The Precious Metals Week in Review – July 28, 2017

The Precious Metals Week in Review

July 28th,2017

1. The ongoing drama surrounding the complete collapse of the Affordable Care Act (a.k.a. ObamaCare) continues to throw turmoil into the American political arena. The Senate blocked a vote to repeal Obamacare in a dramatic late-night vote on Thursday, throwing one of President Trump’s key campaign promises to replace the now clearly failing healthcare plan into renewed uncertainty, 6 months into his term of office. The failure to resolve the failing healthcare system designed by the Obama administration has called into question every other item on the Trump agenda.

2. New White House Communications Director Anthony Scaramucci kicked off his first full week on the job in flamboyant style. Mr. Scaramucci, in a colorful interview with a reporter from the New Yorker which he failed to begin with “off the record”, railed against White House Chief of Staff Reince Priebus and Chief Strategist Steve Bannon. The tirade just served to add to the confusion and uncertainty surrounding the Trump administration’s ability to govern effectively.

3. The seasonally adjusted number of Americans filing initial claims for state unemployment surged by 10,000 claims for the week ending July 22 to a new level of 244,000 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 was at 244,000, unchanged from the previous week’s revised average.

4. Russia retaliated against the United States over what it termed “proposed illegal U.S. sanctions” on Friday.  Moscow informed the U.S., one day after the Senate voted to add new sanctions on Russia, that it had until September 1st to reduce its diplomatic staff in Russia to 455 people, the same number of Russian diplomats reported to currently be in the U.S. Russia’s Foreign Ministry said “Hiding behind its ‘exceptionalism’, the United States arrogantly ignores the positions and interests of other countries. Under the absolutely invented pretext of Russian interference in their domestic affairs the United States is aggressively pushing forward, one after another, crude anti-Russian actions. This all runs counter to the principles of international law”.  The Ministry also said it would be seizing a dacha compound and a U.S. diplomatic warehouse in Moscow.

5. Pakistan may be on the verge of becoming another hotbed of political and economic uncertainty. Prime Minister Nawaz Sharif was forced to resign on Friday after the Pakistani Supreme Court ruled to disqualify him and finance minister Ishaq Dar from holding power. The ruling stems back to the so-called “Panama Papers” that came to light in 2015 revealing a shadowy set of offshore companies that implicated many high-profile world figures in possible money laundering and tax-evasion schemes.

6. North Korea, surged back to the forefront of news outlets on Friday after test-launching yet another ballistic missile into the waters off of Japan’s coast. Pentagon spokesman Lt. Col Christopher Logan said in a statement that was e-mailed to CNBC that “We detected a launch of a ballistic missile from North Korea. We are assessing and will have more information soon”.  Japan’s chief cabinet secretary Yoshihide Suga said that the projectile flew for about 45 minutes before landing in Japan’s Exclusive Economic Zone, some 230 miles from Japan’s coast.

7. The Swiss franc is headed for its largest monthly drop in six years this week, after four straight days of losses. The Swiss National Bank declined to comment on the move in the franc, or if it was undertaking any measures to intervene in the foreign exchange markets. Swiss National Bank chief Thomas Jordan did say earlier in the week that the franc was still “significantly overvalued”, so the move could simply be the Central Bank “talking down” its own currency ahead of any move by the European Central Bank to begin scaling back on its monetary policy.

8. News out of the Brexit negotiations between the European Union and the United Kingdom continues to be confusing. Immigration Minister Brandon Lewis said that the UK government would introduce a “new system of immigration” by the time the UK left the EU in approximately two years.  Mr. Lewis told BBC Radio 4’s “Today” program on Thursday that “Free movement of labor ends when we leave the European Union in the spring of 2019. I’ll be very clear about that. Obviously there’s a period of negotiation we’re undergoing with the European Union at the moment, but we’re very clear that free movement ends – it’s part of the four key principles of the European Union – when we leave”.  His comments appear to contradict those made by UK Home Secretary Amber Rudd, who said that there would be an “implementation period” after the UK’s exit in order to prevent any “cliff edges” for businesses and employers in the UK.

