Record Unemployment Claims and Oil’s Best Day Ever

Some of you may have already picked up on this, but any discussion about the COVID-19 crisis will undoubtedly include a number of superlatives such as “highest ever,” “most on record” and “unprecedented.”

This week’s events were no exception. On Thursday, a head-spinning 6.6 million Americans filed new claims for unemployment benefits, bringing the two-week total to 10 million. That’s more than the combined populations of Los Angeles and Chicago.

Seeking a way to properly visualize the massive spike in initial jobless claims, analysts at Cornerstone Macro noted that they’ll need to be log-scaled now and forever for us to see the business cycle.

“There isn’t much to say about this chart aside from letting the chart show just how unique a backdrop today is,” Cornerstone wrote. “Yes, it’s different this time… for all to see. While it is nearly impossible to maintain these levels of initial claims going forward for too long, we wouldn’t read a ‘peak’ in this data as ‘good news.’ If claims are still near 600k in two months, we’ve got a problem.”

Every crisis has its own unique challenges, but none in my lifetime has been so far-reaching or pervasive, impacting all corners and facets of human life.

As we await the curve of new coronavirus cases to flatten and begin to roll over, it may be difficult sometimes to remain hopeful. Besides finding solace in my family, friends and faith, I’m relieved to know that the world’s greatest and brightest scientists are, at this very moment, working tirelessly as one to defeat this “invisible enemy,” as President Donald Trump has called it.

Never in the history of our species “have so many experts in so many countries focused simultaneously on a single topic and with such urgency,” the New York Times wrote this week. “Nearly all other research has ground to a halt.”

I’m hopeful that this unprecedented scale of intellectual bandwidth will bring us answers and a solution. The world may be “closed” right now, but as I heard it put recently, the “grand reopening” is coming soon.

Are Oil Production Cuts Coming?

Crude oil had its best trading day ever on Thursday, increasing by nearly a full quarter after President Donald Trump tweeted optimism that Saudi Arabia and Russia may be planning to reduce production by “approximately 10 Million Barrels, and maybe substantially more.”

Up until this point, Saudi Arabia and Russia had been increasing their output as the two competing super-producers were locked in a price war.

Although likely overly ambitious at 10 million barrels a day, a production cut is welcome news right now for the U.S. oil and gas industry, which has had to make cuts of its own to support prices. The number of active North American oil rigs has decreased by 115 so far this year, from 677 at the end of December to 562 as of today, according to the Baker Hughes oil rig count. Ten percent fewer rigs were running this week compared to last week, representing the biggest one-week drop in North American rig activity since February 2006, when the number fell close to 17 percent.

The price jump came just two days after oil posted its worst quarter on record, slipping an incredible 66 percent as global demand dried up and stocks began to build around the world. With an estimated 92 percent of the world now under some form of social distancing because of the coronavirus pandemic, the demand destruction has been far faster than at any other time in history.

A Global Surplus of 1.8 Billion Barrels

IHS Markit now predicts that supply will exceed demand by more than 1.8 billion barrels in the first half of 2020. This is a “staggering number,” writes Rob Smith, the firm’s director of global fuel retail, who points out that the previous record was set in the first half of 2015, when the world had a surplus of “only” 350 million barrels.

The question now is where to put all the excess supply. According to IHS Markit estimates, there’s currently only 1.6 billion barrels’ worth of storage capacity, so at some point something will have to give. Bloomberg reports that some producers, especially those that are landlocked, are already paying customers to take the oil off their hands. Meanwhile, daily rates for very large crude carriers (VLCC) have recently hit a new record, with some as high as $229,000. Oil companies are having to turn to rail yards in Texas, Saskatchewan and Manitoba to meet the growing need for a place to stash excess crude.

The visual below comes courtesy of energy market consultant Rapidan Energy Group. The group’s storage capacity estimate is slightly different from IHS Markit’s, but the point remains the same: Oil stocks are building fast, and the world is running out of places to store it.

You might wonder why we don’t just refine the stuff. The truth is that it’s far more practical to store crude than it is to turn it into a finished product for which there’s limited demand right now. Crude can be kept indefinitely. Diesel and jet fuel, on the other hand, have a shelf life of around a year, and gasoline begins to degrade after little more than a month.

