The Precious Metals Week in Review – December 15, 2017

1. This week was extremely news-heavy as the tax reform bill that has been working its way through Congress grew closer to completion, the California wildfires continued to rage and the Federal Reserve followed through on another December interest rate hike.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment plunged by 11,000 claims to a new level of 225,000 for the week ending December 9 from the previous week’s unrevised level. The four-week moving average of claims decreased by 6,750 to a new level of 234,750 from the previous week’s unrevised average. Claims submissions in the Virgin Islands continue to be disrupted by the damage from this year’s deadly hurricane season and Puerto Rico’s processing has also not returned to normal. As is usual for this time of year, the employment data is likely to be volatile over the next several months due to extensive temporary hiring that usually takes place to support the holiday buying season.

3. The Federal Reserve followed through with another quarter point interest rate hike at the conclusion of its final Federal Open Market Committee meeting to set monetary policy in 2017. The move was widely expected after last week’s better-than-expected Non-Farm Payrolls report. For the most part, the decision was “priced in” to markets and most of them remained unmoved, or even climbed slightly higher, after the decision was announced. The Federal Reserve noted that the inflation rate remains stubbornly below its 2% target and JPMorgan chief global strategist David Kelly told CNBC after the decision was announced on Wednesday that he is “increasingly worried” that the Fed is “missing the big danger here.” Mr. Kelly said “We haven’t had an inflation problem in 25 years, but we’ve had a tech bubble, we’ve had a commodity bubble, we’ve had a housing bubble. All of those were fueled by too-easy money and all of them resulted in big market corrections or recessions – and one of them the biggest recession we’ve seen since the Great Depression.” Mr. Kelly continued, saying “Inflation’s not the enemy. The gauge they’ve got to watch here [is] asset prices.”

4. The U.S. state of California remained ablaze this week as the Santa Ana winds and extremely low humidity made controlling the multiple raging fires a massive challenge. The largest of the blazes, the Thomas fire, became the fourth largest wildfire on record in California since 1932. It has destroyed more than 249,000 acres and razed more than 700 homes. The ongoing fires remain a threat to nearly 18,000 other homes and structures throughout communities in Southern California. Air quality across the state has plunged as smoke and ash drifts along the air currents across Southern California, forcing commuters and pedestrians to wear masks so that they can breathe when venturing outdoors.

5. In the U.S., Congress neared completion of the compromise version of the two tax reform bills that passed the Senate and the House of Representatives earlier this month. The two chambers are expected to have a final, combined version of the bill completed by Friday afternoon. Their desire is to vote on the final bill early next week and send it to President Trump for his signature by Christmas. Both the contents of the final reform bill and the impact it could have on the U.S. economy have been hotly debated and even after a final version is unveiled, there remains no guarantee that the Republicans will rally behind the bill and garner enough votes to actually pass it next week.

6. A report released by the Asia Maritime Transparency Initiative, part of U.S.-based think-tank the Center for Strategic and International Studies, showed that China has completed permanent construction projects on and around the Spratly and Paracel islands which account for 72 acres of what appears to be primarily a military infrastructure. The report said “International attention has shifted away from the slow-moving crisis in the South China Sea over the course of 2017, but the situation on the water has not remained static. Beijing remains committed to advancing the next phase of its build-up – construction of the infrastructure necessary for fully-functioning air and naval bases on the larger outposts.” The report notes the recent completion of a high frequency radar array at the north end of Fiery Cross Reef in the Spratlys and new Storage tunnels in Subi and Mischief Reefs, also near the Spratlys, which are expected to expand China’s radar and signals intelligence capabilities significantly.

7. With all of the discussion over the final version of the tax reform bill, the media seems to largely be ignoring that the temporary “Continuing Resolution” that was passed to keep the government funded through the end of this year is set to expire on December 22. Very little has been mentioned in the media on whether Congress has been working in tandem with its tax-reform efforts on a new longer-term resolution to keep the government operating past Christmas. Even if Congress does manage to pass another “Continuing Resolution”, it will simply add more debt to the already staggering pile accumulated under the Obama administration as it continually raised the so-called debt ceiling to keep the government operational.

8. As Bitcoin began trading in the futures markets at the start of the week, the price continued to stay elevated at exorbitant levels as speculators continued to rush into the cryptocurrency arena, which remains mysterious and opaque to the extreme. In what is a sure sign that the “crypto-craze” has reached mania levels, bond king Jeffrey Gundlach noted in an interview with CNBC that one of his bond traders had heard a story of an individual that had purchased a “crypto kitty” for $100,000 and was looking to turn around and “flip” it to try to double his money. The aforementioned “crypto kitty” is literally a unique, digitally generated picture of a cat that has been created using blockchain technology. The Securities and Exchange Commission in the U.S. warned this week that investors should be wary of putting their money into cryptocurrencies and noted that trading and public offerings, known as Initial Coin Offerings (ICO), may be in direct violation of federal securities law. The SEC stepped in to stop a planned ICO by a restaurant review app for failing to register it as a security. Andrew Bailey, chief executive of the U.K.’s Financial Conduct Authority (FCA) told the BBC’s “Newsnight” program that buying Bitcoin was akin to gambling, with the same level of risk. Mr. Bailey said “If you want to invest in Bitcoin, be prepared to lose all your money.”

