Crypto Winters Have Been Great Times to Buy. Today, Bitcoin Is Half Off

We’ve Been Here Before

It’s important to keep in mind that we’ve gone through painful crypto wipeouts before. We’re still in the early stages of this nascent technology, after all, so volatility remains high.

Take a look below. We’ve been in a crypto bear market since November/December 2021, but losses have so far not been as bad as in past downdrafts. Note that this is showing the percent change for the total cryptocurrency market cap from peak to trough, so results vary depending on the digital asset.

In 2018, the group’s collective market cap plunged more than 87%, leading many on the sidelines to declare crypto all but dead. Among the most vocal Bitcoin critics is Peter Schiff, who tweeted in November of that year not to “make the mistake of thinking that buying #Bitcoin below $3,800 is a bargain.” You can file that under “tweets that have not aged well.”

Bitcoin Oversold… But Could Fall More

At $30,000, Bitcoin is more than 55% off its all-time high. If you like Bitcoin, this should appeal to you.

Imagine having your eye on a pair of Balenciaga’s controversial new shoes, retailing for $1,850. If the fashion house were to knock 50% off the price tomorrow, you’d probably be more likely to buy them.

Based on the 14-day relative strength index (RSI), Bitcoin is currently oversold, but it’s not quite as oversold as it’s been in the recent past. As attractive as I believe this entry point is, some investors may choose to wait for the Bitcoin price to register a more decisive buy signal. Historically, though, buying at these distressed levels has been profitable.

Again, cryptos are still an early-stage asset class. Some big-name investors forecast that Bitcoin will eventually hit $100,000, $1 million or more. It could very well do that, but for now, its price is closer to $0. That’s both a risk and an opportunity.

Stocks and ETFs Also Under Pressure

Until now I’ve only been focusing on Bitcoin and cryptos. The truth is they’re not the only risk assets under pressure at the moment, as many of you brave enough to peek at your 401(k)s are well aware.

Tech stocks in particular have taken it on the chin as the Federal Reserve has signaled a more aggressive tightening cycle and global supply chain disruptions persist. The hugely popular Invesco QQQ ETF, which tracks the Nasdaq 100, has lost about a quarter of its value so far this year. Cathie Wood’s flagship ARK Innovation ETF is down approximately 55% since the beginning of 2022.

April was indeed the cruelest month for ETF issuers. According to the Financial Times, net inflows into global ETFs plummeted from $117.4 billion in March to $27.4 billion in April, representing the weakest monthly haul since the start of the pandemic.

U.S.-based equity ETFs saw net outflows of $25.6 billion in April. Investors yanked a jaw-dropping $10.2 billion out of the Vanguard S&P 500 ETF (VOO) alone, which ended up being the biggest monthly drawdown for any Vanguard product on record.

And yet few if any would say stocks are “dead” or “too risky” or uninvestable as a result.

Through It All, Gold Has Demonstrated Resilience

I’m pleased to say that, despite the meltdowns that are happening all around us, gold has remained highly resilient. Year-to-date, the yellow metal has dipped a slight 1%. This has helped savvy investors offset some of the losses they may have experienced so far this year.

If you’re worried about a brewing recession, gold may be an option. As I’ve shown you before, physical gold and gold mining stocks outperformed S&P 500 stocks in the last four economic pullbacks, between 1987 and 2020. That’s precisely the reason why most people invest in the metal, as a store of value.

As always, I recommend a 10% weighting in gold, with 5% in physical gold and 5% in high-quality gold mining stocks, mutual funds and ETFs.

Index Summary

• The major market indices finished down this week. The Dow Jones Industrial Average lost 2.14%. The S&P 500 Stock Index fell 2.41%, while the Nasdaq Composite fell 2.80%. The Russell 2000 small capitalization index lost 2.55% this week.
• The Hang Seng Composite lost 0.24% this week; while Taiwan was down 13.10% and the KOSPI fell 12.54%.
• The 10-year Treasury bond yield fell 20 basis points to 2.93%.

