The Precious Metals Week in Review – July 14, 2017

The Precious Metals Week in Review

July 14th,2017

1. It was another highly volatile week for precious metals as the media parsed through comments from Janet Yellen, chair of the Federal Reserve, as she testified in front of the U.S. Congress. Poor economic data released on Friday in the U.S. renewed fears over the true state of growth for the U.S. economy and acted to send metals higher at the end of the week.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment decreased by 3,000 claims for the week ending July 8 to a new level of 247,000 from the previous week’s revised level. The previous week’s data was revised higher by 2,000 claims. The four-week moving average of claims increased by 2,250 to a new level of 245,750 from the previous week’s revised average. The previous week’s moving average was revised higher by 500 claims.

3. U.S. retail sales data for June was released on Friday and the results were worse-than-expected. U.S. retail sales declined for a second straight month, belying the media’s apparent general opinion that the U.S. economy could be on the upswing on the backs of exuberant U.S. consumers. The Commerce Department said on Friday that retail sales fell 0.2 percent in June as Americans cut back on spending at service stations, clothing stores, supermarkets and even restaurants and bars. May’s official figure was revised higher, but still remained in negative territory.

4. In other data released on Friday, total U.S. consumer borrowing surged by $18.4 billion in May according to a report by the U.S. Federal Reserve. Consumer revolving credit, which is essentially credit card debt, rose by $7.4 billion in May, topping a staggering $1.02 trillion in total which is the highest consumer credit debt level since July of 2008, according to a separate report by the Federal Reserve Bank of St. Louis. Total household debt, including mortgages, student loans, credit cards and car loans, topped $12.73 trillion in the first quarter of 2017, which is also a record high and tops even the previous household debt peak, which coincidentally was also in 2008 just prior to the start of the “Great Recession”.

5. In additional U.S. economic news this week, the Consumer Price Index, or CPI, was unchanged in June, according to the Labor Department. Economists had expected a 0.2% rise in the CPI and the stagnant figure could be signaling that the Federal Reserve is truly having trouble achieving its 2% inflation target. The reading, combined with other poor economic data released in the U.S. this week, could mean that the Federal Reserve could be forced to put further interest rate hikes on hold despite a stated desire to conduct a third interest rate hike later this year.

6. In Asia, relations between the Philippines and China appear to be growing tense once again as Firebrand Philippine President Rodrigo Duterte is rumored to be considering a resumption of energy exploration in the Reed Bank, located in disputed territory in the South China Sea. Last year, a tribunal in The Hague ruled in favor of Manila in a protest that it filed against China’s claims of territory and resources in the South China Sea and found that the Philippines had the right to access offshore oil and gas fields that are within its 200-mile Exclusive Economic Zone, which include the Reed Bank. China has refused to recognize the ruling as valid and continues to claim the area as its own. Earlier this year, President Duterte claimed that Chinese President Xi Jinping had warned that if Manila attempted to drill in the disputed area that there could be war, but Duterte appears set to test China’s resolve on the matter.

7. According to Chinese Customs data, overall trade with North Korea grew by 10.5 percent during the first half of this year on a surge in exports to the embattled country. Imports from North Korea apparently fell by 13.2 percent, but the drop was counterbalanced by a massive surge of 29.1 percent in exports. The surge was largely driven by textiles and other goods that are reportedly not included on the United Nations growing embargo list. China’s ambassador to the United States claimed that the reports of trade growth between China and North Korea were a “distorted picture”.

8. Rex Tillerson, Secretary of State for the U.S., appeared to weigh in on the ongoing diplomatic crisis in the Middle East while in Doha, the capital of Qatar this week. Mr. Tillerson said “I applaud the leadership of his highness the emir of Qatar for being the first to respond to President Trump’s challenge at the Riyadh Summit to stop the funding of terrorism”.  In a tweet, Mr. Tillerson said “Together the US and Qatar will do more to collaborate, share information, and keep the region and our homeland safe”.  Tillerson moves on to Jeddah, Saudi Arabia, on Wednesday to hold talks with the Saudis over the ongoing crisis, apparently at the behest of the emir of Kuwait, who is attempting to mediate the dispute between Qatar and its neighbors.

