The Precious Metals Week in Review – March 29th, 2019

1. The UK parliament voted no on Theresa May’s Brexit package for the third and final time this week, sparking a massive protest march by pro-Brexit supporters who sincerely want the UK to exit the EU in an “orderly fashion”.

2.  The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 5,000 claims to a new level of 211,000 for the week ending March 23. The previous week’s level was revised lower by 5,000 claims, a fairly significant miss. The four-week moving average of claims decreased by 3,250 claims to reach a new level of 217,250. The previous week’s moving average was also revised significantly lower by 4,500 claims.

3. Top White House economic advisor Larry Kudlow told CNBC this week that the Federal Reserve should “immediately” cut interest rates to keep the U.S. economy moving forward. Kudlow advocated for a 50 basis point cut to overnight lending rates and said the Fed should stop shrinking its balance sheet. Kudlow is the Director of President Trump’s National Economic Council. Kudlow said “Looking at some of the indicators – I mean the economy looks fundamentally quite healthy, we just don’t want that threat. There’s no inflation out there, so I think the Fed’s actions were probably overdone.” Kudlow continued, saying “Globally, there’s a lot of weakness out there. Europe – euro zone virtually in a recession. China: very, very, very soft as we negotiate on trade. In the absence of inflation, with some of these global threats, our view is at some point…I wouldn’t mind seeing the Fed drop their target rate.”

4. President Trump threatened this week to close “large sections” of the border between the U.S. and Mexico next week as another caravan of immigrants began making its way through Mexico headed towards the U.S. border. It is unlikely that Mexico will take action against the caravan, unless it begins violating local laws. Mexican Foreign Secretary Marcelo Ebrard said, in response to the President’s tweet, that Mexico was “a great neighbor” to the U.S. and that 1.5 million Americans live in Mexico, hinting that closing the border would be a detriment to the U.S. more than it would Mexico. Trump has made similar threats before and failed to follow through so it is unlikely that this time will be any different.

5. The United Kingdom continues to hold out against the Brexit deal that Theresa May’s government negotiated with the European Union. The deal was put to yet another vote in parliament this week and was resoundingly voted down again for a third, and likely final, time. The deal was beaten down by 344 votes against to 286 votes for. The deal was defeated again on the very day that the U.K. was supposed to trigger Article 50 and make its official exit from the EU. The “no” vote means that the extension to May 22 that the EU had previously granted to the UK is no longer valid and that the country will now be forced into a “disorderly exit” from the bloc in just 14 days’ time on April 12. If the EU holds the U.K. to the April deadline then that means that Britain will effectively be kicked out of the EU overnight on the 12th with no deal or transition period in place to govern the relationship between the two.

6. European Central Bank president Mario Draghi said this week that the ECB stands “ready to act” again and could delay further rate hikes if needed. The central bank announced earlier this month that it was reducing its economic growth projections for the EU and would enact another program to attempt to stimulate bank lending in the euro zone. Draghi said that the bank’s interest rates were now expected “to remain at their present levels at least through the end of 2019” and that “The ECB will adopt all the monetary policy actions that are necessary and proportionate to achieve its objective.” Draghi further went on to say “We [the ECB] are not short of instruments to deliver on our mandate.”

7. Italy became the first major European economy to announce that it would be joining China’s “Belt and Road” Initiative (BRI). The BRI is a massive investment and infrastructure project intended to massively expand China’s trade capabilities. Chinese President Xi Jinping signed a non-binding Memorandum of Understanding with the Italian government for it to join China’s projected trade route, working together to develop Italy’s transport, logistics and port infrastructure. The move was met with serious disapproval, not only from the U.S. – who views the project as simply just a move designed to allow China to extend its geopolitical influence further into the world – but also by the EU itself, who favors a more coordinated approach to dealing with China.

8. Former U.S. Treasury Secretary Jack Lew warned that there were likely “more bumps in the road” before the U.S. and China could ink a trade deal. U.S. officials once again traveled to China for another round of negotiations on the ongoing trade dispute between the two countries. Chinese officials are also reported to be coming to the U.S. next week to work further on details of a deal.