Airline Sector

Strengths

• The best performing airline stock for the week was Gol Linhas Aereas Intel, up 7.13%. The European Union is relaxing its guidance for mask wearing on flights starting next week, even as many airlines have already abandoned those rules, reports Bloomberg. Following the reversal of a nationwide mask mandate, Southwest Airlines has already reported seeing a dramatic drop in both airport and in-flight incidents, reports SimpleFlying.com.
• United Airlines CEO Scott Kirby says that business travel across the Atlantic already exceeds what it saw in 2019, reports Bloomberg. “That business travel is recovering so rapidly makes us feel really, really confident,” Kirby commented. According to the World Travel & Tourism Council, corporate clients typically deliver bigger returns than those packed in coach, spending more than $1 trillion on travel in 2019.

• A recent Bloomberg article explores the “secret of savvy travelers,” by consulting two experts on how to not only save money on family travel but still have peace of min. The secret? These individuals don’t actually pay for airfare and lodging. Instead, the article explains, they use rewards credit cards to turn everyday purchases into free flights and hotel rooms. A San Francisco travel blogger Preethi Harbuck states simply, “Make your money work for you.”

Weaknesses

• The worst performing airline stock for the week was Spirit Airlines, down 13.98%. Despite many domestic and international carriers reporting strong or recovering first quarter profits so far this year, higher jet fuel prices remain a stress point over the next several months.
• Nigeria will become the first nation to ground flights on Monday, reports Bloomberg, as surging prices for aviation fuel make business unprofitable. According to its union statement, airline operators will “discontinue operations nationwide” until further notice – making this the latest sign of the widespread impact that Russia’s invasion of Ukraine is having.
• Canadians traveling through Toronto Pearson International Airport are facing lengthy wait times, reports Bloomberg, and the situation is likely to worsen in coming weeks. Greater Toronto Airports Authority spokesperson Tori Gass says the airport is being hit with a double whammy of staffing shortages and longer processing times due to public health screening measures.

Opportunities

• United Airlines, which has invested in more sustainable fuel production than any other airline in the world, became the first U.S. carrier to sign an international purchase agreement for sustainable aviation fuel (SAF), reports Yahoo! Finance. The carrier signed a new purchase agreement with Neste that provides United the right to buy up to 52.5 million gallons over the next three years.
• On average, the TSA has screened more than 2.1 million passengers per day in April and early May, which is 90% as many people in the same stretch of 2019. According to SimpleFlying.com, the group is well aware of the ramp-up in travel and is preparing for this high summer demand to cope. This includes quadrupling its number of employees to 47,500 as well as planning to change the checkpoint environment and procedures in order to enhance screening operations and ensure safety of the traveling public.
• Air France-KLM is slowly starting to see a revival in business travel, the carrier reports, as companies start to send employees to in-person meetings and conferences following a hiatus during the pandemic. Air France expects surging demand for travel will drive a return to profitability this summer, writes Bloomberg, with corporate trips back to about 70% of normal levels across the North Atlantic.

Threats

• Some jet lessors have suggested that Boeing’s 777X’s future is in doubt after the company postponed deliveries to 2021, reports Bloomberg. Boeing, however, said it has continued to hold talks to update buyers and believes feedback so far has stopped short of moves to walk away from the 777X. Even so, Air Lease Corp Chairman Steven Udvar-Hazy said on Monday that issues with the Boeing widebodies, including a production halt afflicting the smaller 787 Dreamliner, have become a major annoyance, the article continues.
• In the southwestern Chinese city of Chongqing, a Tibet Airlines plane suffered a runway excursion this week, reports SimpleFlying.com. The aircraft involved, an Airbus A319, skid off the runway and caught on fire after accelerating down the runway, veering off to the left, crossing a taxiway and back, then finally losing both its engines and landing gear before sliding to a stop. Moments later fire broke out damaging the aircraft beyond repair. Luckily, no passengers or crew members were injured.
• London’s Heathrow International Airport saw over 5 million passengers during the month of April, reports SimpleFlying.com, and forecast an estimate of 53 million passengers to be handled this year alone. Despite the promising numbers, Heathrow is still asking the Civil Aviation Authority to raise its passenger charges by over 56%. Heathrow’s CEO John Holland-Kaye added that the airport also is not forecasting to pay a dividend this year, citing expectations to remain lossmaking throughout this year.