9. Tensions between China and Australia ratcheted up again as China summoned Ambassador Jan Adams to a meeting at the Chinese Ministry for Foreign Affairs to lodge a formal complaint over statements made last week. The complaint was triggered by allegations made last week that China has sought to interfere in Australia’s domestic politics. China is Australia’s largest trading partner and comments by Prime Minister Malcolm Turnbull last week which appeared to single China out for meddling in internal politics were classified as “full of prejudice against China” and were “baseless and poisoned the atmosphere of China-Australia relations.” Turnbull denies that he was disparaging China and said that the uproar over any comments he might have made were just an attempt by the opposition Labour party to “win favour with a large voter block ahead of a make-or-break by-election on Saturday.”

10. Oil prices continued to hover near $60-a-barrel this week, stabilized by a pipeline outage in the North Sea that affected supply to Britain, and the ongoing production caps led by a partnership of OPEC and non-OPEC oil producing nations. A decline in global crude stocks also added upward pressure to prices as signs that the global oil glut might finally be drawing down appeared.

11. The euro moved higher against the U.S. dollar as the week opened but began moving lower in choppy stages late on Monday night. Mid-day on Tuesday, the euro saw a near vertical plunge lower, but it quickly found its floor for the week and began struggling back higher. On Wednesday, after the Federal Reserve announced its interest rate hike, the euro surged back into positive territory, where it traded in a narrow range through late Thursday. In late Thursday trading, the euro plunged lower again, falling back near even for the week as Friday’s trading began. In Friday trading, the euro drifted higher and looks set to close the week out slightly higher against the U.S. dollar. The Japanese yen began the week trading in a narrow range against the U.S. dollar drifting essentially sideways through Tuesday afternoon. Starting late afternoon on Tuesday, the yen began a steady move towards the upside, assisted by Wednesday’s announcement that the Federal Reserve would be raising interest rates. There was a brief, but steep decline in the yen in Friday morning trading, but the yen will still close the week out higher against the U.S. dollar.

The final version of the tax reform bill is not expected to be revealed by the U.S. Congress until after all markets have closed on Friday. Stocks are still waffling back and forth over what might actually make its way into the final copy of the bill. Many analysts have been saying that the seemingly constant record highs that stocks have been reaching in recent months is mostly due to the possibility that the tax-reform might actually be passed. The bill is expected to reduce corporate taxes and allow companies to repatriate some of the capital that they might have parked overseas back into the U.S. without harsh penalties.

The Republicans appear to have just enough votes to pass the final version of the bill, so if there are any last-minute holdouts or some members decide to change their votes, stocks could take a turn for the worse.

Janet Yellen gave her last press conference as chair of the Federal Reserve this week as the central bank voted to raise interest rates by another quarter point at the conclusion of the FOMC meeting. Chair Yellen noted that inflation is still stubbornly below the Fed’s 2% target threshold and basically admitted that the Fed really does not understand why. As we close out 2017, market analysts expect the Fed to continue its pattern of interest rate hikes into 2018 despite the apparent danger of sliding back into recession.

In Europe, Italy was in the news for two reasons this week. The first headline was that a general election which is expected to occur in March will most likely end in a hung parliament, bringing Italy’s leadership in line with much of the rest of Europe as Germany’s political crisis continues, the UK’s government is fractured, and Spain continues to struggle through its own leadership crisis. Lorenzo Codogno, a professor at the London School of Economics told CNBC Thursday, regarding the possibility of a hung parliament in Italy, “I think the real threat for investors is a prolonged period of instability. Italy cannot afford to have no government and maybe new elections, that could trigger some volatility and pressure in the market.” The second headline for Italy was less political in nature, but no less important: a large explosion at a main gas hub on Slovakia’s border with Austria has triggered an 87 percent rise in natural gas prices due to fear of a shortage. Carlo Calenda, Italy’s industry minister, warned of a “serious” energy supply problem and said that Italy would need to declare a state of emergency.

In London, Prime Minister Theresa May was soundly defeated in parliament on Wednesday when lawmakers forced through changes to her government’s Brexit plan that many ministers say could delay or even damage Britain’s exit from the EU. The key takeaway from the modifications that were made is that parliament will now have a vote on any proposed “Brexit” deal before it is finalized and written into law. Prime Minister May’s fear is that parliament could add a crucial delay into the negotiation process that could have an effect of weakening Britain’s negotiating powers.

Finally, geopolitical risk seemed to have been pushed to the back burner this week in favor of Bitcoin and tax reform coverage, but obviously remains worth monitoring. President Trump and Russian President Vladimir Putin apparently held a phone conversation this week to discuss options on how to solve the looming problem that is North Korea’s continued pursuit of a nuclear arsenal. Protests around the world over President Trump’s recognition of Jerusalem as the capital of Israel also continued this week with Malaysia apparently vocalizing its readiness to send troops into Jerusalem, calling Trump’s announcement a “slap in the face” for the entire Muslim world.

As the mania in cryptocurrencies reaches full euphoria stage, and stock markets appear ready to follow suit, wise investors continue to take steps to diversify their portfolios to make sure that they avoid overexposure to any single asset class. The temporary dip in precious metals prices in the run-up to the Federal Reserve’s final FOMC meeting for 2017 appeared to offer these savvy investors the buying opportunity that they were looking for to add additional physical precious metals to their portfolios at a discount.

Physical precious metals prices have remained suppressed as equities and cryptocurrencies have taken off and the very companies that mine the metals out of the ground still maintain that they are not making money at current price levels. Many cautious analysts have begun recommending seeking out investments that are “cheap” and “beaten down” instead of following the herd into the market mania, and these same analysts note that gold and silver qualify as “cheap” at current price 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.

Friday to Friday Close (New York Closing Prices)

Previous year Comparisons

Here are your Short Term Support and Resistance Levels for the upcoming week.

This is not a solicitation to purchase or sell.
© 2017, Precious Metals International, Ltd.