The Precious Metals Week in Review – November 24, 2017

1. It was a shortened trading week due to the celebration of the Thanksgiving holiday in the United States. U.S. Markets were closed on Thursday and Friday was also a shortened trading day due to the annual holiday. Retail outlets were unabashedly placing their hopes on “Black Friday” sales to bring their books back “into the black” for the year after suffering several years of declining sales.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 13,000 claims to a new level of 239,000 for the week ending November 18 from the previous week’s revised level. The previous week’s data was revised higher by 3,000 claims. The four-week moving average of claims increased by 1,250 to a new level of 239,750 from the previous week’s revised average. The previous week’s 4-week average was revised higher by 750. Claims submissions in the Virgin Islands continue to be severely impacted, but Puerto Rico’s processing of backlogged claims continues to improve each week.

3. The Organization for Economic Cooperation and Development (OECD) issued a preliminary version of its economic outlook report this week and it showed that Canada’s household debt levels are higher than any other country, possibly leaving its economy especially vulnerable to shock events. The report seems to tie the high debt levels to rapid rises in the cost of housing, which means Canada could potentially be in danger of a sharp recession if the housing bubble suddenly bursts, as happened in the U.S. in the prelude to the financial crisis of 2008.

4. A North Korean soldier risked his life last week, staging a brazen defection across the Joint Security Area between North and South Korea. The soldier attempted to cross into South Korea in a Jeep and was shot and severely wounded by his fellow soldiers as he sprinted the rest of the way across and into the South Korean side of the Joint Security Area after his vehicle got stuck in a small ditch. North Korea has reportedly replaced between 30 and 40 soldiers that were on duty in the area and taken steps to make additional fortifications to prevent future attempts to cross the span. The defector is reported to be a young man, so any information he might be able to provide regarding North Korea’s military activities is likely limited, at best, but South Korea still believes that much can be learned each time any such defection is successful, regardless of age or rank.

5. President Donald Trump announced on Monday that his administration was placing North Korea back on the list of state sponsors of terrorism. Mr. Trump said, as he announced the move, “In addition to threatening the world by nuclear devastation, North Korea has repeatedly supported acts of international terrorism, including assassinations on foreign soil”.  The move will allow the United States to impose further sanctions and is likely to enrage North Korea further. The U.S. Department of Treasury quickly followed up the administration’s announcement by announcing new sanctions targeting transportation networks, and companies and individuals that have long-standing commercial ties to the hermit nation.

6. Bank of America Merrill Lynch’s Chief Investment Strategist, Michael Hartnett, said he believes the global stock rally is showing signs of stress and that a possible 10% correction could be imminent in the U.S. “sometime between Thanksgiving and Valentine’s Day.” Mr. Hartnett said “Icarus is flying ever closer to the sun. Investor’s risk-taking has hit an all-time high. A record high percentage of investors say equities are overvalued yet cash levels are simultaneously falling, an indication of irrational exuberance.”

7. Saudi Arabia’s powerful Crown Prince, Mohammed bin Salman, who is also the defense minister for the Sunni Muslim kingdom called the Supreme Leader of Iran “the new Hitler” in an interview published in the New York Times this week. The paper quoted bin Salman, when questioned about whether Iran’s alleged expansion under Ayatollah Ali Khamenei needed to be addressed, as saying “But we learned from Europe that appeasement doesn’t work. We don’t want the new Hitler in Iran to repeat what happened in Europe in the Middle East”.  Tensions have long stood large between Saudi Arabia and Iran and the interview is sure to stoke the fires.

8. Germany’s political situation escalated over the weekend as talks to form a coalition government broke down once more. The leader of Germany’s Social Democratic Party (SDP) is under heavy pressure to return to the bargaining table and join the coalition talks despite having repeatedly stated that his party would stay in opposition. If Martin Schulz is forced to cave to the pressure and bring his party into the coalition talks it may mean the end of his term as the SDP’s leader.

9. The Irish government was apparently near collapse on Thursday after the Fianna Fail party said it would put a motion of no confidence in Deputy Prime Minister Frances Fitzgerald on Tuesday. Such a move would cripple Prime Minister Leo Varadkar’s minority government and could possibly lead to elections next month or in January. The political crisis comes just ahead of a European Union summit next month in which the Irish government could effectively block Britain’s progress on negotiations for its exit from the EU if concerns over the border between Ireland and the U.K. have not been adequately addressed.