Energy Earnings Expectations Revised Down the Most

The S&P 500 is expected to enter an earnings recession starting this quarter, according to Refinitiv, defined as two consecutive quarters of year-over-year declines. The financial data group has revised down its S&P 500 earnings expectations for the full year, with energy, transportation, automobiles and consumer services seeing the largest downward revisions to earnings estimates.

Perhaps not surprisingly, the industries that have seen the smallest downward revisions include utilities, telecommunication services, pharmaceuticals and food and staples retailing.

I believe it’s important for investors to be aware of earnings expectations so they can adjust their portfolios accordingly as we await the world’s “grand reopening.”

Stay safe, and have a blessed weekend!

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Gold Market

This week spot gold closed at $1,620.81, down $7.35 per ounce, or 0.45 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 2.33 percent. The S&P/TSX Venture Index came in off just 1.19 percent. The U.S. Trade-Weighted Dollar rose 2.34 percent.

Date Event Survey Actual Prior
Mar-30 Germany CPI YoY 1.3% 1.4% 1.7%
Mar-31 Eurozone CPI YoY 1.1% 1.0% 1.2%
Mar-31 Conf. Board Consumer Confidence 110.0 120.0 132.0
Mar-31 Caixin China PMI Mfg 45.0 50.1 40.3
Apr-1 ADP Employment Change -150k -27k 179k
Apr-1 ISM Manufacturing 44.5 49.1 50.1
Apr-2 Initial Jobless Claims 3763k 6648k 3283k
Apr-2 Durable Goods Orders 1.2% 1.2% 1.2%
Apr-2 Change in Nonfarm Payrolls -100k -701k 275k
Apr-9 PPI Final Demand YoY 0.5% 1.3%
Apr-9 Initial Jobless Claims 5000k 3283k
Apr-10 CPI YoY 1.6% 2.3%


  • The best performing precious metal for the week was gold, off only 0.45 percent. The yellow metal is continuing its strong showing. Gold futures had its sixth straight quarterly gain in the first three months of this year – the longest stretch of gains since 2011. Bullion rose 4.8 percent in the first quarter. Last week, the gold market was thrown into turmoil as logistical disruptions caused speculation that there wouldn’t be enough bullion in New York to deliver against contracts traded on the Comex, but things turned around this week. Bloomberg News writes: “Open interest in April futures or the amount of outstanding contracts eligible for potential delivery – on Tuesday was the equivalent of 737,800 ounces, down from as much as 1.96 million ounces last week. By comparison, total deliverable stocks in Comex warehouses were 3.7 million ounces on Wednesday, jumping from about 1.8 million ounces a week earlier.” Logistical issues in the gold market could be transitory, according to Bart Melek, head commodity strategist at Toronto Dominion Bank.
  • Hedge funds cut their short positions in gold by 78 percent in the week ended Tuesday, the most in government records going back more than a decade. Bloomberg notes that the exit came amid speculation bearish speculators might get squeezed as investors holding April futures seek delivery of the metal as suppliers are facing disruptions. Commerzbank AG analysts said in a note this week that “it is obvious that gold – an alternative currency that cannot be reproduced at will – will profit from this unprecedented orgy of money-printing.”
  • Gold coins sold by the U.S. Mint were bought in March at the fastest pace in over three years as investors continued to flock to gold. Investors bought 142,000 ounces of American Eagle coins. Long-only ETFs linked to gold have grown by $13 billion so far in 2020, the most since data was collected in 2004, when the first gold ETFs began trading, reports Bloomberg. The SPDR Gold Shares saw a quarter of that inflow. Blackrock’s iShares Gold Trust attracted $332 million on Monday alone. Bob Phillips, managing principal at Spectrum Management Group, said “demand for gold is going to stay pretty high because gold is a hedge against currency devaluation.”


