The Precious Metals Week in Review – April 12th, 2019

1. The U.K. received a reprieve from the constant pressure of coming up with a viable Brexit package this week when the EU gave it until October 31 to come up with a new plan. Conditions on the extension, however, mean that the U.K. must elect members to the European Parliament in May, or it will again be faced with the threat of a disorderly exit come June 1.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 8,000 claims to a new level of 196,000 for the week ending April 6. The previous week’s level was revised higher by 2,000 claims. This is the lowest level for initial claims since October of 1969. The four-week moving average of claims decreased by 7,000 claims to reach a new level of 207,000. The previous week’s moving average was also revised higher by 500 claims. This is the lowest level for the moving average of unemployment claims since December of 1969.

3. U.S. import prices climbed for the third straight month in March according to data released by the Labor Department this week. The jump in prices was largely driven by increases in fuel and industrial supply costs. In tandem with the jump in import costs, U.S. producer prices also increased in March by the most in five months and consumer prices also surged by the largest amount in 14 months. Despite the increase in the costs of goods bought and sold, the Labor Department report classified underlying wholesale inflation as “tame”.

4. Former Federal Reserve Chair Alan Greenspan was interviewed by CNBC on Friday and noted that the U.S. economy is destined to fade “very dramatically” due to the increasing amount of entitlement programs in the U.S. and general weakness throughout the rest of the world.

5. The U.S. Trade Representative, Mr. Robert Lighthizer, proposed a list of European Union products that he believes should have tariffs applied to them in retaliation for aircraft subsidies that the EU provides to Airbus. Mr. Lighthizer said in a statement that “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.” Mr. Lighthizer said his office would announce a final product list after a WTO arbiter evaluates the U.S.’ claims against the EU sometime in the summer.

6. The EU had harsh criticism for the U.S. after its Trade Representative proposed to target it with tariffs equating to roughly $11 billion. A spokesman for the European Commission said “The EU is confident that the level of countermeasures on which the notice is based is greatly exaggerated. The amount of WTO -authorized retaliation can only be determined by the WTO-appointed arbitrator.” Both sides of the debate were found guilty of illegally subsidizing their aircraft manufacturers, but the WTO has yet to rule on the EU’s case against the US. The EC spokesman said that the EU was ready to retaliate in kind for the U.S.’ tariffs once the WTO issues its finding, saying “The determination of EU retaliation rights is also coming closer and the EU will request the WTO-appointed arbitrator to determine the EU’s retaliation rights.”

7. The International Monetary Fund appears to be increasingly concerned that the rising debt in the corporate sector and the lack of regulation regarding that debt could trigger another economic crisis. Tobias Adrian, the director of the monetary and capital markets department at the IMF said on Thursday “We are particularly worried about the corporate sector, where leverage is rising, underwriting standards and some pockets of the corporate sector are deteriorating.” Mr. Adrian continued, saying “Prudential tools are not very well developed. In the banking sector, there’s a lot more capital, a lot more liquidity, but leverage, liquidity in the corporate sector is not really regulated. Those vulnerabilities are slow moving, but those are potential amplification mechanisms if bad shocks hit.”

8. EU leaders and the government of the U.K. agreed this week to extend the deadline for the U.K.’s exit from the EU to October 31, calling it a “flexible extension”. Donald Tusk, president of the European Council, told the U.K. not to “waste this additional time”, saying “This extension is as flexible as I expected and a little bit shorter than I expected, but it’s still enough to find the best possible solution.” The extension, according to Tusk, also grants the U.K. “the possibility to revoke article 50 and cancel Brexit altogether.” If U.K. lawmakers don’t ratify an exit agreement by May 22, the U.K. will be forced to participate in European Parliament elections, which take place from May 23 to 26. Should the U.K. fail to elect members to the European Parliament, then it must leave the bloc on the 1st of June, according to the extension agreement. Prime Minister Theresa May told reporters after the news broke that “nothing is more pressing or vital” than finding a deal that the U.K. parliament could ratify, adding that she wants the U.K. to exit from the EU “as soon as possible.”

9. Oil prices were headed for another week of gains as global oil supplies showed signs of tightening. Brent crude, the international benchmark, was looking at a third weekly gain, while U.S. West Texas Intermediate (WTI) was headed for its sixth week of gains. The climb in oil prices has some analysts fearing that the consumer is likely facing “pain at the pump” as we get ready to enter the peak driving season. Higher gasoline prices could force the U.S. consumer to cut back on discretionary purchases, adding another drag to an already slowing U.S. economy.

10. The euro moved mostly sideways as the week began, but took an upward turn late Monday and spent the rest of the week struggling higher against the U.S. dollar. Friday saw another upward move for the euro and it appears set to close out the week to the upside against the U.S. dollar. The Japanese yen moved higher against the U.S. dollar as trading began and drifted higher through much of the week. The yen began a downward move late on Wednesday that carried through to Friday’s trading. The yen appears set to close out the week slightly lower against the U.S. dollar.

Now that the U.K. has been given essentially until October 31 to come up with an exit package that will be able to pass through its Parliament, media focus will likely shift back to the ongoing trade disputes between the U.S. and its trading partners. The US continues to negotiate with China to attempt to reach a satisfactory stance on trade between the two countries. News regarding the progress in those trade talks was oddly muted this week, considering the overwhelmingly positive tone that both sides ended with last week.

The U.S. has also taken aim on its trading partner to the south with President Trump threatening last week to slap tariffs on automobiles coming into the U.S. from Mexico if the Mexican government does not take firmer action to stop the flow of human and narcotics trafficking between the two countries.

Adding further fuel to the fire that the U.S.’ stance on trade has become, this week the US Trade Representative triggered the ire of the European Union when he announced a suggested list of over $11 billion worth of EU products that would be subject to retaliatory tariffs for subsidies that the EU paid to Airbus. The World Trade Organization has been reviewing the cases that the U.S. and EU brought against each other for allegedly paying illegal subsidies to their largest aircraft makers and apparently found both sides in the wrong. It will be up to a WTO arbitrator to determine the value of retaliatory tariffs that each side can implement, but the U.S. apparently has gotten a jump start on that determination and already produced a list for the arbitrator to review. The EU is awaiting the WTO’s decision on its case and will likely impose its own set of tariffs on the U.S. in return for subsidies that it paid to Boeing.

Global growth continues to show signs of slowing, and many analysts have noted that the world’s central banks appear to be “out of ammunition” to combat the slowdown should it truly take hold. The U.S. has been one of the only central banks to attempt to normalize its monetary policy after keeping interest rates at record low for years. The rest of the world’s central banks have kept their interest rates near, or even below in some cases, zero. Should another economic shock shake the global financial system, the world’s central banks have nowhere left to turn to stimulate their economies.

Keeping an investment portfolio well-diversified against potential shocks to the financial system is wise in such an environment. Savvy investors have been adding physical precious metals to their portfolios as part of a diversification strategy whenever temporary price dips have afforded them the opportunity to do so. Precious metals have had a long history of being viewed as a “safe haven” in times of economic turmoil. The world’s central banks appear to maintain that view as well, given the Gold buying spree that many have embarked upon in recent times.

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.
© 2019, Precious Metals International, Ltd.