The Gold & Metals Weekly Navigator (May 31st, 2020)

Weekly Performance Recap: Silver Keeps Charging

The precious metals market continues to see significant strength in silver relative to gold bullion. Silver had a very strong week, closing on Friday at $17.86 up +7.4%, also outperforming a red hot S&P 500 (up +6.3%).

Silver mining stocks couldn’t keep pace with the metal for the week, the Global X Silver ETF (NYSE: SLV) was up 2.8%.

Gold was down -0.6% as the re-open America trade gained steam institutional investors incrementally allocated capital to the market vs. paper gold (NYSE: GLD).

There was a dichotomy in performance between junior and senior gold miners, the juniors (NYSE: GDXJ) were up +0.4% for the week while the seniors were down sharply -6.2%.

We’re seeing a clear ‘risk-on’ rotation in the precious metals markets, silver over gold and junior gold miners over senior gold miners.

Precious Metals & Equities Performance for May 25th-29th, 2020

Source: YCharts

Berlin based market observer Holger Zschaepitz summarized the week in global markets well: “investors cheer reopening narrative, with the world turning from a ‘stay at home’ mode into a semblance of ‘back to normal’.

Cyclical Commodities

The reopen America trade drove cyclical commodities higher for the week, with oil leading the charge up +19%.  Base metals (copper, nickel & lead) ended the week in solid positive territory, the basket was up +4%.

Cyclical Commodities Performance for May 25th-29th, 2020

Source: YCharts

America Riots

George Floyd’s murder under the knee of a Minneapolis police officer has unleashed anger in America about the mistreatment of African Americans at the hands of police.  Protests across the country have now turned to riots and cities burning down.

With 40 million unemployed people in America due to the COVID-19 crisis it will be hard for the government and local authorities to simmer this very volatile situation.

If the riots continue unabated we are likely to see the stock market take a ‘risk-off’ orientation this week.  That would implicitly favor gold, silver and bitcoin.

TSX: Materials Has Overtaken Energy as the Second Largest Sector

In the resource heavy Canadian benchmark index, the S&P/TSX Composite Index, the materials sector has now overtaken energy as the second largest sector (behind financials).

The materials sector now accounts for 13.9% of the index ahead of energy which accounts for 13.3%.

Sector Weights of the S&P/TSX Composite Index (May 28th, 2020)

Source: iShares

This is a very significant event for the index as institutional portfolio managers in Canada have been traditionally underweight the mining sector, this is a strong tailwind for the gold & base metal miners.

The performance differential between gold and the energy indices has been significant over the last 6-months with gold outperforming energy by +76%.

6 Month Performance: Gold, Materials and Energy

Source: YCharts

Global GDP Growth and COVID-19

Capital 10X conducted a deep dive into the new safety & testing economy, a resultant of the COVID-19 pandemic.

Nassim Taleb, acclaimed statistician and author of “The Black Swan”, provided this insightful perspective regarding the necessary investments in global safety and testing infrastructure:

WE MUST REALIZE OUR REAL ECONOMIC GROWTH IS MUCH LOWER THAN OUR ANNUAL FIGURES SUGGEST BECAUSE THESE DISASTERS WIPE OUT THE GROWTH OF PRECEDING YEARS.

The safety and testing market has the potential to reach $500 billion annually, this would represent approximately 0.5% of global GDP.

 

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.
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