The Precious Metals Week in Review – April 5th, 2019

1. Brexit continues to be the top news story affecting volatility in all markets, followed by further apparent progress in the U.S.-China trade talks. President Trump now appears to be taking aim on Mexico as the next target of his tariffs, despite an economic agreement between the two countries earlier this year that has yet to be ratified.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 10,000 claims to a new level of 202,000 for the week ending March 30. The previous week’s level was revised higher by 1,000 claims. This is the lowest level for initial claims since December of 1969. The four-week moving average of claims decreased by 3,250 claims to reach a new level of 213,500. The previous week’s moving average was also revised higher by 250 claims.

3. The March Non-Farm Payrolls report was released on Friday and came in much better than expected. The U.S. economy added 196,000 jobs in March, a far cry above the 33,000 jobs added in February.  Economists had expected an addition of 175,000 jobs in March. The unemployment rate remained at 3.8% but a weak number for wage gains, just 0.1%, offset some of the more positive numbers from the report. The better-than-expected report helped alleviate fears that a recession in the U.S. economy was imminent, but the numbers were somewhat middle-of-the-road. The report suggests the economy is not doing well enough to warrant a rate hike, yet not slowing enough to warrant a rate cut. The Federal Reserve will likely continue to stand pat on interest rates for the time being.

4. The U.S. Commerce Department reported retail sales data for February this week and the data showed a drop in household spending in the retail sector. The report reinforced economists’ fears that the U.S. economy will show a sharp slowdown in the first quarter. Further evidence that the U.S. economy might be losing steam showed up in other data this week as well. Housing starts and manufacturing production both also showed declines, and auto sales are now projected to dip to their lowest levels in over 4 years.

5. U.S. job layoffs surged to 190,410 according to a report by Challenger, Gray & Christmas released this week. The jump in layoffs was an increase of over 35% to the previous year’s numbers and shows the worst first quarter for job layoffs since 2009, shortly after the financial crisis began. The report blamed the surge in layoffs on companies that are “streamlining and updating their processes” and noted that “Consumer behavior and advances in technology are driving many of these [job] cuts.”

6. President Trump ramped up the pressure on Mexico further this week, threatening to impose tariffs on car imports if the U.S. neighbor does not do more to stop illegal migrants and drug trafficking across the border between the two countries. Trump backed off on the threat he made last week to immediately close the border with Mexico, much as expected, but the threat to impose 25% tariffs on autos entering the U.S. from Mexico could do further damage to the U.S.’ image on the international trade front. Trump added to the pressure on Friday, saying he was considering other economic penalties against Mexico, apart from the aforementioned tariffs, if they failed to act to counter the smuggling of drugs and illegal migrants across the southern border of the U.S.

7. U.K. Prime Minister Theresa May announced on Tuesday that she was seeking another Brexit delay beyond the original April 12 deadline imposed by the European Union in an attempt to get agreement on an exit package. She has tried, and failed, three times to get an exit agreement voted through parliament. Brussels has been steadfast in its stance that the original exit package is the only one they will sign off on, and parliament has been steadfast in its stance that the original deal negotiated with Brussels is unacceptable due to the so-called “Irish Backstop” which would effectively keep Northern Ireland embedded with the EU post-Brexit.

8. The US and China appeared to make further progress on a trade deal this week. On Thursday President Trump said that swift progress had been made but added “we’ll know over the next four weeks”. Chinese Vice Premier Liu He also said that a new consensus had been reached by both countries on the possible text for a trade agreement. Trump told reporters on Tuesday ahead of another meeting with Vice Premier Liu He that some of the sticking points that remain to be addressed are intellectual property theft and “certain tariffs”.

9. US Crude oil saw further gains this week on the strong U.S. Non-Farm payrolls report. West Texas Intermediate closed at $63.11 a barrel on Friday, a five-month closing high. Brent crude closed over $70 a barrel, the first time it has closed above that mark in five months. The market seemed to take the U.S. jobs report as a sign that the global economic slowdown that has been concerning analysts for months was “overblown”.

10. The euro started the trading week moving higher against the U.S. dollar, but quickly took a sharp downward turn as the confusion over Brexit continued. The euro dipped to its lows for the week late Tuesday and then began a sharp climb higher that sent it back into positive territory. The euro spent the rest of the week basically drifting sideways and will close out the week slightly higher against the U.S. dollar. The Japanese yen began the week drifting somewhat sideways against the U.S. dollar, but dropped sharply lower on Thursday, hitting its lows for the week early on Friday morning. The yen will close the week out slightly lower against the U.S. dollar.

The U.K.’s exit from the European Union remains the top item that will likely drive market volatility through the coming weeks. Prime Minister Theresa May successfully won an extension to April 22 for the U.K. to continue trying to reach an agreement that will be acceptable to both Brussels and the U.K. parliament. Parliament has thrice voted down not only the original agreement, but each successive revision that Theresa May has brought before it. Ms. May is now working with her opposition leader, Jeremy Corbyn, to try to draft an agreement that might have even a slim chance of passing through parliament with a “yes” vote, yet still be acceptable to Brussels.

The U.S. and China appear to be inching closer to a trade deal, with both sides making positive comments on the progress that has been made over the last few weeks in their discussions attempting to resolve the ongoing trade dispute between the two countries. The increasing likelihood that the U.S. and China might reach a trade agreement and resolve their differences has boosted sentiment that the impending global slowdown that analysts have been predicting could be short-lived, if it happens at all.

Many analysts feel that the next target on President Trump’s trade radar might be Europe, but comments that Trump made this week in his attempt to get Mexico to rein in the illegal trafficking trade, both in human terms and in drug terms, that is rampant across the border between the two countries could mean that Mexico remains in his sights. Mexico was the first to agree to a revamped version of the original North American Free Trade Agreement (NAFTA) that redefined trade between Mexico, the U.S. and Canada.

From comments made this week by President Trump, the U.S. could still implement tariffs on Mexican goods in spite of the new trade agreement between the two. Trump is insistent that Mexico do more to curb the flow of migrants and narcotics into the U.S., threatening to implement 25% tariffs on automobiles if the Mexican government does not act quickly. Trump also said that “other economic penalties” were on the table for Mexico in addition to the possibility of tariffs. The stance that the Trump administration has taken towards international trade has had profound impact on the U.S.’ relationships with its traditional allies.

As the world enters a new age of tension and uncertainty between global powers, savvy investors continue to seek out ways to ensure that their investment portfolios remain diversified against sudden shocks to the financial system. Precious metals have historically been viewed as a “safe haven” in times of economic turmoil and many of these investors have adopted a plan to acquire physical precious metals for the purpose of diversifying their portfolios whenever temporary price dips present 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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