The Precious Metals Week in Review – October 6, 2017

1. Tragedy unfolded in the U.S. this week when what can only be described as a domestic terrorist attack took place in Las Vegas, Nevada. ISIS, as usual immediately claimed credit for the massacre, but there is no evidence as yet to support such a claim. Oddly, stock markets seemed almost to ignore the tragedy, as the ongoing irrational exuberance held true and the bubbles soared even higher.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 12,000 claims to a new level of 260,000 for the week ending September 30, from the previous week’s unrevised level. The move exactly negated last week’s gain in unemployment claims. The four-week moving average of claims was at 268,250, a decrease of 9,500 from the previous week’s unrevised moving average of 277,750.

3. September’s Non-Farm Payrolls Report was every bit as abysmal as many analysts were projecting. The U.S. economy lost 33,000 jobs in September as a series of hurricanes disrupted businesses across the entire Gulf Coast region and into central Florida. Some economists were projecting a gain of 90,000 jobs, thinking the storms would simply lower the increase of jobs, instead of putting them into negative territory for the first time in seven years. Despite the loss in jobs, the “official” unemployment rate dropped to 4.2 percent

4. Puerto Rico continues to struggle to make its recovery from the devastating aftermath of Hurricane Maria. Much of the island remains without power and running water and the staggering amount of debt that the island was under even before the storm hit means that there is very little, financially, that they can do on their own to rebuild any of their infrastructure. Officials and leaders from the U.S. territory are hard at work trying to convince the U.S. President and Congress to give them aid and support. And President Trump seems fully prepared to completely write off the staggering amount of debt the island owes.

5. The S&P 500 made its longest streak of record closing levels in 20 years this week, closing at record highs for 6 straight days. Much of the recent gains in stock markets appears to have been fueled by rampant speculation that the proposed tax reforms put forward by the current administration will actually manage to be passed into legislation, despite repeated failures by the U.S. Congress to show that they can get anything done at all.

6. President Trump held a meeting with senior military leaders this week and told reporters at a staged photo opportunity “Maybe it’s the calm before the storm.” When asked to clarify the comment, Mr. Trump simply said “You’ll find out”, saying that he had “the greatest military people in this room” and that he expects his military leaders to give him “a broad range of military options, when needed, at a much faster pace.” Trump referenced Iran, North Korea, Afghanistan and ISIS in comments he made before going into the meeting.

7. Catalonia proceeded with their independence referendum over the weekend despite repeated acts of violence by the police forces Madrid had sent in to suppress the vote. Multiple videos of the police force violently suppressing the Catalan people that they found at polling stations, and essentially destroying any equipment they deemed to be related to the vote, only served to inflame the populace further. By the end of the weekend Catalan officials declared that the result of the referendum was a resounding 90% in favor of secession. Voter turnout was abysmal at just near 40%, but the Catalan regional government apparently plans to go ahead with its declaration of independence, perhaps as early as Monday.

8. U.S. crude oil prices dipped back below $50-a-barrel again this week as fears that the global glut in crude oil would continue reared up again. The fears arose despite Gulf of Mexico oil facilities that were being shut down ahead of Tropical Storm Nate, which would limit further the U.S. ability to add to the supply. Prices seemed to suffer from remarks made by Russian President Vladimir Putin saying that he had not actually “proposed” extending the global oil output cut deal with OPEC, but that he instead recognized that there was a “possibility” that there may be a need for doing so.

9. The euro opened the week steadily declining against the U.S. dollar, but soon posted a mild recovery early on Monday and began drifting sideways. Mid-day on Thursday the euro began declining again after better-than-expected manufacturing data was released in the U.S. The euro continued its decline into Friday, when it reached its lows for the week. After the weaker-than-expected September Non-Farm Payrolls report was released on Friday, the euro saw a vertical surge higher but it does not appear to have gained enough momentum to close out the week to the upside against the dollar. The Japanese yen had a bit of a whipsaw week against the U.S. dollar as political uncertainty in Japan accelerated ahead of the snap elections that Prime Minister Shinzo Abe called for last week. The yen was up and down against the dollar for much of the week, but had fallen into negative territory for the week by Friday. A surge to the upside just after the release of the NFP data in the U.S. does not appear to have enough momentum to allow the yen to close to the upside.

Europe is likely to be the hot spot through the weekend that will need watching as the implications of Catalonia’s vote for independence continues to resonate throughout Spain and the rest of Europe. The violent tactics used by the police force sent in by the central government in Madrid to try to stop the vote for independence only made the situation worse. By Friday, Madrid had issued an apology and the regional government in Catalonia had backed off on its desire to declare independence as early as Monday, but tensions are still raw and the situation remains fluid into the weekend.

The Former Prime Minister of Italy, Enrico Letta, described the situation by saying “Europe needs a solution [in Spain] and Europe needs to avoid this chaos — chaos can be like a virus and we need to avoid chaos.” Mr. Letta continued, saying “We were exiting from the main political problems in Europe [Italy, Portugal and Greece] and now this Catalonian issue risks bringing a new virus and new chaos.” On Thursday, Spain’s Constitutional Court ordered that Monday’s session of the regional Catalan parliament be suspended. Many of Catalonia’s largest businesses had already begun to take steps to transfer their headquarters to other cities in Spain to avoid being caught up in the turmoil and the Spanish government is apparently set to approve a decree on Friday that will make the process for companies to transfer their legal base out of Catalonia even easier.

North Korea is also still simmering in the background as President Trump appears set to renew his random war of words with Kim Jong Un in the near future. This week Mr. Trump met with top military leaders and made some decidedly cryptic comments afterwards that the press was seeing “the calm before the storm” and stating, “you’ll find out” when they asked him to clarify the statement. The hermit nation has been decidedly quiet in the last couple of weeks, but South Korea has been anticipating further aggression from their neighbor to the north as they celebrate the founding of their communist party. The South is expecting North Korea to undertake some sort of military demonstration either this weekend or next and it may be another flight test of another missile from their rapidly expanding ICBM program.

The U.S. Non-Farm Payrolls report was a source of complete confusion this week when the data was released. The U.S. economy lost 33,000 jobs, yet the unemployment rate dropped to 4.2 percent and hourly wages moved higher. It is likely that the hourly wage hike was due to the fact that many of the lost jobs were in the service industry, where lower paying wages tilted the scale to the lower end. Once again, it remains important to monitor global news events throughout the weekend, and to be prepared to act if events trigger a sudden rise in precious metals prices.

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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