Precious Metals Were the Winners in H1 2020… And It Wasn’t Even Close

Every year around this time, we check in with raw materials for our popular commodities halftime report. This year, it wasn’t even a competition.

Precious metals were the big winners for the first six months of 2020. Spot gold took the first place position, rising over 17 percent, followed in second place by silver, up nearly 2 percent. Palladium rounded out the top three, essentially flat at negative 10 basis points.

Platinum—which, like palladium, is used in the production of emissions-scrubbing catalytic converters—trailed substantially behind its precious metal brethren for the six months as global auto sales plunged amid coronavirus lockdown measures.

However, that may be set to change. Automobile manufacturers in China, the world’s number two auto market, announced today that second-quarter sales increased more than 10 percent compared to the same period a year earlier. In fact, June sales in China hit a new record high, with 2.3 million vehicles sold.

Gold in a Secular Bull Market… Ready for $2,000 an Ounce?

Gold had a phenomenal week, notching its fifth straight week of gains as investors sought a safe haven from sinking government bond yields. On Tuesday, the yellow metal broke through the $1,800 an ounce resistance level for the first time since 2011. It touched a nine-year high of $1,828 on Wednesday before declining on profit-taking, but it’s clear to most analysts that the precious metal is in a secular bull market.

Many are now predicting all-time record highs for gold in the next 12 months, with Goldman Sachs forecasting $2,000 on an “uneven recovery.”  

“Go long copper, silver and steel, and stay long gold,” Goldman analysts said in a note to investors this week.

Gold stocks and gold-backed ETFs continue to see incredible inflows during this rally. Gold mining seniors, as measured by the NYSE Arca Gold Miners Index, were up a phenomenal 145 percent for the 12-month period.

Meanwhile, holdings in total known gold-backed ETFs stood at a record 104.3 million ounces on July 9, the equivalent of more than 2,956 metric tons. To put that massive sum into perspective, 2,956 tons is more gold than any country on earth has in its official reserves, except for only two: the U.S. (8,133.5 tons) and Germany (3,363.6 tons).   

In a note dated July 7, the World Gold Council (WGC) commented that the long-term investment case for gold remains intact.

“The economic and geopolitical environment remains supportive for gold investment, with most of the existing gold demand drivers still relevant,” says the London-based group, adding: “The opportunity cost of holding gold remains low, as continued central bank activity keeps interest rates low or negative, while several countries continue to experience high levels of tension/unrest.”

Indeed, the amount of negative-yielding global government bond yields has surged some 81 percent since March 19 and now stands at just under $14 trillion, the most since early March.

Silver has likewise been catching a bid. The white metal touched $19.37 an ounce this week, just below its 52-week high of $19.54.

Global Manufacturing Heading in the Right Direction, Constructive for Base Metals

Base metals all ended lower for the six months as COVID-19 all but brought manufacturing to a halt and shuttered factories across the globe.

I say this with caution, but there could be some good news ahead. The JPMorgan Global Manufacturing PMI, which tracks manufacturing activity around the world, posted a 47.8 in June. Although that doesn’t quite indicate expansion, it means that factories are contracting at a much slower rate than they were in the two previous months. What’s more, June’s gain was the strongest on record for a single month, up 5.4 points from 42.4 in May, indicating a recovery could be underway.  

On a country-by-country basis, manufacturing growth was strongest in China, France, Italy, the United Kingdom and (interestingly) Brazil, which has been among the hardest hit by the virus.

China’s manufacturing PMI reading in June, at an expansionary 51.2, was its highest for 2020 so far. As the world’s largest consumer of base metals, China’s improvement is highly constructive for the group.

Zinc posted its biggest weekly gain since 2016, advancing 8.22 percent, largely in response to the positive news. Copper, meanwhile, has surged some 33.5 percent since its 52-week low of $217 a pound on April 21. Copper miners, as measured by the Solactive Global Copper Miners Index, have fared even better, soaring more than 95 percent since its recent low on March 23 as Chinese copper smelters crank up production.

Energy Lagged. A Buying Opportunity?

Energy was the worst performing S&P 500 sector of the first half of the year, falling as much as 35.3 percent, just beating banks, which sank 34.9 percent. Natural gas, coal and oil were all down more than 20 percent for the six-month period as travel restrictions were put in place and demand forecasts deteriorated. Back in April, I shared with you IHS Markit’s prediction that global oil supply would exceed demand by more than a staggering 1.8 billion barrels in H1 2020. This week we learned that storage tanks and vessels in Iran, one of the world’s leading crude exporters, are nearing full capacity.

Like other distressed sectors and industries, including airlines, this could be a huge buying opportunity.

Below is the ratio between the Bloomberg Commodity Index and the S&P 500. What it shows is that raw materials, and particularly energy, are at their deepest discount relative to the market in half a century. 

Amazon Once Again the World’s Most Valuable Brand

Kantar Group, a London-based consulting firm, recently published its Brandz Top 100 Most Valuable Global Brands for 2020, and once again, the Amazon brand ranked first in the world at $416 billion. (This is not to be confused with market capitalization, of which Amazon’s currently stands at around $1.6 trillion.)

Rounding out Kantar’s top 10 to were Apple, Microsoft, Google, Visa, Alibaba, Tencent, Facebook, McDonald’s and Mastercard.

Besides being highly recognizable, all of these brands are similar in that they’re highly innovative and have managed to adapt to change. That includes change in the face of global pandemic, which few people saw coming.

During the pandemic, I know I used my fair share of Amazon Prime, used by an estimated 112 million people in the U.S. alone. I was curious to know if you have as well. We’d love to hear how your spending habits have shifted during this time.

Feel free to email us at [email protected]. Let’s chat!


