted severely by India’s lockdown to contain the spread of the coronavirus. Last week it was reported that the country is bracing for the lowest gold sales in 25 years.
  • South Africa shut down its mining industry to contain the virus, which involved sending more than 450,000 workers home in 24 hours. Bloomberg reports that it will take much longer than a day to get its mines back up and running. Impala Platinum Holdings said that it could take three to four weeks for production at the deepest mines to resume as returning employees must be screened by the virus and have temperatures checked. It is positive, though, that operations will resume after South Africa’s 21-day national lockdown.
  • Gold prices diverged again this week. Bloomberg notes than an ounce of gold on the Comex was $50 more expensive than an ounce in London on Tuesday. The usual difference between the two should only be a few dollars. This instance is different than two weeks again – there’s no plenty of supply, but traders are staying away due to high risk.


  • In company-specific news this week, JPMorgan initiated coverage of Newmont Corp. with a recommendation of overweight. GFG Resources saw its shares double after the company announced on Monday that exploration results from a northern Ontario project showed very high-grade gold mineralization. B2Gold Corp. was up Thursday morning after it reported record total gold production of 262,632 ounces in the first quarter and that revenue was up 44 percent from the year prior. Kirkland Lake Gold said it saw a 43 percent yearly increase in gold output in the first quarter of 330,864 ounces.
  • Silver could outperform gold once the world’s manufacturing returns to full speed. Silver is more of an industrial metal than gold, being used widely in solar panels. Bloomberg’s Eddie van der Walt writes that when the world’s engines start turning again, silver should see a pickup in demand. Van der Walt also cites the high gold/silver ratio as a driver. It now takes more than 100 ounces of silver to buy one ounce of gold – meaning silver is oversold.
  • Joe Foster, gold portfolio manager at Van Eck, told Kitco News in an interview this week that gold could top $2,000 an ounce soon and that miners are in good shape to weather the coronavirus storm. “Balance sheets are healthy pretty much across the board. Debt ratios… are at a fraction of the average for the S&P 500. Financially, they’re in very good shape.” Foster adds that gold was already in an uptrend before the pandemic began.


  • Peter Kraus, former CEO of AllianceBernstein, said in a Bloomberg TV interview this week that he expects the rout in credit markets to get worse and that prices for goods will eventually start to rise amid government stimulus. Kraus said that, over the long-term, he thinks “this significant amount of fiscal stimulus that we’re having in the world will create an inflationary cycle.” He also criticized the growing trend of passive fund management strategy.
  • Jobless claims totaled 6.6 million for the latest period – above expectations for 5 million to 6 million. This was the third straight week that new claims topped 3 million. Although gold rallied on the news, this is a big negative for many Americans and a clear sign that the coronavirus is having a massive impact on the economy. The International Monetary Fund (IMF) director said this week that the pandemic could trigger the worst recession since the Great Depression.
  • Oil prices showed some signs of recovery this week but still finished down. Miners had been enjoying the lower fuel costs, as it can be one of the largest operating costs at projects. However, oil prices still remain very low on a historical basis.

Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 10.77 percent. The S&P 500 Stock Index rose 10.40 percent, while the Nasdaq Composite gained 8.90 percent. The Russell 2000 small capitalization index rose 14.82 percent this week.
  • The Hang Seng Composite rose 4.35 percent this week; while Taiwan was up 4.24 percent and the KOSPI rose 6.46 percent.
  • The 10-year Treasury bond yield rose 12 basis points to 0.721 percent.

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

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