Seeking Free Cash Flow? Gold And Precious Metal Miners Have Got You Covered

Frank Holmes on Bloomberg March 2020

Physical gold continued to catch a bid last week, trading above $1,760 an ounce, on a host of head-spinning economic news, from millions more Americans filing jobless claims to record money-printing to negative oil prices.

The national average price for a gallon of gasoline fell further to $1.78 on Friday, down more than $1 a gallon from a year ago. But the lowest price in the country may belong to a Shell station in Francis Creek, Wisconsin, which is reportedly selling (giving away?) gas for $0.75 per gallon, according to GasBuddy’s Patrick De Haan.

The seriousness of the coronavirus-fueled recession is reflected in April’s preliminary health reading of America’s manufacturing and service sector industries. The composite purchasing manager’s index (PMI) plunged to 27.4, a new series low, as companies were shuttered and millions of non-essential workers were furloughed or laid off. A staggering 26.4 million people, or about 15 percent of the U.S. workforce, have now lost their jobs since mid-March due to the Great Lockdown.

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U.S. composite PMI hits a new record low in April


“The scale of the fall in the PMI adds to signs that the second quarter will see a historically dramatic contraction of the economy, and will add to worries about the ultimate cost of the fight against the pandemic,” writes Chris Williamson, a chief business economist at IHS Markit, which produces the monthly business survey.

Some U.S. states are slowly starting to reopen their economies, and I’m eager to see what effect this might have on May’s PMI. If it turns up, it could indicate the bottom is behind us. The most aggressive of any state right now appears to be Georgia, whose governor, Brian Kemp, has come under fire by even President Donald Trump for allowing high-risk businesses such as gyms and hair salons to open their doors to customers. The southern state processed more unemployment claims in the last week of March than it did in all of 2019, according to CityLab.

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Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. 

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