Emerging Markets

Strengths

• The best relative performing country in emerging Europe for the week was Poland, losing 0.19%. The best performing country in Asia this week was China, gaining 0.94%.
• The Russian ruble was the best performing currency in emerging Europe this week, gaining 4.42%. The Philippines peso was the best performing currency in Asia this week, gaining 0.13%.
• This week the ruble became the world’s strongest currency surpassing the Brazilian real. Capital controls imposed by the country pushed the local currency higher. Turkey and Argentina tried similar measures over the past few years with disastrous consequences for both the lira and the peso, which reached all-time lows and never recovered.

Weaknesses

• The worst performing country in emerging Europe for the week was Russia, losing 3.02%. The Moscow Exchange is not open for trading to foreign investors. The worst performing country in Asia this week was Indonesia, losing 9.0%.
• The Czech koruna was the worst performing currency in emerging Europe this week, losing 0.95%. The Pakistani rupee was the worst performing currency in Asia this week, losing 3.3%.
• Prices in China increased more than expected following global trends. CPI was reported at 2.1% in April, while Bloomberg economists were expecting an increase of 1.8% year-over-year.

Opportunities

• COVID cases in China are declining and the worst could be over for the Asian nation. Due to recent lockdowns, JPMorgan revised down its growth projections and brokers now expect GDP contraction of 1.5% in the second quarter. However, the economy could recover in the second half of the year, growing at 4.9% in the third quarter and 7.3% in the fourth quarter. JPMorgan’s full-year growth forecast is at 4.3% year-over-year.
• This week, a Morgan Stanley strategist wrote in a note that China equites appear to be nearing the late stage of a bear market, but brokers also warn that the final leg of the bear market will experience increased volatility. Morgan Stanley recommends to equal weight China for now but is preparing to upgrade China once better risk/return opportunities emerge.
• U.S. President Biden is considering removing some tariffs on foreign imports, including those from China to fight domestic inflation in the United States. Many of the Chinese tariffs are due to expire in July. In research published on Peterson Institute for International Economics (PIIE) website, Hufbauer and his colleagues Megan Hogan and Yilin Wang argue that “A feasible trade liberalization package” could deliver a one-time reduction in CPI inflation of around 1.3 percentage points. It will also benefit Chinese exports.

Threats

• Europe is not united on its decision to ban imports of oil from Russia. Hungary, a small emerging country in central Europe, opposes the proposed EU ban on Russian oil in its current form as it would “completely destroy” its energy supply security. The EU proposal would ban Russian crude gradually over the next six months and refined fuels by the end of this year, but Hungary and Slovakia – both highly dependent on Moscow’s oil exports – would have until the end of 2023.
• China is preparing to provide more stimulus to support its economy. China’s government may sell more bonds to pay for extra stimulus as the country is facing a tough economic slowdown due to recent lockdowns. There is a growing anticipation that the Peoples Bank of China (PBOC) will cut rates next week.

Energy & Natural Resources

Strengths

• The best performing commodity for the week was wheat, up 5.xx%, as the U.S. Department of Agriculture forecasts that wheat production in Ukraine, one of the world’s biggest growers, will fall by one-third compared to last year. Inclement weather has also played a role in bringing global stockpiles to a six-year low. Commodities are in a “pretty exciting” uptrend, however, says BlackRock’s Evy Hambro, even as rising rates and Chinese lockdowns remain headwinds in the short term. As reported by Bloomberg, Hambro explains how the markets for copper and other metals remain tight and the supply side has been more disciplined in allocating capital than in previous cycles. In addition, there’s more dispersed demand base this time around.
• Nornickel notified its American depository receipt (ADR) holders this week that the Government Commission on Control of Foreign Investments in the Russian Federation has approved its request to maintain the circulation of its ADRs outside of the Russian Federation. This is allowed for a duration of one year (since the approval was granted) until April 28, 2023, reports Bloomberg.
• Spain and other Mediterranean countries generated record amounts of power from wind and solar farms last month, writes Bloomberg, underscoring the potential for renewables to replace expensive fossil fuels. In fact, for the first time ever, those clean sources accounted for 40% of Spain’s electricity in April.