9. In Venezuela, opposition leader Juan Guaido urged supporters on Wednesday to take to the streets in a bid to force Nicolas Maduro to step down as president. This week saw more power outages which Maduro claimed were an act of sabotage by the opposition and the U.S. itself.

10. The situation in Venezuela has become a proxy for further conflict between Russia and the U.S. On Wednesday, President Trump said that Russia “needs to get out” of Venezuela, adding that “all options” were on the table to get Russia to pull any troops out of the embattled South American country. Two Russian military planes landed in Caracas over the weekend, fueling speculation that Russia could be attempting to position itself to gain influence in the oil-rich nation amid the political chaos that continues to unfold.

11. US Crude oil posted its best quarter since 2009, climbing over 32 percent so far this year. Oil prices rose on Friday in spite of further signs that the global economy is beginning to slow, which could impact demand. U.S. West Texas Intermediate crude settled up 1.4 percent on Friday, closing above $60 per barrel while Brent Crude, the international benchmark, closed just above $68 per barrel, closing in on $70 again.

12. The euro dipped against the US dollar at the start of trading for the week, but soon drifted into positive territory. On Tuesday, the euro began steadily drifting to the downside as it became clear that the UK parliament was going to vote no on the Brexit package for the third, and likely final, time. The euro will close the week out lower against the U.S. dollar. The Japanese yen trended steadily lower against the U.S. dollar for much of the week, bouncing slightly higher beginning late Wednesday, but then resuming its downward moves by late Thursday. The yen will also close the week out slightly lower against the U.S. dollar.

Brexit will likely continue to be the primary driver for market volatility in the coming weeks as the European Union decides whether it will enforce the April 12 exit deadline on the U.K. after it refused to pass the Brexit deal in a third, and likely final, failed vote in Parliament. The political climate in the U.K. is likely to heat up over the next two weeks as the likelihood that the U.K. will be forced out of the EU in a disorderly fashion becomes more and more certain.

A massive protest march by pro-Brexit supporters got underway shortly after Parliament failed yet again to pass the package which gave the U.K. a fairly lengthy transition period and some governing guidelines that would have made its exit from the bloc easier on its citizens. Prime Minister Theresa May’s political future has become highly uncertain in the wake of the vote as well. It is entirely possible that she could be forced out of office, triggering general elections at a time when the U.K. will need clear and steadfast leadership the most.

The situation in Venezuela could also escalate further as they enter the weekend suffering further widespread power outages as the infrastructure in the beleaguered socialist country rapidly deteriorates. Nicolas Maduro continues to cling to power in the South American country, blaming the U.S. for all of its woes instead of recognizing that decades of mismanagement under a socialist regime have crippled the nation’s economy. Russia’s apparent move to fly troops into Caracas has caused serious consternation in the U.S., with President Trump saying that “all options” were on the table to get Russia to pull any troops it may have sent to the region out.

Trade talks between the U.S. and China continued this week, with U.S. officials visiting Beijing and an expected counter-visit to the U.S. by Chinese officials set to take place next week. The two countries still seem to be far apart from any potential deal to alleviate their disagreement over each other’s trade practices. As signs continue to point to a global slowdown in economic growth top White House economic advisor Larry Kudlow, who helms the President’s National Economic Council, has begun advocating for the Federal Reserve to reverse course and begin cutting interest rates once more buy as much as 50 basis points. Despite his statements that the U.S. economy continues to do well and that he sees no sign of distress, Mr. Kudlow is calling on the Fed to abandon its 2 percent inflation target in favor of taking preemptive action by cutting rates early. His thesis appears to be that cutting rates would act to further boost the U.S. economy, strengthening the consumer’s desire to spend money.

Consumer spending is a massive component of the U.S. GDP. As geopolitical and macroeconomic uncertainty continues to grow, savvy investors have increasingly sought out ways to ensure that their portfolios are well-diversified in case of a sudden downturn in equity markets. Many of these investors have held to their plan to accumulate additional physical precious metals as temporary price dips have afforded them the opportunity to acquire more physical product 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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