The Precious Metals Week in Review – October 13, 2017

1. Geopolitics appeared to be the primary driver for market moves this week. North Korea, Iran, Russia and China were all in the news with heavy criticism for the U.S. and the Trump administration policies in particular.

2. In the U.S., California literally caught fire this week as nearly 24 fires spanning 8 counties in the heart of wine country have raged since they erupted on Sunday night. Nearly 190,000 acres have burned so far, destroying over 3,500 homes and other structures. The firestorms are among the deadliest to ever mark California’s long history of wildfires. The blazes are currently believed to have been lit by power lines that were blown down in gale force wind conditions on Sunday night. Massive evacuations are underway and the death toll stands officially at 31 people at the time of writing. The scale of the disaster is as yet unknown, but when combined with the ongoing recovery and rebuilding efforts resulting from damage wreaked by one of the busiest hurricane seasons in over 100 years, the hit to U.S. Gross Domestic Product is likely to be huge.

3. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by another 15,000 claims to a new level of 243,000 for the week ending October 7, from the previous week’s revised level. The previous week’s claims level was revised lower by 2,000 claims. The four-week moving average of claims was at 257,500, a decrease of 9,500 from the previous week’s revised moving average of 267,000.

4. Late Tuesday, the U.S. Air Force flew two B-1B Lancer bombers over the Korean Peninsula in another show of force as reports surfaced that a Russian lawmaker said that the hermit nation could be preparing for another long-range missile test this month. Pyongyang responded to the practice bombing run by saying that it was once again considering launching a ballistic missile towards the U.S. territory of Guam.

5. The Trump administration announced on Friday that it would not be “recertifying” the Iran nuclear deal that was put together under President Obama. President Trump will tell Congress that the nuclear deal, put together in 2015, is no longer in America’s interest. Secretary of State Rex Tillerson briefly outlined the new strategy for reporters at a briefing, saying that the administration aims not only to address problems that it sees in the original accord, but also with Iran’s ongoing ballistic missile program and its role in Middle Eastern conflicts, which were not addressed under the original deal. Tillerson made it very clear that the administration would not be seeking to renew the sanctions on Tehran that were lifted under the accord, but will instead attempt to persuade U.S. allies to supplement the conditions of the original plan to help close the perceived gaps.

6. The U.S. triggered a slide in the Turkish lira on Monday after the U.S. Embassy in Ankara announced it was suspending visa services Sunday night, saying “recent events have forced the United States Government to reassess the commitment of the Government of Turkey to the security of U.S. Mission facilities and personnel.” Turkey quickly responded in kind, suspending its visa services at its embassy in Washington, D.C. Turkey has been one of America’s staunchest allies in the Middle East and it is a relationship that the U.S. can ill afford to lose.

7. China’s Xinhua news agency reported this week that the Russian Defense Ministry accused the United States on Thursday of strengthening its troops near the Russian border with Poland. If confirmed, the move would be in breach of an agreement between Russia and NATO that limits foreign troop size on member nations’ borders. According to the ministry, a U.S. combat team that was supposed to leave Poland as its replacement unit arrived remained behind with all of its accompanying equipment instead.

8. The finance chief for the European Union says that the Brexit talks have hit a deadlock as he spoke to CNBC on the sidelines of an International Monetary Fund meeting in Washington D.C. this week. Joeroen Dijsselbloem said, speaking of reports that the U.K. finance chief had referred to the EU as “the enemy”, “I don’t think those kind of etiquettes are helpful, I think the situation is quite worrisome because we are stuck”.  Mr. Dijsselbloem continued, saying “I think we all realize that being stuck is first and foremost for the U.K. a huge risk but of course could also be negative for the EU. I don’t think we should use names but try and find solutions”.  Doubts remain on whether the EU and the U.K. can conclude their negotiations in time for the March 29, 2019 deadline when the U.K. is supposed to exit.

9. Spain has given the Catalan leadership just 8 days to drop their bid for independence threatening to invoke “Article 155” of the Spanish constitution which would see the region lose its autonomy. Spanish Prime Minister Mariano Rajoy asked Catalonia to clarify whether or not it has actually declared independence and if it had, noted that he was prepared to disband the regional government and call for new elections under Article 155 of the Spanish Constitution.

