The Precious Metals Week in Review – August 18, 2017

The Precious Metals Week in Review

August 18th, 2017

1. Political tensions in the U.S. escalated to new heights this week after protest events over the weekend in Charlottesville, Virginia, and President Trump’s response to the violence that ensued, shook the Trump administration anew. Business leaders appear to be abandoning Mr. Trump’s advisory councils at an ever-increasing pace after the events, leading to growing uncertainty over the reality that President Trump will be able to accomplish any of his economic agendas.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment plunged by 12,000 claims for the week ending August 12 to a new level of 232,000 from the previous week’s unrevised level. The four-week moving average of claims was at 240,500, a drop of 500 from the previous week’s unrevised moving average of 241,000.

3. President Trump triggered yet another crisis this week, this time on his home turf. As a controversial protest by a white supremacist group erupted into violence in Charlottesville, Virginia over the weekend, President Trump’s tweeted remarks essentially placing blame for the violence on both sides of the event drew the ire and criticism of a vast number of people, including many leaders in the business community who sit on some of his advisory councils. There were significant departures from his councils after the events and President Trump has reportedly now abandoned plans to form an infrastructure advisory panel due to the backlash. Trump also tweeted that he would dissolve the Strategic and Policy Forum, a manufacturing council, rather than continue to put “pressure” on business leaders.

4. In the wake of the backlash surrounding the weekend’s events, including the loss of many prominent business leaders that were sitting on his advisory councils, President Trump’s ability to move forward with his economic policy agendas is being called into serious doubt. Gary Cohn, the President’s chief economic advisor is reportedly under pressure by his peers to step down from the post in the wake of the Charlottesville events to prevent further damage to his reputation and future career possibilities. Cohn is a key figure in the plans for Trump’s economic agenda and his departure would strike a devastating blow to the administration.

5. Late on Friday, reports surfaced that Steve Bannon, President Trump’s controversial chief strategist was also leaving the administration. Stock markets immediately took his departure as good news and attempted to make a recovery, but were unable to move back into positive territory on that news alone, given all the other chaos out of the administration this week. Mr. Bannon left shortly after giving an interview to the American Prospect in which he said the US is already in an “economic war” with China. Mr. Bannon clarified, saying “It’s in all their literature. They’re not shy about saying what they’re doing. One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path”.

6. In Europe, Spain was the victim of at least two known terror attacks, and an explosion earlier in the week may have also possibly been related to terrorism. A van in Barcelona was deliberately driven into a heavily crowded pedestrian area on Thursday, leaving at least 13 dead, with many others sustaining serious injuries. Early Friday morning, Spanish police conducted a raid in Cambrils, over two hours south of Barcelona, in which they say five terrorists were killed. The two incidents are believed to be related and the individuals killed on Friday were apparently wearing explosive vests. Police now believe that an apparent gas explosion in Alcanar on Wednesday may also have been related to the multiple attacks.

7. In Asia, the growing friction between China and India over a border dispute deep in the mountains appears to have escalated, with troops from both sides involved in a scuffle this week in the Himalayas. According to Reuters, Chines soldiers attempted to enter Indian territory in Ladakh, Jammu and Kashmir state. A source in New Delhi said that some of the Chinese soldiers carried iron rods and stones and that injuries, though minor, were sustained on both sides of the altercation.

8. Crude oil hovered near the $50-a-barrel mark on Friday as weakness in the financial sector weighed on oil prices. There were signs that the global glut of oil supplies may be tightening, but the concerns in the financial sector acted to weigh prices down due to a potential for a decrease in demand which could offset any tightening in supplies.

9. The euro had another choppy week in trading against the US dollar. It began the week with a steady declining trend that lasted through late Wednesday. The euro then surged to the upside, but could not maintain the momentum and soon plunged to its lows for the week before recovering slightly. A modest rise into Friday’s trading does not appear enough to move the euro into positive territory and it appears set to close the week out lower against the dollar. The Japanese yen moved steadily to the downside against the US dollar for most of the week, hitting a low late on Wednesday. After reaching its low for the week, the yen began a steeper march to the upside that lasted through Friday and appears set to see the yen close out the week higher against the US dollar.

North Korea was on the back burner this week as President Trump managed to create his own crisis situation all by himself inside the United States itself. His response to the violence that broke out between a white nationalist protest group and the groups that were counter protesting drew the ire and consternation of nearly everyone in the US, it seemed. Mr. Trump lost a large contingent of his “Main Street” oriented business leaders as they resigned from many of his advisory council over his response to the events.

The chaos surrounding the White House, if possible, seemed to grow even greater in an exceptionally short time. The shake-ups in his advisory councils and other staff changes that took place this week have most analysts and media pundits questioning the reality of President Trump being able to carry out the implementation of even one of his agenda items. Health care reform has failed, his infrastructure council fell apart before it could even be assembled and his tax policies seem doomed to fail as well. All of this confusion is also beginning to cast doubt on whether the republican controlled government will even be able to pass a bill to raise the debt ceiling yet again, and prevent another government shutdown from occurring.

In Asia, tensions continue to rise between India and China over remote, but apparently hotly disputed, border areas. Chinese soldiers attempted to cross into Indian territory this week, apparently carrying only make-shift weapons, and were repelled by Indian forces with minor injuries sustained by both sides. The border area in question is the second area to fall under dispute in recent months and China has seemed to be taking an increasingly aggressive posture towards India over the events.

Also in China this week, reports surfaced that while corporate debt appears to be falling, short-term consumer debt appears to be surging massively, creating what Deutsche Bank termed a “lending frenzy” in a note released this week. The International Monetary Fund also warned this week that China is on a “dangerous” path of credit-expansion. In its annual review of China’s economy, the IMF noted that the cost of stronger growth in China has been “further large increases in public and private debt”. An explosion in debt across China would only add to the already staggering debt levels across the world. As the political landscape seems to implode in the U.S., a new geopolitical issue escalates in Asia between China and India, and rumors surface that North Korea may be seeking deeper ties with Iran, savvy investors continue to seek out ways to diversify their investment portfolios away from exposure to any single asset class.

This week proved how volatile stocks can be when faced with complete political uncertainty within a short period of time. Stock analysts have been saying for months that a correction is “long overdue” and yet the “irrational exuberance” as investors rush in, fearing that they will miss more of the rally, continues to push stocks to higher levels in the face of increasingly poor geopolitical and economic circumstances. When the correction finally begins in earnest, this week’s moves in precious metals showed just how quickly prices can be driven higher by a sudden and rapid surge in demand. Investors seeking safer havens for their hard-won cash as risk increased drove metal prices higher as the world seemed to finally begin to realize that mine supplies have been tightening as prices have languished at these levels for years.

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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