10. Oil prices spiked to two-year highs this week as a partial closure of the Keystone pipeline connecting Canadian oil fields to the U.S. markets was announced due to a spill. The closure means that supply in the U.S. will tighten, likely falling by just over ½ a million barrels per day, while repairs are made. Trading was light in the holiday shortened week, but the drawdown in U.S. supplies, combined with the still-possible extension of OPEC’s production cap limits acted in concert to give prices the boost.

11. The euro struggled against the U.S. dollar at the start of the week, dropping sharply lower at the start of trading, then quickly recovering before drifting back to its lows for the week by mid-Tuesday. After hitting a floor on Tuesday, the euro begin steadily moving higher, particularly following Wednesday’s release of the U.S. Federal Reserve’s latest meeting minutes. A sharp push higher on Friday ensured that the euro will close the week to the upside against the U.S. dollar. The Japanese yen drifted sideways against the U.S. dollar at the start of trading for the week, but soon headed lower. By late Monday, the yen had hit its lows for the week and then began a march higher that got a significant boost on Wednesday after the Fed released its minutes. The yen had peaked by Thursday, and then began a slow drift lower that will still see the yen close out the week to the upside against the U.S. dollar.

The shortened trading week in the U.S. due to the Thanksgiving holiday kept much of the political news in the U.S. light. The Senate is supposed to vote upon their version of the tax reform bill when they return from Thanksgiving break and much depends on the outcome of that vote. If the Senate version of the bill is too widely disparate from the House version, then the chances of getting tax reforms passed “before Christmas” as President Trump has announced he desires, plunges dramatically.

Stocks have continued to make record gains and the wave of investors jumping in at what may be the top of the current bubble appears to be surging. Noted market analysts are beginning to caution that stocks are due for a correction but in a sign of classic “irrational exuberance” – a phrase believed to have been coined by none other than Alan Greenspan, former chair of the Federal Reserve – Investors don’t seem to care.

Tensions between the U.S. and North Korea flared anew this week as the Trump administration placed the reclusive nation on the list of state sponsors of terrorism. A North Korean spokesman, reacting to the news, told the state media outlet KCNA that the U.S.’ designation was “just a tool for American style authoritarianism that can be attached or removed at any time in accordance with its interests. As long as the U.S. continues with its anti-DPRK hostile policy, our deterrence will be further strengthened. The U.S. will be held entirely accountable for all the consequences to be entailed by its impudent provocation to the DPRK”. 

The U.S. Department of Treasury issued new sanctions on individuals, companies and transportation networks that allegedly help the hermit nation fund its renegade nuclear program just a day after President Trump announced the decision.

In Europe, political uncertainty continues to reign as Germany has failed to form a coalition government; Spain’s constitutional crisis continues over Catalonia’s renegade desire for independence; Ireland’s government appears on the verge of collapsing over political differences and the U.K. negotiations to exit the European Union continue to strike delay after delay. Ireland holds the key to continued progress in the U.K.’s negotiations with the EU because if it is not satisfied with the negotiated terms surrounding its border with the U.K., post-Brexit, it could bring those talks to a near standstill.

Debt levels around the globe have continued to skyrocket as the world “recovers” from the financial crisis spawned by the collapse of the U.S. housing bubble that began in 2007. The Organization for Economic Cooperation and Development (OECD) explicitly acknowledged that fact in its preliminary economic outlook report, released this week. The OECD reported that Canadian household debt has skyrocketed along with housing prices and that the economy is extraordinarily exposed to shock if those housing prices suddenly collapse, just as happened in the U.S. in 2008 as the global financial crisis began.

Savvy investors recognize the growing risk of exposure to such debt levels and have continued to seek ways to diversify their portfolios to try to stave off any heavy losses that could begin due to the sudden collapse of such bubbles like the ones appear to be on the rise again even now. These investors continue acquiring physical hard assets for their portfolios, such as physical precious metals, as one of those methods of diversification whenever they are presented with buying opportunities to do so.

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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