The Precious Metals Week in Review – July 21, 2017

The Precious Metals Week in Review

July 21th,2017

1. The Trump administration continues to throw uncertainty into markets as controversy continues to plague its every move. Despite Republican majority control, the U.S. Congress continues to suffer from the gridlock that was the hallmark of the Obama administration. It appears that the likelihood that President Trump will be able to keep his campaign promises for tax reform, infrastructure improvements and a healthcare overhaul is diminishing with each day.

2. Sean Spicer, the White House press secretary under President Trump, abruptly resigned his post on Friday as the President appointed Anthony Scaramucci as his communications director.  Mr. Scaramucci is an unusual pick for Communications Director as he is a New York financier without a clear communications background. The pick appears to have outraged much of Trump’s communications team and there may be more fallout in the form of additional resignations.

3. The seasonally adjusted number of Americans filing initial claims for state unemployment plunged by 15,000 claims for the week ending July 15 to a new level of 233,000 from the previous week’s revised level. The previous week’s data was revised higher by 1,000 claims. The four-week moving average of claims decreased by 2,250 to a new level of 243,750 from the previous week’s revised average. The previous week’s moving average was revised higher by 250 claims.

4. The U.S. state of Hawaii announced that it is beginning an educational campaign aimed at preparing for how to react to a North Korean missile attack. Vern T. Miyagi, administrator for the Hawaii Emergency Management Agency, said “We do not want to cause any undue stress for the public…but there is clear evidence that [North Korea] is trying to develop ballistic missiles that could conceivably one day reach our state”.  The agency is facing criticism from Hawaii’s Tourism Authority, who’s director of communications, Charlene Chan, said “Everyone’s safety in Hawaii is always our top priority…[however,] this could lead to travelers and groups staying away from Hawaii. The effect of such a downturn would ultimately be felt by residents who rely tourism’s success for their livelihood”.  Ms. Chan described the possibility of a North Korean missile attack on Hawaii as “too remote” to address.

5. On Friday, U.S. Secretary of State Rex Tillerson said, in discussing the situation in Qatar, that the U.S. was “satisfied with the effort they [Qataris] are putting forth”.  Mr. Tillerson said he hoped “the four countries will consider, as a sign of good faith, lifting this land blockade which is really having the most, I think, negative effects on the Qatari people”.  Qatar recently set rules for defining terrorism, freezing funding and financing for terrorists and establishing national “terrorism lists”.  The United Arab Emirates announced on Friday that welcomed Qatar’s decision to amend its anti-terrorism laws in a sign that could mean tensions are beginning to thaw.

6. South Korea’s central bank said on Friday that North Korea’s economy grew at 3.9 percent in 2016, it’s fastest growth pace in 17 years despite heavy sanctions by the United Nations. North Korea does not release information about its economy, so the South’s Bank of Korea estimates Gross Domestic Product based on information it receives from government agencies including the Ministry of Unification and the National Intelligence Service.

7. The U.S. and China failed to agree on any new major steps to reduce the U.S. trade deficit with China on Wednesday following the annual U.S.-China Comprehensive Economic Dialogue which was aimed at discussing and resolving disputes in U.S.-China trade relations. The session wound up with no major agreements; a round of cancelled news conferences; no joint statements; and no new indications that the U.S. would have increased access into China’s markets.

8. The Bank of Japan kept its monetary policy unchanged and cut inflation forecasts for both the 2017-2018 and 2018-2019 fiscal years. The moves were in line with economists’ expectations and reinforce the view that inflation across the globe remains stubbornly low.

9. European Central Bank (ECB) president Mario Draghi said on Thursday afternoon that he saw signs of “unquestionable improvement” in eurozone growth and indicated that policymakers at the central bank could begin discussing changes to the existing quantitative easing (QE) bond-purchasing program as early as September. The news sent the euro surging higher against the U.S. dollar.

10. Crude oil prices were down 2% this week after data showed that OPEC’s July oil supply was due to increase by 145,000 barrels per day, as compared to June, driven by higher outputs from Saudi Arabia, the United Arab Emirates and Nigeria. The announcement of OPEC’s increase erased price gains made earlier in the week as U.S. data showed a larger-than-expected drop in U.S. crude oil and fuel stockpiles.

11. The euro dipped briefly against the U.S. dollar at the start of the week, but began rising late on Monday. By late Tuesday, the euro appeared to have peaked and began slowly drifting to the downside. On Thursday, the euro saw a near vertical spike to the upside, taking it to new 2-year highs against the U.S. dollar. The euro continued to drift higher against the U.S. dollar through Friday and will close the week to the upside. It was a turbulent week for the Japanese yen as it drifted higher against the U.S. dollar in a series of jagged peaks and valleys. On Friday, the yen’s overall direction moved decidedly to the upside and it appears set to close the week higher against the U.S. dollar.

“If tax reform doesn’t happen, the economy will be slowing and we’ll be in a recession within two years. The Fed will not be hiking rates and the dollar will be toast”.  Those are the words of David Woo, head of global rates and foreign exchange strategy at Bank of America Merrill Lynch. Mr.Woo is apparently concerned that Congress will be unable to get past its constant state of gridlock as President Trump continues to be mired in controversy. Chris Watling, chief executive of Longview Economics, appears to be in a similar mindset. In an interview with CNBC on Friday, Mr. Watling said “I think this is undoubtedly the lowest quality economic recovery we have seen globally…full stop”.  Mr. Watling continued, saying “This is a world that is more indebted than it was before the global financial crisis in 2007, there’s no productivity growth, asset prices are very elevated, a lot of debt that corporates have built up has gone to share buy backs (and) the number of ‘zombie companies’ has doubled since 2007”.

According the Federal Reserve, U.S. households hold 14.9 trillion in debt and U.S. businesses owe 13.7 trillion. As the Federal Reserve considers embarking on additional rate hikes, this debt will begin accelerating as the interest on the amount owed begins to increase dramatically under higher rates. In Europe, economic uncertainty remains at the forefront there as the United Kingdom continues its exit negotiations with the European Union. The impact to London’s financial sector alone promises to be massive and far-reaching. The remaining member countries of the EU all appear to be scrambling to make offers to take in the jobs and employees that are projected to be eliminated should London lose its role as the financial hub of Europe in the aftermath of its decision to exit the bloc.

Asia continues to bear watching as the bitter feud between North and South Korea shows no signs of easing. The South, under its new regime, had said that it was open to engaging in talks with North Korea to help ease military tensions despite the recent run-up of weapons tests that the North has conducted this year. It was not widely believed that such talks would be at all productive, but the possibilities that such discussions will even take place significantly diminished after North Korea apparently snubbed a phone call from its neighbor to the South.

As stocks continue to sit at record levels, even as analysts say a correction is long overdue, savvy investors have continued their efforts to make sure that their investment portfolios remain diversified amid growing global uncertainty. Diversification helps ensure that portfolios are not overexposed to a dramatic decline in any single asset class. One such method of diversification such investors use is to acquire additional precious metals for their portfolios whenever temporary price dips offer them an opportunity to do so 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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