The Precious Metals Week in Review – September 28, 2017

1. The US Federal Reserve appeared to be the main driver for market moves through much of the week again. Remarks by Fed Chair Janet Yellen seemed to be somewhat “hawkish” this week, leading analysts to project that at least one additional interest rate hike is on the books for 2017.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment surged by 12,000 claims to a new level of 272,000 for the week ending September 23rd, from the previous week’s revised level. The previous week’s level was revised higher by 1,000 claims. The four-week moving average of claims was at 277,750, an increase of 9,000 from the previous week’s unrevised moving average of 268,750. This reading marks the highest level for the four-week moving average since February of 2016. Unemployment data is likely to remain volatile as the impacts of Harvey and Irma continue to work through the system.

3. Puerto Rico remains utterly devastated after Hurricane Maria. Much of the island is still without power and running water and it is difficult to move supplies out of the ports where they have been delivered and are sitting idle due to impassible roads. The U.S. suspended the Jones Act temporarily in an effort to help move supplies, but the benefit of that is likely to be negligible. The Jones Act, also called the Merchant Marine Act of 1920, is a century old piece of legislation that requires goods being shipped between points in the United States to be carried by vessels built, owned and operated (for the most part) by Americans. The waiver would mean that foreign vessels can bring aid into Puerto Rico, but with the ability to move goods out of the coastal ports into the interior of the island severely diminished, any additional supply deliveries could just add further congestion to the already crowded loading docks at the ports.

4. The U.S. announced it would cut its diplomatic staff in Cuba by nearly 60 percent and warned American travelers to avoid travel to the island nation due to “specific attacks” that caused harm and injury to U.S. diplomats in Havana. The U.S. also said that it is halting visa processing in Cuba indefinitely until Cuba can make assurances that its diplomats will be safe from harm. The move comes in response to reports that multiple U.S. diplomats, as well as some members of their families, suffered injuries including permanent hearing loss due to an unspecified form of attack that is believed to be sonic in nature. The incidents happened at the U.S. embassy, as well as at some hotel locations where diplomats and their families were staying.

5. The U.S. flew B-1B Lancer bombers, escorted by fighter jets, near North Korea in a “show of force” this week after rhetoric between President Trump and Kim Jong Un heated up over the weekend. North Korea’s foreign minister Ri Yong Ho said that Mr. Trump’s twitter comments that North Korea’s regime “won’t be around much longer” if they followed through on their threats to commit further aggression should be classified as a declaration of war. Ri said “The whole world should clearly remember it was the U.S. who first declared war on our country” and he followed up by saying that the North would consider shooting down U.S. aircraft “even when they are not inside the airspace border of our country.” White House spokeswoman Sarah Sanders said on Monday at a press briefing when questioned about whether the U.S. had declared war on North Korea said that the idea was “absurd” and that the U.S. clearly had not done any such thing.

6. South Korea said on Thursday that they were expecting further provocative acts by North Korea around the mid-point of October, to coincide with the anniversary of the founding of North Korea’s communist party. South Korea’s national security adviser Chung Eui-yong said that he expected some sort of provocation from Pyongyang on or around October 10 and/or 18, but was scarce on details of what he thought the hermit nation might do.

7. Angela Merkel survived the weekend election in Germany to secure a fourth term as Chancellor but the “grand coalition” government she previously headed has apparently come to an end. Ms. Merkel will now begin the political negotiations required to form another coalition government and the process is expected to take weeks at the minimum, if not months. Even if she does manage to rapidly form a coalition government, Ms. Merkel’s position in parliament may be significantly weakened following the outcome of the elections as her coalition partners suffered some heavy losses in the election.

8. Despite the Spanish central government’s multiple attempts to forcibly shut it down, a symbolic referendum on Catalonia’s independence from Spain appears that it will be held on Sunday anyway, despite the opposition. Madrid’s national government said that it would deploy police forces who will have orders to take over any polling booths, in order to prevent the vote, but Catalan officials said the vote will take place “whatever the cost”.