Weaknesses

• The worst performing commodity for the week was tin, down 14.XX%, after inventories tracked by the Shanghai Futures Exchange jumped by 44%, triggering the largest single day price drop since the contracts debuted in 2015. After saying annual profit will come in at the lower end of its forecast range due to tight supply chains and mounting losses at the company’s wind turbine plant, Siemens Energy AG fell this week. As reported by Bloomberg, the German engineering firm said Wednesday that disappointing results at its subsidiary Siemens Gamesa Renewable Energy weighed on earnings for the fiscal second quarter.
• Industrial demand for natural gas in the factory-heavy province of Jiangsu slumped 43% in April from a year earlier, reports Bloomberg, in another sign of how virus lockdowns are wreaking havoc on China’s economy.
• Iron ore has continued to tumble since Thursday’s close by over 15%, reports Bloomberg, as ominous signs emerging from China’s property sector and virus curbs continue to weigh on demand. In Singapore, the steel-making ingredient was down over 4% to the lowest level since January. This comes on the back of speculation that the country’s fourth-biggest real-estate developer could default on its dollar bonds.

Opportunities

• Typically, the price of crude oil and the price of refined products go up and down in tandem, writes Bloomberg. But we aren’t in normal times. Right now, the traditional relationship is broken, and that’s why refining margins have exploded. There are several reasons why, including 1) demand for diesel has rebounded strongly, depleting global inventories, 2) the U.S. and its allies have tapped their strategic petroleum reserves to cap the rally in oil prices and 3) refining capacity has declined where it matters for the market now. This contraction in refining capacity with excess physical oil in the market has opened up refining margins from normal levels of $10.50 a barrel to a recent high of $55.00.

• Rich Miller of Bloomberg penned a thesis on the “Age of Inflation in U.S. Will Last Much Longer Than Pandemic Spike,” which outlines why inflation, which has been anemic for decades, could persist longer than expected. Deglobalization driven by our soured relationship with China and now Russia’s invasion of Ukraine and resource nationalism are driving countries to each create their own supply chains, with redundant costs in each region. Demographics in the U.S. point to a reduced work force of qualified workers, combined with more restrictive immigration policies while likely will lead to higher wages. The U.S. has a shortfall of 1.5 million to 2.0 million homes, combined with a climate problem that seems to get more urgent every summer. Economic activity will move forward so owning the companies that provide those (slightly more scarce) natural resources, would be one way to potentially hedge some inflation risk.
• With sanctioned Russian diamonds from Alrosa PJSC off international markets, prices are rising quickly, as the company provided roughly 30% of annual diamond supply. De Beers, according to analysts, likely will not bring on new supply until after 2024 when an expansion at its flagship mine in South Africa will be completed. In years past, there were times when De Beers had massive physical inventories of rough stones, but those days have passed.

Threats

• ConocoPhillips shareholders rejected a proposal for the oil explorer to set more rigorous targets for greenhouse-gas emissions, reports Bloomberg, which is another blow to environmental activists who have been pressuring major oil companies to lay out concrete plans. More than 60% of shareholders voted against the plan, during its annual meeting on Tuesday. In contrast, Exxon Mobil, BP plc, and others, are making efforts to address climate change, and more importantly, the future energy mix they will supply to consumers. Will any major oil companies be future suppliers of lithium to the world? Clayton Christenson, author of “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail,” provides a classic read on case studies surrounding this issue. In particular, he highlights the failure of industrial and technology companies when innovation cuts off future value streams.
• California’s water use in March was the most for that month since 2015, reports Bloomberg, despite pleas for conservation amid a record dry start to the year. Regardless of a call last summer by Governor Gavin Newsom for residents to voluntarily reduce water use by 15%, usage jumped 19% compared to March of 2020, according to a briefing on Tuesday by state officials.
• After a decade of accelerating growth, the expansion in global renewable power is expected to slow slightly next year, reports Bloomberg, due to supply-chain bottlenecks. Although a total of 319 gigawatts of renewable capacity is set to be added this year and 317 gigawatts in 2023, according to the IEA, this is still the first slowdown in at least a decade.

