The Precious Metals Week in Review – January 5, 2018

1. This week was a shortened trading week due to the timing of the New Year. 2018 began with a massive winter storm in the U.S. that looks to continue its path of devastation throughout the weekend. The massive amounts of ice and snow that shut down roads and airports across the North Eastern United States will likely cause employment and retail data to be highly unreliable for at least several weeks. Markets anxiously awaited the release of Friday’s Non-Farm Payrolls report this week for indications on what direction the Federal Reserve might take with further rate hikes.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment rose by 3,000 claims, coming in at 250,000 for the week ending December 30. The previous week’s level was revised higher by 2,000 claims. We can expect the unemployment data to remain volatile as we move further into the New Year, particularly in the North-East region of the U.S. as massive snowfalls and foul weather will likely cause a surge in claims. The four-week moving average of claims increased by 3,500 to a new level of 241,750 from the previous week’s revised average. Claims taking procedures in both the Virgin Islands and Puerto Rico have still not returned to pre-hurricane norms despite months of infrastructure repair work.

3. Friday’s Non-Farm Payrolls report (NFP) missed expectations, with the U.S. economy adding just 148,000 jobs in December, as compared to economists’ expectations for an addition of 190,000 jobs. Stocks initially dropped on the news, but were soon surging to new record highs as the bubble expansion continued in spite of the weaker-than-expected data. December and January are typically difficult months to accurately read the employment picture, due to the timing of the holiday season so it is highly likely that the data for both of these months will be heavily revised.

4. North Korea reportedly accepted an offer by South Korea to hold wide-ranging talks on January 9th. The talks are purported to be focused on the Winter Olympics, which are to be held in South Korea, and “other issues of mutual interest”.  North Korea also apparently reopened its cross-border communications channel with South Korea for the first time in roughly two years. The news comes despite a renewed “war of words” between Donald Trump and Kim Jong Un that broke out at the start of the New Year. President Trump, in yet another provoking tweet, said “North Korean Leader Kim Jong Un just stated that the ‘Nuclear Button is on his desk at all times.’ Will someone from his depleted and food starved regime please inform him that I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button works!”

5. President Trump also took to twitter at New Year to chastise Islamabad for harboring terrorists. Pakistan’s central bank announced just 24 hours later that it would be replacing the U.S. dollar with the Chinese yuan for bilateral trade and investment with Beijing. Chinese Foreign Ministry spokesman Geng Shuang said, the same day, that Pakistan had “made great efforts and sacrifices for combating terrorism”, and urged the rest of the international community to “fully recognize” that fact. Pakistan summoned the U.S. ambassador in protest to the President’s tweet and asked him to fully explain the President’s actions.

6. In Iran, protestors attacked police stations and held anti-government demonstrations throughout the weekend. More than 450 were arrested and at least one member of the security forces was reported killed on Monday, bringing the total death toll to 14 in the boldest protest against Iran’s clerical leadership since similar unrest in 2009. The Revolutionary Court warned on Tuesday that any of those arrested in the protest movement would likely face extremely harsh punishment.

7. Crude oil retreated off of its highest levels since 2015, but remained above the $60-a-barrel mark. Strengthening U.S. shale oil production, coupled with a drop-off in typical demand during the holiday season acted to force prices lower in spite of continued production cuts by OPEC and non-OPEC oil-producing nations.

8. The euro surged higher against the U.S. dollar at the start of trading for 2018 but then began drifting lower until early Thursday morning. The euro surged to its highs for the week by late Thursday, but began drifting lower again as it entered into Friday’s trading session. The euro still appears set to close the week slightly to the upside against the U.S. dollar. The Japanese yen popped higher against the U.S. dollar to start off the year, but then began a steady drift to the downside for the rest of the week. The yen will close out the first week of the new year lower against the U.S. dollar.

The Dow Jones Industrial Average broke above 25,000 on Thursday and one analyst told CNBC “We’re really terrified” when asked about the record breaking move higher. Paul Gambles, managing partner at MBMG Group, said that the collective global growth the world witnessed in 2017 was the equivalent of a “blow-off top.” Mr. Gambles said that a similar pattern was witnessed during the prelude to previous financial crises and that the current risk to investors has become “exponential.”

Adding to the concern over what appears to be rapidly expanding bubbles in equities and crypto-currencies, are global debt levels, which hit a record level of $233 trillion in the third quarter of 2017 according to the Institute of International Finance (IIF). The IIF also warned that “heavy emerging market redemptions” would occur in 2018, including over $1.5 trillion of bonds and syndicated loans. China, Russia, Korea and Brazil also have heavy dollar-debt repayment schedules in 2018.

Amid growing unrest in the Middle East and OPEC’s continued avowal to maintain the production cut that it implemented with other oil-producing nations last year, oil recorded its strongest opening for a New Year since 2014. Iran erupted into protest at the start of the year over growing economic hardship and a lack of civil liberties. The nuclear agreement signed between Iran and several world powers in 2015 was supposed to create a boost for Iran’s economy, which had stagnated under international sanctions as it continued its pursuit of nuclear weaponry. That economic boost failed to materialize, and Iran’s relatively young population appears to have had enough. Protests took place in 80 cities and towns with demonstrators chanting anti-government slogans, against Supreme Leader Ayatollah Ali Khamenei, and against Iran’s involvement in foreign conflicts. It remains unclear exactly what sparked the protests, but at least 22 people were killed and more than 1,000 arrested, including many students.

Tehran was quick to lay the blame at the feet of the United States with one cleric having been quoted by Reuters as saying, “ordinary Iranians were deceived by these American-backed rioters”, calling for some leniency on those that were arrested for non-violent protestation. Those protestors who engaged in more violent activity, especially those that seized police stations and caused harm, will likely face harsh penalties, up to and including death, under Iran’s strict interpretation of its laws.

In Europe, news was relatively quiet, but the political crises that have been spreading across the continent will likely continue throughout 2018. The United Kingdom is still completing its negotiations to exit the European Union, and it still appears that London could lose its historical status as the “financial hub” of Europe after the exit.

Spain continues to face its own political crisis in Catalonia after the elections there effectively resulted in the separatist movement regaining power in the regional government.

Germany remains politically gridlocked, struggling to form a viable coalition government under Chancellor Angela Merkel’s lead.

As geopolitical uncertainty continues to surge across the globe, savvy investors have maintained their focus and continued to seek out ways to keep their investment portfolios diversified against overexposure to any single asset class as more and more assets appear to be skyrocketing further into bubble territory. One such methods these investors use for that diversification is to acquire physical precious metals whenever temporary price dips afford them with a buying opportunity to do so at a discount.

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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