10. U.S. crude oil prices moved back above $50-a-barrel on growing tensions in the Middle East and a boost in import demand by China. Prices backed off slightly after President Trump refused to certify the Iran nuclear deal on fears that new sanctions by the U.S. could hurt oil trade in the Middle East.

11. The euro spent most of the week steadily climbing higher against the U.S. dollar, moving higher on a relatively steady inclining path through early trading on Thursday. The euro seemed to find its high point for the week on Thursday and began a slow drift back to the downside, but by late Thursday night seemed to reverse course again. The momentum did not hold but the euro reversed course again, but it will still close the week out to the upside against the U.S. dollar. The Japanese yen drifted sideways for the first part of the week before it jumped higher and began trending to the upside for the rest of the week. The yen appears set to close the week out slightly higher against the U.S. dollar.

The number of regions to watch over the weekend expanded dramatically this week as the Trump administration seemed to draw criticism globally from all sides. The ever-belligerent North Korea threatened to follow through on its threat to launch a long-range missile towards Guam after the U.S. flew two bombers over the Korean Peninsula earlier in the week. Russia criticized the U.S. over alleged troop movements along Russia’s border with Poland, accusing it of violating an agreement between Russia and NATO that limits the number of troops that can be amassed on Russia’s borders.

Russia also weighed in on the U.S. refusing to recertify the multilateral nuclear agreement with Iran, saying that the move could alienate the U.S. from its allies which remain party to the agreement or, even worse, push Iran to leave the accord itself. President Trump announced on Friday that he would not be re-certifying the Iran nuclear deal as is required every 90 days. The move would ordinarily give Congress the power to reinstate sanctions on Iran, which would effectively terminate the accord, but the administration has asked Congress to hold off on such a decision, proposing instead that Congress work to amend the existing agreement to correct deficiencies.

The U.S. Treasury Department slapped new sanctions on Iran’s Revolutionary Guards following the President’s refusal to certify the accord with Iran, despite reports that sanctions would not be imposed on Tehran as a result of the U.S.’ failure to certify. The Treasury Department justified the move by saying that the elite military unit supports the Assad Regime in Syria and has, in the words of Treasury Secretary Steven Mnuchin, “played a central role to Iran becoming the world’s foremost state sponsor of terror.” The Treasury Department indicated that the new sanctions have nothing to do with the nuclear accord and therefore can be applied without violating the agreement.

In Europe, the so-called Brexit negotiations between the U.K. and the E.U. appear to have reached a standstill. At the end of a fifth round of exit negotiations, the E.U.’s chief negotiator said that the U.K. was still not ready to accept the financial commitments it would need to make in order to complete the exit.

In Spain, Catalonia’s bid for independence continues to be at the heart of a growing constitutional crisis. Prime Minister Mario Rajoy gave the regional government just 8 days to clarify statements that seem to indicate that independence had been declared. Rajoy threatened to invoke Article 155 of the Spanish constitution to seize the powers of the regional government in Catalonia and give him the power to call new elections to form a new government if the wealthy region had indeed officially followed through on its bid for independence. The outcome of this long-standing feud could have far-reaching effects across the rest of Europe, especially those who have been making their own bids for independence such as Scotland.

As the U.S., the Middle East, Russia, Europe and Asia all surge to the forefront of mainstream media news rooms amid their individual crises, savvy investors have steadily continued to accumulate physical precious metals as part of a well-diversified investment portfolio to safeguard against the risk of over-exposure to any single asset class.

Monitor news outlets over the weekend for any events which could send precious metals prices surging even higher as they open in the Asian session at what will be 6PM on Sunday night in New York.

Global geopolitical tensions seem to be increasing at a rapid pace, and stock markets seem to be blissfully ignoring that fact in what may be an increasing sign of investor complacency. If the stock bubbles suddenly burst, precious metals could see a brief dip at the start of the stock selloff and then suddenly surge to the upside as investors seek safer havens for their capital, just as happened at the start of the financial crisis in 2008.

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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