9. Crude oil prices showed signs of life this week, edging back near $50 a barrel as signs appeared that the global oversupply of oil might be easing. US crude and gasoline inventories fell much sharper than expected this week and Saudi Arabia, the world’s largest crude oil exporter, announced that it would reduce its output further in August.

10. The euro had a wild week as the US Federal Reserve concluded its Federal Open Market Committee meeting on Wednesday. The euro began the week drifting downwards against the U.S. dollar, with a brief spike into positive territory on Tuesday that quickly saw a resumption of the downward trend. On Wednesday, after the Federal Reserve announced it would be making no changes to monetary policy, the euro shot near vertically to the upside. The boost lasted through late Thursday morning. After briefly dipping into negative territory against the dollar late Thursday, the euro began a climb higher that lasted through Friday and appears set to see the euro close the week out to the upside against the US dollar. The Japanese yen whipsawed back and forth this week in a series of peaks and valleys. The yen began the week jaggedly moving higher against the US dollar, but had begun a steady trend to the downside by Tuesday which continued until the Fed’s announcement Wednesday afternoon. The yen also surged near vertically higher following the Fed’s announcement, but had resumed its downward move by Thursday morning. Late on Thursday, the yen saw another vertical move higher, back into positive territory, and a small move to the upside on Friday appears set to see the yen close the week out higher against the US dollar.

Geopolitical tensions appear set to continue to be the primary concern for markets in the coming months. North Korea stoked global fears again early on Friday with yet another missile launch that splashed down off the coast of Japan. Japanese Prime Minister Shinzo Abe called an emergency session for officials and South Korea was also reportedly calling a meeting with its own national security team. North Korea’s latest test-firing of a ballistic missile comes ahead of reports that the U.S. will be conducting another test of its Terminal High Altitude Area Defense anti-missile system, this time from a complex in Alaska. In recent weeks, the estimates of how long it will take North Korea to gain the capability to arm its projectiles with a nuclear payload have decreased significantly. Friday’s missile reportedly flew higher and further than the one fired earlier in July, which likely means it was another test of an Inter-Continental Ballistic Missile (ICBM). South Korea reportedly is exploring additional deployments of the US-made THAAD system to aid in protecting their country from the growing North Korean threat. China is already furious over the initial deployment of the THAAD anti-missile systems, so is not likely to let additional systems be installed on its borders completely unopposed.

Russia has begun retaliating against the U.S. for the ongoing efforts to implement additional sanctions against Moscow for its alleged role in hacking that took place during the U.S. presidential elections. Russia has informed the US that it must reduce its number of diplomatic personnel in Russia to 455 by September 1st and said it will also seize a dacha and a warehouse that the U.S. uses for diplomatic purposes. The announcements out of Moscow came a day after the US Senate voted to apply additional sanctions to Russia.

In Pakistan, a power vacuum appears to be forming as Prime Minister Nawaz Sharif has been forced to resign following an investigation into possible corruption surrounding his family’s wealth. The country’s finance minister has also been forced to resign and the lack of a clear succession plan for either post could mean geopolitical and economic uncertainty in the both the country and the region overall.

As geopolitical uncertainty grows, the world’s stock markets seem to be blissfully climbing higher in what most media outlets have now termed an “unstoppable” bull market.  The stock market’s apparent refusal to drop on increasingly bad economic news such as poor retail sales, flagging indications of global inflation, political gridlock in Washington, D.C. and souring relations between the U.S. and both China and Russia may be an indication that “irrational exuberance” has taken hold of stocks once again.

Savvy investors recognize a rising bubble and take early steps to diversify their portfolios against over-exposure to any single asset class. Many of these investors continue to acquire physical precious metals as part of their diversification plan since, by many accounts, they are at historically cheap prices, especially when adjusted for inflation

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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