The Precious Metals Week in Review – August 25, 2017

The Precious Metals Week in Review

August 25th, 2017

1. Markets remained volatile this week as they awaited word out of the annual economic summit taking place in Jackson Hole, Wyoming. The world’s top central bankers converge on Jackson Hole each year to discuss global economic policies and the forum often is a stage for public speeches by these economic leaders and the media tends to endlessly parse every word.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment jumped by 2,000 claims for the week ending August 19 to a new level of 234,000 from the previous week’s unrevised level. The four-week moving average of claims was at 237,750, a drop of 2,750 from the previous week’s unrevised moving average of 240,500.

3. Federal Reserve Chair Janet Yellen gave a speech at the Jackson Hole summit on Friday that many media pundits were saying could be “historic” in nature. Ms. Yellen’s speech topic was financial stability and if she is not reappointed when her term ends in February, this could be her last public speech as Fed Chair. Ms. Yellen said “The events of the crisis demanded action, needed reforms were implemented, and these reforms have made the system safer”.  She also warned of “the all-too-familiar risks of excessive optimism, leverage and maturity transformation re-emerging in new ways that require policy responses”.  Ms. Yellen continued, saying “We relearned this lesson through the pain inflicted by the crisis. We can never be sure that new crises will not occur, but if we keep this lesson fresh in our memories – along with the painful cost that was exacted by the recent crisis – and act accordingly, we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crisis more quickly, sparing households and businesses some of the pain they endured during the crisis that struck a decade ago”.

4. New home sales in the U.S. plunged 9.4 percent in July compared to June according to U.S. Census data. The drop appears to have been price-related, as newer homes are more expensive than ever, placing them out of reach for many potential buyers. John Burns, of John Burns Real Estate Consulting, wrote in a note to clients recently that “Long term, the new home median price has been mostly 10 percent to 20 percent above the existing home median since 1990. Since 2011, however, new home prices have been at a 35 percent to 40 percent premium over resale prices”.  Existing home sales also fell in July, with even low end home prices moving higher which prompted Lawrence Yun, chief economist of the Realtors group, to say “On the lower end, there is virtually no property at a very low price level anymore”.  It would appear that another housing bubble is on the rise.

5. In India, Prime Minister Narendra Modi’s rarely discussed biometric payment scheme suffered a very serious setback this week. India’s Supreme Court ruled on Thursday that citizens have a fundamental right to privacy and that the biometric program would be an invasion of that right. The ruling comes about after enrollment in the “Aadhaar database”, which was launched in 2016 as a voluntary program allowing users to make transactions using their fingerprint, has now become mandatory for filing tax returns, opening bank accounts, and making purchases over $780 (US). The government’s lawyers, during the hearing of the case, declared that citizens did not have an absolute right over their bodies and could thus be forced to give their biometric data to the government. The court ruled that privacy is an “intrinsic” part of Article 21 of the Indian constitution and the new ruling overturns a 55-year-old previous ruling that privacy is not a human right.

6. European Central Bank president Mario Draghi gave no indication on where the ECB was taking monetary policy during a speech that he made ahead of Jackson Hole this week. Speaking in Lindau, Germany on Wednesday Mr. Draghi kept quiet about future monetary policy moves in the face of improving economic data across the euro zone. Mr. Draghi said “While forward guidance is a useful instrument, recent research has highlighted that its effectiveness can be improved if combined with other non-standard monetary policies.” This comment comes as the euro zone faces apparent improving economic conditions, yet persistently low inflation, just like the U.S.

7. On Tuesday, the U.S. Treasury Department announced new sanctions on 10 entities and six individuals, mostly from China and Russia, for providing support to North Korea. China immediately reacted, calling the sanctions “long-arm jurisdiction over Chinese entities and individuals” and urged Donald Trump’s White House to “immediately correct its mistake so as not to impact bilateral cooperation on relevant issues”.  Moscow did not immediately comment on the additional sanctions, but the news will obviously create further strain on US-China and US-Russian relations.

8. Crude oil prices rose as hurricane Harvey approached the gulf coast of Texas this week. The storm is expected to possibly strengthen to a category 3 storm and will be slow moving as it pushes its way on shore, which is one of the worst scenarios for a storm. Slower moving storms tend to push a larger quantity of water on shore ahead of themselves and the coast of Texas is one of the U.S.’ largest crude oil refining areas. Severe flooding that enters any of the refining facilities could mean that those facilities are shut down for weeks, or even months for cleanup. Energy companies shutdown operations at, and pulled workers from, offshore oil platforms in the path of the storm and have also suspended drilling operations in south Texas.

9. The euro dipped against the U.S. dollar at the start of the week, but quickly surged into positive territory late on Monday. Late Tuesday, the euro began a drop which halted once it was back near even for the week. The euro moved sideways through Wednesday and then recovered its ground and moved back near the highs for the week. The euro drifted sideways through Friday and another surge on Friday appears set to see the euro close the week out higher against the U.S. dollar. The Japanese yen had a wild ride this week, moving higher against the U.S. dollar to start the week and then plunging rapidly through late Tuesday. By Wednesday the yen had mostly recovered, but another drop that began early Thursday took the yen lower through Friday morning. A surge that took place on late Friday morning appears set to see the yen close slightly lower against the U.S. dollar for the week.

Market volatility is likely to continue as we near September and the potential of another U.S. government shutdown over the ever-present “debt-ceiling” looms closer.

Hurricane Harvey will be pushing ashore in Texas this weekend and its impact could potentially be devastating to the U.S. economy as well as its ability to produce and refine crude oil and related products. The gulf coast of Texas is home to much of the U.S. crude oil refining capacity and closures of facilities due to any significant storm damage could result in a serious impact to manufacturing across the nation. Petroleum distillates and their byproducts out of Texas are used in many industries and a sudden shortage of supplies could affect not only oil and fuel supplies, but everything from medicine to appliance and automobile manufacturing. Gasoline and oil prices have already begun to increase ahead of the storm’s landfall but unless there is significant damage to the drilling and refining facilities in and around Texas, the increases are likely to only be temporary.

North Korea remained relatively quiet again this week despite additional sanctions by both the U.S. and Japan. The U.S. sanctions were aimed primarily at Chinese and Russian entities and individuals. Japan announced this week that it would be freezing the assets of 6 organizations and two individuals linked to North Korea. North Korea’s official news outlet KCNA reported on Wednesday that Kim Jong Un has ordered additional solid-fuel rocket engines and warheads in spite of increasing sanctions pressure. KCNA also published photos showing Kim Jong Un standing next to what appear to be diagrams for a three-stage rocket which, if brought to full production, would be far more powerful than any of the previous Intercontinental Ballistic Missiles that the reclusive nation has tested so far.

It seems clear that North Korea has no intention of abiding by the United Nations’ demand that it cease pursuing nuclear armaments, despite seemingly ever-increasing pressure. As we move past the economic forum at Jackson Hole, markets will be intently watching for indications on what the world’s central bankers will do with monetary policy in the near-term.

The U.S. Federal Reserve is still widely expected to attempt at least one more rate hike this year, despite inflation consistently remaining below the Fed’s target of 2 percent. The growing tensions between the U.S., China and Russia, aggravated by additional sanctions placed on both Chinese and Russian entities over alleged ties to North Korea, will also bear watching. The U.S. has consistently pressured China to assist in defusing the threatening rhetoric and actions of North Korea and China’s anger over the latest round of U.S. sanctions could have unforeseen side-effects such as a complete reversal of their stance. Savvy investors continue to follow through with their plans to acquire precious metals as part of a well-diversified investment portfolio while prices remain at these levels.

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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