  • The worst performing precious metal for the week was palladium, off 4.47 percent, on likely anticipated falling automobile sales in the near term. Impala Platinum, one of South Africa’s largest platinum-group metals producers, declared force majeure due to the 21-day nationwide lockdown, reports Bloomberg. Impala is seeking government approvals for limited smelting operations and permission to conduct limited underground ore transport and milling to keep some operations running. Zimbabwe’s government did grant permission for the company’s local operations to continue amid Zimbabwe’s own 21-day lockdown.
  • Russia’s central bank, a long-time gold buyer for domestic producers, said that it will pause purchases from April 1 onward. “Further decisions on purchasing gold will be made depending on the situation on financial markets,” read a statement on the bank’s website. Russia’s gold stockpile is valued at $119.8 billion, or about 73.6 million troy ounces. Although it is negative that the country stopped buying gold amid economic challenges, Russia is simply pausing purchases for now, rather than ending the entire buying program; western news media tried to spin the story’s translation into an end of central bank buying everywhere.
  • Jeffrey Gundlach has warned investors that are piling into gold-backed ETFs such as the GLD about possibly not getting the physical gold back. Gundlach says these investment products are “paper gold” and that buyers should be aware that holding shares doesn’t amount to having gold bars. Bloomberg reports that the legendary investor said these statements in a webcast this week. “What happens if physical gold is in short supply and everyone wants to take delivery of their paper gold? They can’t squeeze blood out of a stone.”


  • UBS responded to the resurgent gold price by boosting its 2020 price forecast to $1,649 an ounce, noting that most stocks are pricing in a gold price of between $1,300 and $1,500 an ounce, reports the Australian Financial Review. UBS added that its preferred stocks for gaining exposure to gold are Saracen Resources, Evolution Mining and Alacer Gold. The Australian dollar is weak, which has boosted cash flows, but travel restrictions in the country could challenge production. Matthew Sigel, CLSA Portfolio Strategist, in his recent iconic “Hello Investors” makes the case for owning gold mining stocks as Central Bank balance sheets are exploding upward and budget deficits are expanding. Matthew shows how gold miners were the first to bottom in 2008 in the prior crisis and then became one of the strongest performers with the stressed financial conditions. Gold in the ground held by miners is the cheapest way to acquire access to future cash flow stream that will likely be rising in magnitude.
  • Premier Gold Mines Ltd. announced that an offer has been made to acquire Centerra Gold Inc.’s 50 percent stake in the Greenstone Gold Mines Partnership in a deal worth $205 million. Argonaut Gold and Alio Gold announced that they entered into a definitive agreement for an at-market merger where Argonaut will acquire all of the issued and outstanding shares of Alio. TD analysts said that Barrick Gold has been upgraded to “action list buy” from hold due to the improving gold price outlook. Bloomberg reports that TD also raised Centerra Gold to a buy from hold after a recent selloff.
  • BNP Paribas highlighted in a recent report that the growing fallout amid COVID-19 suggests investors are likely to continue to seek refuge in gold. “We expect demand for gold to remain strong, at least until such time that economic conditions stabilize and the outlook begins to improve following the raft of unprecedented stimulus measures put in place by governments and central banks alike,” wrote Michael Sneyd in a March 30 report titled “Gold: The Jack of all Trades.”


  • According to bond manager Jeffrey Gundlach, the March lows that the S&P 500 reached are likely to be surpassed in April as economic uncertainty continues, reports Bloomberg. Gundlach said in a webcast this week that “I think we’re going to get something that resembles that panicky feeling again during the month of April.” The S&P 500 dropped 12.5 percent in the month of March – it’s worst month since October 2008.
  • The rush to get hands on U.S. dollars continued this week. Foreign official holdings of Treasuries at the Federal Reserve dropped by $109 billion in March – the largest monthly drop on record. Bloomberg reports that international governments and central banks are struggling with the economic fallout from the pandemic and is a sign of the global rush to raise U.S. dollars. Countries that are especially reliant on oil exports have been selling U.S. debt and offloading older, less-liquid Treasuries.
  • The economic impact of COVID-19-induced lockdowns became incredibly visible in the U.S. this week. A record 6.6 million Americans filed unemployment claims. This is a record high number of weekly claims and double the previous week’s 3.3 million. Unemployment in March was reported at 4.4 percent, up from 3.5 percent in February. According to the Bureau of Labor Statistics, the U.S. economy lost 701,000 jobs in March. A number of gold mining operations have reduced operations at some mines while in Mexico; they have called for halt to mining to battle transmission of the virus.



Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 2.70 percent. The S&P 500 Stock Index fell 2.08 percent, while the Nasdaq Composite fell 1.72 percent. The Russell 2000 small capitalization index lost 7.06 percent this week.
  • The Hang Seng Composite lost 1.03 percent this week; while Taiwan was down 0.36 percent and the KOSPI rose 0.45 percent.
  • The 10-year Treasury bond yield fell 7 basis points to 0.606 percent.


April 3, 2020

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


You can read the full article at