Luxury Goods

Strengths

• Tod’s, a producer of luxury goods and leather goods, reported sales for the first quarter that beat the average analyst estimates. The beat was driven by strong retail performance, returning the group to above pre-pandemic sales this quarter.
• The largest white diamond to ever come up for auction has been sold in Geneva for 18.6 million Swiss francs ($18.8 million) on Wednesday. It was sold below pre-sale estimates which stood in a range of 19-30 million francs and below the record for a white diamond of $33.7 million purchases in 2017. The buyer was an unnamed owner from North America.
• Sanlorenzo, a luxury yacht builder, was the best performing S&P Global Luxury stock for the week, gaining 11.63%. BofA Securities published a positive report on the company with a “buy” rating. Yacht revenue grew 39% on year-over-year basis in the first quarter and the company predicts growth of 15-23% for the remainder of the year.

Weaknesses

• Hermes, a producer and distributor of personal luxury accessories and apparel, slipped to a more than one-year low as luxury sales continue to slide this week due to inflation worries and continued lockdowns in China. Inflation in the U.S. was reported at 8.3% year-over-year, above the expected reading of 8.1%, bolstering the case for aggressive monetary tightening and an economic slowdown.
• Lockdowns in Shanghai cut Tesla’s China sales. Domestic deliveries fell 87% in April versus a year earlier. Total shipments plunged 94%.
• RealReal Inc., an online shopping platform for luxury goods, was the worst performing S&P Global Luxury stock for the second week in a row, losing 26.32%. Shares fell more than 20% on Wednesday after the company released financial results.

Opportunities

• The auto industry is undergoing one of the largest transitions in its history. Goldman Sachs believes Mercedes’ management has a clear transition strategy, focused on luxury and electrification. In their opinion, Mercedes is the largest luxury auto maker in existence today and investors will increasingly view the company as a “luxury company” in the coming years. Brokers further commented that many of the assets held by auto companies are underestimated, overlooked, or misunderstood by the market.
• South Korean department store Shinsegae, which is the top five department store in Korea based on store count, posted very strong luxury results for April. Sales accelerated from +18% in March to +21% in April. Korean luxury sales account for 6-7% of total global luxury sales. Morgan Stanley believes that luxury sales have remained robust in recent weeks in nearly all major markets.
• Global luxury goods equities recorded healthy corrections year-to-date due to rising inflation, tightening monetary policies and COVID lockdowns in China. There are no signs of a quick solution to spiking inflation and rate hikes, but COVID cases in China are coming down and the country is preparing to ease restrictions. These stocks are expected to respond positively to an improving COVID situation in China.

Threats

• China may delay lifting its quarantine requirements for travelers from Hong Kong to the fourth quarter if the government continues to support its COVID zero-policy stance. Any prolonged restrictions will negatively impact the luxury sector.
• China is cracking down on prominent displays of wealth in the Asian nation following the government’s plan for “Common Prosperity,” which could lead to another drag on investors sentiment in the luxury space. Chinese social media platform RED (which is equivalent to Instagram in the U.S. with nearly 200 million active users) announced that is has removed 1,000 posts displaying excessive wealth since April 25.
• Coach, the parent company of Tapestry, reported third-quarter earnings beat. However, due to margin pressures, the company cut its earnings per share outlook, saying it expected a headwind of 25 cents to 30 cents a share due to COVID pressures in China, as well as a 17-cent negative impact due to a shift in international trade policies.

Blockchain and Digital Currencies

Strengths

• Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Goldario, rising 560.78%.
• Despite slumping crypto prices, funding rounds for blockchain startups are still getting done. Moralis, a platform offering developer tools for web applications built on top of blockchains, has raised $40 million, writes Bloomberg. Moralis, which launched its platform last June, is now valued at $215 million. Investors in the startup’s Series A funding round include Coinbase Ventures, the investment arm of crypto exchange Coinbase Global Inc., along with EQT Ventures, Fabric Ventures and Dispersion Capital.
• El Salvador’s government bought 500 Bitcoins on Monday, in its largest purchase to date of the cryptocurrency. The government bought the coins at an average price of $30,744, President Nayib Bukele said on Twitter. The government has purchased 23,301 Bitcoins since making the digital asset legal tender in September of last year, according to data tracked by Bloomberg.