Gold Market

This week spot gold closed at $1,798.70, up $23.32 per ounce, or 1.31 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 6.00 percent. The S&P/TSX Venture Index came in up 9.12 percent. The U.S. Trade-Weighted Dollar fell 0.67 percent.

Date Event Survey Actual Prior
Jul-9 Initial Jobless Claims 1,375k 1,314k 1413k
Jul-10 PPI Final Demand YoY -0.2% -0.8% -0.8%
Jul-14 Germany CPI YoY 0.9% 0.9%
Jul-14 Germany ZEW Survey Expectations 60.0 63.4
Jul-14 Germany ZEW Current Situation -63.0 -83.1
Jul-14 CPI YoY 0.6% 0.1%
Jul-15 China Retail Sales YoY 0.5% -2.8%
Jul-16 ECB Main Refinancing Rate 0.000% 0.000%
Jul-16 Initial Jobless Claims 1250k 1314k
Jul-17 Eurozone CPI Core YoY 0.8% 0.8%
Jul-17 Housing Starts 1172k 974k


  • The best performing precious metal for the week was silver, up 4.25 percent. Investors poured money into silver-backed ETFs this week as the precious metals trade begins to increase in scope. Spot gold prices reached the key $1,800 an ounce level. This milestone could help push the metal closer to its all-time high above $1,900. Bloomberg notes that gold futures traded almost as high as $1,830 an ounce this week.

  • The SPDR Gold Shares ETF has seen 15 straight weeks of inflows, the longest streak since its debut in 2004, boosting assets to $68 billion, according to data compiled by Bloomberg. Investors continue to get on the yellow metal on speculation that yields will stay low for years, increasing the appeal for assets that don’t pay interest. Holdings in all gold-backed ETFs rose to 3,234.6 tons on Tuesday, which includes 655.6 tons so far this year, and is more than the total added in 2009.
  • It was a strong week for silver, with the metal trading above $19 an ounce after jumping over a dollar in five days. Analysts are expecting the $20 level soon. Demand is being driven by safe-haven appeal and increasing industrial demand in green energy. Silver is outperforming gold. TD Securities said in a note “the white metal outperformed gold by a factor of two, as it jumped some 33 percent over the previous three months.”


  • The worst performing precious metal for the week was gold, still up 1.31 percent. Gold and silver prices were lower in midday U.S. trading on Thursday due to “normal” profit taking, according to Kitco News.
  • Russia’s ecological watchdog says that Norilsk Nickel, the world’s largest producer of palladium, should pay $2 billion for its massive Arctic diesel spill in May. The miner said it would fully fund clean-up efforts but estimated the costs at just $150 million excluding fines. Bloomberg notes that Norilsk fell as much as 5.8 percent on Monday and that it is now down more than 5 percent for the year. The company could cut dividends by $1.2 billion to cover the $2 billion requested for clean-up.
  • Barrick Gold Corp., one of the world’s two largest gold producers, plans to take Papua New Guinea to international arbitration if it can’t settle a dispute over its giant mine in the country, writes Bloomberg. Back in April, the government said it would not renew Barrick’s right to operate the Porgera gold mine. Now the company has said its local joint-venture unit will pursue all legal options to defend its interests and recover damages.


  • Wells Fargo Investment Institute said it predicts gold will rise to $2,000 to $2,300 an ounce by the end of 2021. “We still see a fair amount of upside potential for gold’s price. But breaking above $1,800 and then again the all-time high of $1,900 will be no small feat,” analyst wrote in a note on Monday. Australia & New Zealand Banking Group released a bullish note on gold. “The buoyant gold market has almost perfect conditions. Lower interest rates, ample liquidity and a weaker U.S. dollar are keeping the price afloat.”
  • According to analysts at Bank of America, the mining sector was a “buyers’ market” in the second quarter with a total of 12 deal made. The bank said it was the most active quarter since 2012 for M&A. “Mid-tier producers not involved in M&A risk being left behind by their rapidly growing peers.” Kitco News notes that global gold industry reserves have been in decline, pushing miners to acquire rivals or juniors that have deposits.
  • The yield on 10-year Treasury Inflation-Protected Securities fell to negative 0.7948 percent on Monday – the lowest since late 2012 and close to the all-time low of negative 0.9269. Bloomberg’s Jake Lloyd-Smith notes that these ultra-low real yields will boost the gold price in the second half of this year.


  • The U.S. hit 3 million coronavirus infections this week – demonstrating that the virus spread is not under control. Another 1.3 million Americans filed for jobless benefits in the past week. Reuters notes that cases are rising in 41 of the 50 pasts over the past two weeks and that many reopening plans have been halted or reversed.
  • On Friday, gold prices fell alongside stocks as escalating U.S.-China tensions soured market sentiment, according to Ilya Spivak, Head Strategist at APAC. The risk-off backdrop drove haven demand for the U.S. dollar, as reported by DailyFX, which undermined the appeal of anti-fiat alternatives epitomized by the yellow metal, driving it lower.
  • BMO Capital Markets lowered its forecasts for average prices of platinum group metals during 2020, reports Kitco. Analysts reduced the 2020 average platinum price forecast to $875 an ounce from $976 previously, although the bank does look for prices to climb from the mid-morning level of $788 to a fourth-quarter average of $940.


Index Summary

  • The major market indices finished mixed this week. The Dow Jones Industrial Average gained 0.96 percent. The S&P 500 Stock Index rose 1.76 percent, while the Nasdaq Composite climbed 4.01 percent. The Russell 2000 small capitalization index lost 0.64 percent this week.
  • The Hang Seng Composite gained 5.23 percent this week; while Taiwan was up 2.27 and the KOSPI rose 0.70 percent.
  • The 10-year Treasury bond yield fell 3 basis points to 0.64 percent.

July 10, 2020

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

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