9. U.S. crude oil prices were over $51-a-barrel this week, looking to post a gain for the fourth week in a row. Baker Hughes reported the first weekly gain in U.S. oil rigs in recent weeks, adding 6 rigs to bring the active total count to 750. Tensions in the oil industry remain high after Iraq’s Kurdish population held a successful referendum that would see much of the oil-rich northern territory of Iraq secede from the rest of the country. Turkey, Iraq’s central government in Baghdad, and Iran have all declared the referendum unlawful and fears are growing that there could be renewed conflict in the region which could negatively affect oil production there.

10. The euro spent most of the week steadily drifting lower against the U.S. dollar as the Federal Reserve “talked up” the strength of the dollar. The euro began attempting a recovery late on Wednesday, but did not truly start reversing course until early Thursday morning. Despite an additional boost on Friday, the euro did not recover enough ground to close out the week in positive territory against the U.S. dollar. The Japanese yen had a bit of a rollercoaster week against the U.S. dollar. The yen began the week falling slightly, then surging into positive territory briefly on Monday before peaking Tuesday morning and then falling steadily to the down side through Wednesday. The yen followed a similar pattern to the euro from there, staging a modest recovery through Friday that was not quite enough to move it into positive gains against the U.S. dollar for the week.

The Asian region remains a key area to watch for news events in the coming weeks. North Korea is expected to continue its belligerence towards the United States, and its statements this week that the U.S. had essentially “declared war” upon it and that it had the right to shoot down U.S. aircraft even in international airspace is clearly concerning. The U.S., for its part, made strong statements that it had not made any such declaration of hostilities against North Korea. President Trump’s penchant for tweeting whatever pops into his head, especially on the weekend, could continue to stir up hostilities between the U.S. and the isolated North.

In Japan, Prime Minister Shinzo Abe dissolved the lower house of parliament on Thursday and called for a snap election. The move appears to be designed to take advantage of improved support for his policies and a lack of organization among the opposition. Mr. Abe appears to be seeking a mandate from the people to continue his tough stance against North Korea’s actions and to rebalance the social security system. There is a real danger in his strategy that he could actually lose some power, as was proved out when the United Kingdom’s Theresa May carried out a similar plan, and lost her majority in parliament. The snap election will take place on October 22 and two of the key opposition parties combined forces shortly after the announcement on Thursday to try to present a united front to draw power away from Mr. Abe.

In Europe, the immediate crisis is likely to be any attempted referendum over the weekend in Catalonia. Madrid has already ordered police raids on regional government offices, made some arrests of local officials, and seized election materials because it deems the referendum illegal and unconstitutional. While most polls seem to show that the majority of Catalans would choose to remain as part of Spain, Madrid’s treatment of their local officials and the suppression of some of their supposed autonomy has sparked a decided note of anger among the populace of the region. If the vote does, in fact, proceed as planned and the outcome is a resounding “yes” in favor of secession, then things could become chaotic in Spain very quickly.

Angela Merkel appears to have emerged from the weekend elections with her post intact for a fourth term, but her position in Germany’s parliament may be substantially weaker than it was on Friday before the elections.

In the United Kingdom, Brexit talks have continued but there seems to be a growing air of fragility about the process. DeAnne Julius, a founding member of the Bank of England’s Monetary Policy Committee said, in an interview with CNBC, that the ongoing discussions could “fall apart at any time.” Ms. Julius said “some of the [preconditions] are win-lose, not win-win, and that’s not how you start a successful negotiation, you don’t start with the win-lose issues.” Ms. Julius continued, saying “I think the structure of these negotiations is actually stacked against a successful outcome because, on the one hand, Theresa May has to keep her party intact, on the other hand, [Michel] Barnier has no mandate to go beyond what’s already been agreed with the 27 [EU] countries.”

China embarks on its “Golden Week” holiday period next week, and will not return to the markets until October 9. This time period has been marked by a drop in precious metals prices for the last four years, just as has happened again this year.

Savvy investors continue to use such price dips in precious metals as an opportunity to acquire additional physical product for the purposes of diversifying their investment portfolios. Once again, it will be important to monitor international news events over the weekend for anything that could trigger a dramatic move to the upside for precious metals.

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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