Weaknesses

• Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Terra, down 100%.
• India’s central bank applied “informal pressure” on Coinbase Global, preventing the exchange from facilitating purchases of crypto assets through the country’s online retail payments system, CEO Brian Armstrong said on Tuesday. “So, a few days after launching, we ended up disabling UPI because of some informal pressure from the RBI,” Armstrong said on an earnings call, according to Bloomberg.
• Galaxy Digital Holdings, the cryptocurrency firm controlled by billionaire Michael Novogratz, posted a loss in the first quarter against a backdrop of large digital asset price declines. The net comprehensive loss was $111.7 million, compared to a gain of $858.2 million in the year-ago period, primarily due to unrealized losses on digital assets and investments in its trading and principal investment businesses, writes Bloomberg.

Opportunities

• KuCoin, one of the world’s most popular crypto exchanges, raised $150 million from investors led by Jump Crypto, boosting its valuation to $10 billion. Circle Ventures, IDG Capital and Matrix Partners took part in the pre-series B financing, the Seychelles-based startup said in a statement. It will use the proceeds to expand in decentralized finance and NFTs via its own venture arm, writes Bloomberg.
• Bitcoin rebounded from a swoon below $30,000 as a selloff in stocks eased and a bout of calm washed across global markets. Bitcoin added as much as 5.4% on Tuesday before giving up some gains and trading at around $31,500 at 11:52 am in London. Ether at one point climbed 6.4% while coins like Solana and Avalanche were also in the green.
• Sam Bankman-Fried, the 30-year-old CEO of crypto trading platform FTX, revealed late Thursday that he bought a 7.6% stake in Robinhood, which lost 77% since its July IPO, reports Bloomberg. The news led to an immediate surge in the stock, which closed Thursday at $8.56.

Threats

• Bitcoin slumped to a level last seen in July 2021, as part of a wider retreat in cryptocurrencies triggered by a global flight from riskier investments. Tightening monetary policy to combat runaway inflation and ebbing liquidity are turning investors away from speculative assets, writes Bloomberg. Bitcoin’s recent decline puts it at risk of firmly dropping out of the range where it’s been trading in 2022, completely reversing the most recent bull run that drove it to a record of almost $69,000 in November.
• Algorithmic stablecoins, like their more “traditional” counterparts, are supposed to provide calm in the chaos of crypto. Instead, as investors in one such token are rapidly finding out, they can serve as lightning rods for volatility. Rather than trading at $1 as designed, the TerraUSD coin slipped over the weekend to around 99 cents. By Monday evening in New York, it had plunged to 60 cents, obliterating its previous low of 92 cents in May 2021, writes Bloomberg.
• The backers of the TerraUSD algorithmic stablecoin are trying to raise about $1.5 billion to shore up the token after it crashed from its dollar peg. Investors in the proposed deal will be able to buy the Luna coin at a 50% discount to the spot price. The plunge in TerraUSD has reignited the debate over algorithmic stablecoins, a subject of controversy within the crypto industry, writes Bloomberg.

Gold Market

This week gold futures closed at $1,809.30, down $73.50 per ounce, or 3.90%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 10.26%. The S&P/TSX Venture Index came in down 9.52%. The U.S. Trade-Weighted Dollar finished the week up 0.87%.

Strengths

• The best performing precious metal for the week was platinum, but still down 2.92% on little metal specific news. The Perth Mint sold 80,941 troy ounces of gold in the month of April, and 2.1 million ounces of silver in minted product, according to a website statement. The Mint’s depository saw marginal increases in both gold and silver holdings.
• The University of Michigan’s index on U.S. consumer sentiment dropped to 59.1, the lowest reading since 2011, marking a fresh decade low. Inflation was cited as the headline issue which is pushing buying plans for durables fall to record low on high prices. The recent drop in gold comes as the U.S. dollar rises to 20-year highs, making the metal more expensive for international buyers. The opposite is happing to consumers in the U.S. now. Gold is getting cheaper and goods and services more expensive. With the dollar at a 20-year high, U.S. exports are likely to drop, perhaps marking a reversal.
• In the fourth quarter of 2021, Ghana’s GDP growth came in at 7% year-over-year, reports Renaissance Capital. The most notable thing about the growth, however, is that the extractive industry (gold mining) grew for the first time in eight quarters, albeit slightly, providing a glimmer of recovery for the sector throughout the region.

