The Precious Metals Week in Review – April 19th, 2019

1. This week and next will be shortened holiday weeks due to the timing of religious holidays this year. With the release of the Mueller report, which found no collusion with Russia and no obstruction of justice on the part of President Trump during the 2016 Elections, American politics is likely to explode into chaos in the near term. The Democratic Party is almost certainly going to redouble their efforts to block President Trump’s legislative agenda at every turn now that the basis of their calls for impeachment has been essentially eliminated.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 5,000 claims to a new level of 192,000 for the week ending April 13. The previous week’s level was revised higher by 1,000 claims. This is the lowest level for initial claims since September of 1969. The four-week moving average of claims decreased by 6,000 claims to reach a new level of 201,250. The previous week’s moving average was also revised higher by 250 claims. This is the lowest level for the moving average of unemployment claims since November of 1969.

3. Charles Evans, President of the Chicago Federal Reserve, told CNBC on Monday that he could “see the funds rate being flat and unchanged into the fall of 2020. For me, that’s to help support the inflation outlook and make sure it’s sustainable.” Evans stopped short of calling the Fed’s last rate hike in December of 2018 a mistake but noted that economic growth since then has been underperforming. The Fed still has a 2 percent target for the inflation level in the U.S., feeling that this level would lead to healthy economic growth. That target has so far been unsustainable since hitting 2 percent in May of 2018.

4. U.S. retailers continue to see a slew of store closings, now up to 5,994 stores, compared to just 2,641 opening in 2019. A report by Coresight Research noted that the number of closures for the first four months of 2019 is more than all of the store closures that were announced in 2018. Gimmicks and promotions that were kicked off to draw in customers in 2018 have not maintained the foot traffic that brick and mortar retailers need in order to survive, or are simply still creating losses for these same businesses. Deborah Weinswig, the founder and CEO of Coresight Research, said “I expect store closures to accelerate in 2019, hitting some 12,000 by year end.”

5. Other data released this week showed that industrial production in the U.S. declined for the first three months of 2019, which could mean that the economy is on weaker footing than many economists are forecasting. Natixis economist Joseph LaVorgna told CNBC following the data release that “It [Industrial Production] correlates to GDP pretty well, and I did notice within the data that there was a big inventory build within the fourth quarter.” LaVorgna continued, saying “When you unwind inventory, you would expect to see production slow.” LaVorgna forecasts just 1% for first quarter GDP growth in the US but said it could even be closer to flat.

6. In Europe, the confusion surrounding Brexit has spilled over into EU parliamentary elections. The U.K. was expected to have exited the bloc on March 29 and would have therefore vacated 73 of its parliamentary seats prior to 5-year elections which take place this May. Now that the EU has granted the U.K. an extension up to October 31, the European Parliament is in turmoil trying to determine what to do with the seat allocations. If the U.K. elects members to the European Parliament in May – one of the stipulations of its extension – and then exits the Union in October, the resulting makeup of the EU Parliament could actually violate European Law.

The issue at stake is that members of the European Parliament are elected for 5-year terms by law. If the U.K. exits the bloc prior to the expiration of the 5 year term of its MEPs then the incoming MEP’s that take over the vacated seats would legally be entitled to a term of not less than 5 years, throwing the timing of EU parliamentary elections into jeopardy.

7. U.S. crude oil stockpiles fell for the first time in four weeks last week according to data from the Energy Information Administration released on Wednesday. Other factors at play were U.S. energy firms reducing the number of operational oil rigs for the first time in three weeks and a drop in exports from Saudi Arabia. U.S. West Texas Intermediate crude settled at $64 per barrel and Brent crude, the international benchmark for oil prices, settled at $71.91, close to a five-month high.

8. The euro drifted mainly sideways for the first part of the week, dipping lower late on Tuesday but soon returning to its highs for the week by Wednesday. Wednesday afternoon the euro started drifting lower again and that drop accelerated on Thursday, taking a near vertical plunge to the downside that sent it to its lows for the week. The euro rebounded and began drifting higher late on Thursday but did not recover enough momentum to return to positive territory. The euro closed to the downside against the U.S. dollar for the week. The Japanese yen was all over the place this week, trading in a narrow range against the U.S. dollar, shifting between higher and lower for the week. The yen staged a recovery late Wednesday, moving to its highs for the week, before drifting slightly lower again through the end of the week. The yen will close out the week slightly to the upside against the U.S. dollar.

During the shortened news cycle over the next week, the key factor to watch remains the ongoing trade negotiations between the U.S. and China. China released economic data that was better than expected this week, noting its first-quarter GDP grew by 6.4 percent. The news that economic growth was not severely impacted despite President Trump’s tariffs could give China further bargaining power in its negotiations. Industrial production and Retail sales in China also beat expectations, which could also lend further strength to their negotiating position. The two sides have yet to come to agreement on how to resolve their trade differences despite each claiming progress in the talks.

Elsewhere in Asia, North Korea appears to be rattling its sabers again. The belligerent country claims to have tested a ‘powerful warhead’ in the form of a new type of tactical guided weapon. It has been just two months since talks between Kim Jong Un and President Trump collapsed in Vietnam. If the test was truly a new type of weapon, then it becomes clear that the North has continued its weapons development programs in defiance of crippling UN and U.S. sanctions. Analysts believe the alleged test may simply be nothing more than a reminder from the reclusive country to President Trump on why he should still engage with and negotiate disarmament with its leader.

In the European Union, despite what may seem like a reprieve from the constant focus on Brexit, upcoming European Parliamentary elections will bring the U.K.’s potential exit from the bloc right back into focus. Part of the agreement to extend the U.K.’s exit deadline to October 31 calls for the U.K. to either have a ratified exit agreement in place, or it must elect members to the European Parliament. If the U.K. does elect MEP’s in May then it could throw European politics into the same chaos that U.K. politics has been living under since the early days of the referendum to leave. European law calls for elections to the European Parliament every 5 years. If the U.K. follows through on its plan to exit the EU come October, then those MEPs that take over its vacated parliamentary seats would not serve their full five-year terms, violating the law.

The ongoing geopolitical uncertainty throughout Asia and Europe remains of primary concern. Levels in stock markets appear to have peaked, despite ongoing hype around a slew of new Initial Public Offerings that has had retail investors scrambling to “get in” no matter how high the valuation, the big picture, the overall indexes themselves, have been wavering around their current levels for months.

Savvy investors recognize that it has been more than a decade since the last correction in stocks and that markets are now overdue for a dramatic correction. These investors have been taking steps to make sure that their investment portfolios are well-diversified to help protect against such a correction in stock prices. One method many of these investors use to help diversify their portfolios is acquiring alternative assets that have been “beaten down” as stocks have soared. One such asset that many investors have continued to acquire as temporary price dips have afforded them with the buying opportunity to do so has been physical precious metals. Physical precious metals have had a long history of being viewed as a “safe haven” in times of economic turmoil and investors who acquired them when prices were “low” ahead of such times have often seen their portfolios benefit from the decision.

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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