9. In the U.K., as Brexit talks continue, the EU has warned the U.K. government that it must accept that there will be a “bill” for their exit from the EU before talks can progress any further. The EU’s chief negotiator in the process, Michel Barnier, said on Wednesday that “It’s not a punishment, it’s not revenge…It’s simply settling accounts. It’s not easy and it might be expensive but any separation means settling accounts, no more, no less. We aren’t asking the U.K. for a single euro or a single pound more than they have legally undertaken providing”.  Moody’s rating service apparently feels that the chances of a “hard exit” from the EU are climbing for the UK. Kathrin Muehlbronner, a vice president for Moody’s, said in a statement that “The likelihood of an abrupt – and damaging – exit with no agreement and reversion to WTO trading rules has increased compared to our expectation directly after the referendum, with the [UK] government so far pursuing objectives that imply a ‘hard’ exit”.

10. Crude oil prices edged higher this week as there were signs of strengthening demand. The Baker-Hughes rig count showed that 2 more oil rigs were brought online in the U.S. but any pullback in prices due to the increase was brief after the EIA reported the largest drop in U.S. crude oil inventories in the last 10 months. Prices were also lent support by Shell’s declaration of “force majeure” on Nigerian Bonny Light crude oil after one of the pipelines used to export the product was shut down.

11. The euro spent the first part of the week quietly moving sideways against the U.S. dollar. On Tuesday, the euro surged near vertically to the upside, but the move had reversed by Wednesday afternoon and the euro was back at its lows for the week by Thursday. Late Thursday the euro began drifting higher and Friday’s worse-than-expected economic data out of the U.S. will ensure that the euro closes the week to the upside against the dollar. The Japanese yen spent the first part of the week drifting slightly lower, but reversed course by late Tuesday and spent the rest of the week climbing higher. Friday’s worse-than-expected economic data out of the U.S. also triggered a vertical surge in the yen and it too will close the week higher against the U.S. dollar.

With stock markets continuing to hit record levels, even as geopolitical tensions and economic uncertainty are on the rise across the globe, it appears that complacency has set into the equity markets. The mainstream media has taken to making comments like “nothing can stop this market” and constantly refers to the increasingly apparent bubble as a “Teflon” stock market.

Economic data out of the U.S. this week certainly belies the general consensus that the U.S. economy is surging ahead of the rest of the world in its rate of growth. As the market claims to have “baked in” additional rate hikes from the U.S. Federal Reserve, Janet Yellen herself, while testifying in front of Congress this week, expressed concern that inflation remains at consistently low levels and clearly stated that the Fed would “adjust its policy” if the trend continued. In other words, if economic trends continue to decline in the U.S., those “baked in” interest rate hikes won’t be forthcoming.

Elsewhere in the U.S., Congress cannot seem to pull together to accomplish any of President Trump’s economic agenda items. The much-publicized overhaul of the failed Affordable Care Act (aka ObamaCare) appears to be on the verge of collapsing; no significant progress appears to have been made on reducing regulatory and tax burdens on businesses; and the much-touted infrastructure upgrade projects that were supposed to accelerate the process of “Making America Great Again” appear to be stalled as well. It seems Republican control of both Congress and the White House has not made the gridlock situation any better than it was under President Obama.

According to the Wall Street Journal, in an article posted on Thursday, the European Central Bank (ECB) is likely to signal in September that its 2.3 trillion euros bond-buying Quantitative Easing program could be gradually wound down some time next year. Such a wind-down taking place as the UK attempts to make its exit from the EU is highly ambitious and likely to be an impossible task. In the U.K., the process of negotiating their exit from the European Union is likely to grow more and more cantankerous as it wears on. The EU is insisting that the UK will be responsible for a hefty bill as a result if its divorce from the EU and the UK is trying its best to negotiate that bill lower. In parallel to the negotiation process, the UK parliament must draft new laws that will revamp over 40 years of European laws that applied to the UK as a member of the EU and replace them with equivalent domestic UK laws. The impact on business regulations alone will be massive, and if a repeal bill does not pass parliament well in advance of the UK’s exit, UK based businesses could face a legal nightmare when trying to conduct even ordinary business with the European Union. As global geopolitical and economic uncertainty continues to increase, all blissfully ignored by stock markets, savvy investors continue to take steps to diversify their investment portfolios. One such method of diversification is to continue acquiring physical precious metals for their portfolios as temporary price dips present them with a chance to purchase physical metals at a discount.

Remember that precious metals should always be viewed as a long-term investment and that the key to profitability through the ownership of physical precious metals is to actually acquire and own the physical products and to hold them for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long term.

Trading Department
Precious Metals International, Ltd.

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