Weaknesses

• The worst performing precious metal for the week was silver, down 5.84%. Gold slipped to the lowest in three months as the dollar strengthened and interest rates rose after another U.S. inflation report reinforced expectations that the Federal Reserve will maintain its path of aggressive monetary tightening. Prices paid to U.S. producers increased 11% from April of last year gold has dropped 11% from a March peak as faster cost pressures fueled expectations that the Federal Reserve will aggressively tighten policy. A rally in the dollar to the highest in two years is also weighing on the precious metal. “Risk aversion keeps on driving the strong dollar trade, which has been weighing on gold prices,” said Ed Moya, senior market analyst at Oanda.

• First Majestic announced this week that it will decrease its regular quarterly cash dividend to $0.60 per share from the precious dividend of $0.79 cents per share.
• Investors in the world’s top gold exchange-traded funds (ETFs) are rapidly pulling out their cash, reports Bloomberg, as markets are roiled by the Federal Reserve’s hawkish return. Over the last three weeks, in fact, the SPDR Gold Trust has seen outflows equivalent to more than 38 tons of bullion – making it the biggest drop in over a year.

Opportunities

• Anglo American Plc has searched for nearly four years for partners to support its idea of replacing open-pit mining’s monster diesel trucks with climate-friendly, green hydrogen-fueled vehicles instead, writes Bloomberg. Finally, after investing $70 million on its own to back the concept, the company announced last week a new 220-ton vehicle capable of carrying about 290 tons of ore without producing global warming emissions in the process. Replacing the mine haul trucks with hydrogen fueled ones would slash emissions at Anglo’s open-pit mines by 80%.
• Barrick Gold Corp. is searching for new copper projects in both Zambia and the Democratic Republic of Congo. The company already owns a copper mine in Zambia and in April laid out plans for a $7 billion copper-gold project in Pakistan, writes Bloomberg. Copper is an essential part of the world’s efforts to decarbonize, and new supply is strained globally, so Barrick continues to look for opportunities in this space. Gold Fields Ltd.’s chief executive officer said the South African producer is looking to expand in South America, despite investor concerns over populist policies and risks of higher mining taxes there.
• Stablecoins sound reassuring in concept and should behave according to expectation, with perhaps one caveat, and that is when interest rates are at or near zero. Its likely none of the crypto enthusiast of today were trading fixed income back in 1994 when Orange County went belly-up. Investors were laminating 3.00% yields as uncompetitive, so they reached for other fixed income derivative products with slightly higher yields. The Fed raised short rates 300 basis points in the first six months of 1994, essentially flatting the yield curve. Every investor who owned derivative products and relied on that interest rate spread lost their income stream. When today’s yield investors recognize they can earn a higher risk-adjusted yield through short-dated U.S. Treasury bills and notes, parking money in so-called “stablecoins” may not be as safe as government debt or owning nobody’s debt, like gold.

Threats

• A House Natural Resources panel held a meeting on Thursday on bicameral legislation that would create a 12.5% royalty on companies for new mining operations and an 8% royalty on existing operations, writes Bloomberg, exempting miners that earn less that $50,000 in mining income. House Natural Resources Chair Raul Grijalva said he knows the mining industry will push hard against the bill (known as the Clean Energy Minerals Reform Act), and against any efforts to impose fees on extraction. He is unsure if the legislation could attract Republican support. Offering the U.S. mining industry the likely highest royalty fee structure in the world to incentive mining is unrealistic and likely a non-starter.
• Argonaut Gold plummeted early in the week after disclosing that expected capital cost of C$800 million are anticipated to be required to bring its Magino project in Ontario, Canada into production. This was a 15% increase from the previous estimate. This leave the company in an uncomfortable position as the assets have been considered to have been at least shopped to other companies. Toronto-based Iamgold is also running low on cash as S&P Global Ratings estimate it will incur nearly $1.3 billion in free cash flow deficits this year and next to bring its Cote Gold project to commercial production. S&P Global noted in its report that Iamgold will likely exhaust its resources and require sizable external funding. Pure Gold is another company that is trying to reset with new management but has a debt burden to deal with.
• What are equity investors in the gold space going to do with all these struggling assets? Feed them to the banks that loaned them the money. Talk to us after that.

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