The Precious Metals Week in Review – April 26th, 2019

1. An outbreak of violence in Sri Lanka rattled markets this week as terror attacks during the Easter Weekend ripped through three churches and four luxury hotels, killing at least 290 and wounding nearly 500 more.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment surged by a massive 37,000 claims to a new level of 230,000 for the week ending April 20. The previous week’s level was revised higher by 1,000 claims. The four-week moving average of claims increased by 4,500 claims to reach a new level of 206,000. The previous week’s moving average was also revised higher by 250 claims.

3. The U.S. economy grew by 3.2 percent in the first quarter according to the Bureau of Economic Analysis’ first read of that quarter. Economists that had been polled by Dow Jones expected a growth rate of 2.5 percent, so the initial figure beat those expectations easily. The GDP figure was the best start to a year since 2015. Other figures in the data show that inflation, with regards to consumer prices, was still relatively tame. White House economic adviser Larry Kudlow called the figures a “blowout number” but noted that the inflation rate “continues to slip lower and lower.” Kudlow continues to call for the Fed to cut interest rates in spite of what appears to be a steadily improving U.S. economy, saying it will help the Fed move closer towards achieving its 2 percent inflation target.

4. The better-than-expected beat on U.S. economic numbers will likely work to counterbalance the better-than-expected numbers from China that were released last week with regard to the ongoing trade talks between the two countries. White House economic adviser Larry Kudlow said as much on Friday after the release of the first quarter numbers, saying “The U.S. economy, as I say, is in this prosperity cycle with no end in sight. So we believe that does give us some leverage, if you will.” Kudlow continued, saying progress in the negotiations has been “pretty good, but I guess – and I think the president would agree with this – they need a good deal more than we need a good deal.” Despite any apparent leverage the U.S. may have over China in the negotiation process, Kudlow conceded that “we would like a deal that works for both countries and increases economic growth for both countries.”

5. Stock markets in China saw their worst week since last October after last week’s better-than-expected economic data triggered fears that Beijing may make the decision to back off on some of their planned stimulus packages. The move reflected a projection for coming weakness in overheating Asian equity markets, which AMP Capital’s chief economist and investment strategist Shane Oliver commented on in a research note. Mr. Oliver said “Share markets – globally & in Australia – have run hard and fast from their December lows and are vulnerable to a short-term pullback.”

6. Confusion and chaos continues to surround the U.K.’s upcoming exit from the European Union. News was relatively quiet on the matter this week, despite a May 22 deadline for the U.K. parliament to finally come up with a Brexit plan that will satisfy both sides – the EU and the U.K. The U.K. parliament has thrice voted down exit packages that were satisfactory to Brussels due primarily to concerns over how the border between Northern Ireland and the Republic of Ireland will be handled. If the U.K. cannot come up with a viable plan by May 22, then it will be forced to participate in European parliamentary elections which would add a whole new set of complications to the exit process and also open the door for legal ramifications in the EU parliament when that exit finally does take place.

7. In Spain, they will be holding a snap election on April 28 which could throw the overall political picture in Europe into further disarray. The election was called for by Prime Minister Pedro Sanchez back in February after his minority government had its budget proposals for 2019 rejected. The elections appear likely to result in socialists taking control of the government, which could lead to a spending spree that will be frowned upon by Brussels.

8. CNBC finally took note of Russia’s gold buying spree that its central bank has been on over the past year and decided to ask some questions. Russia surpassed China last year to become the fifth largest official holder of gold in its reserves. Elvira Nabiullina, the governor of Russia’s central bank, told CNBC in Moscow on Friday that the reason behind the spending spree was nothing more than “diversification.” Ms. Nabiullina said “You see we try to diversify our international reserves composition. Because we estimate all the possible risks, economic and geopolitical risks.” Russia has not been alone in stockpiling gold for its reserves. Most of the world’s central banks have become major buyers in the gold market and all appear to have the identical view as Russia – they need the gold for diversification purposes. We find it strange that even as the world’s central banks stock up on gold, their corresponding governments continue to try to convince their citizens that they should part with their own personal holdings.

9. Comments from President Trump sent oil prices lower by nearly 4 percent on Friday as markets digested the news. Trump claimed to have asked OPEC to help lower fuel costs, saying “The gasoline prices are coming down. I called up OPEC. I said, ‘You’ve got to bring them down. You’ve got to bring them down,’ and gasoline’s coming down.” Brent Crude moved to a one-week low on the news and West Texas Intermediate was down about 2 percent for the week.

10. The euro drifted slightly higher against the U.S. dollar at the start of the week but had reversed course by Tuesday and trended steadily to the downside through Thursday afternoon. The euro began edging slightly higher late Thursday and saw a sudden spike to the upside just before the close on Friday. The euro could not recover enough ground to get back to even and will close lower against the U.S. dollar. The Japanese yen began the week moving sideways against the U.S. dollar, spiking slightly higher at the start of Tuesday’s trading but immediately beginning to move sideways again. Late on Wednesday the yen took a relatively steep, but shallow dip to the downside but quickly recovered and had moved to its highs for the week by late Thursday. The yen began a shallow move lower late Thursday but a move to the upside prior to Friday’s close will ensure that the yen finishes out the week higher against the U.S. dollar.

Now that the U.S. has released its first quarter economic data and also posted better-than-expected numbers in much the same way that China did last week, media focus will likely shift back to the ongoing trade negotiations between the two countries. When China released economic numbers that far exceeded expectations last week, the general consensus was that they would gain the upper hand in the negotiation process with the U.S. since it seemed clear that the Chinese economy was not severely affected by the tariffs placed upon its goods by the U.S. Analysts had expected weaker performance for the U.S. economy in the first quarter, based partly on impact from reciprocal tariffs enacted by China, but that now appears not to have been the case.

The first quarter GDP numbers for the U.S. appear to show that the U.S. economy was similarly not severely impacted by the tariffs placed upon its goods by the Chinese in retaliation for its own actions. The balance of power in the ongoing trade negotiations between the two countries now essentially remains the same which means those negotiations could continue to drag on interminably.

The EU, and particularly Germany, continues to appear that it will become the next target in the U.S.’ trade sights. Particularly if the U.S. follows through on its threat to place tariffs on automobiles coming from the EU. Some analysts at German-based bank Commerzbank fear that if the U.S. does take action on such tariffs that the ensuing trade war between the U.S. and EU could tip Germany’s economy back into recession.

The terrorist acts in Sri Lanka over Easter weekend sparked fears that we could see a resurgence in acts by ISIS and similar terror groups this year as they might have become emboldened to try to advance their reign of terror across the globe once more.

In Europe, snap elections in Spain could see socialists gain control in that country which could mean an increase in spending that might send the country’s budget deficits beyond levels approved by the EU. We have seen a similar scenario occur in Italy, where the socialist government continues to try to take steps to take control of that country’s gold reserves in defiance of the EUs guidelines.

Italy too has attempted to embark on a socialist-style spending spree and maintains that it should be able to sell some of its gold holdings to offset such spending plans if it so desires. Italy would be almost alone in its desire to sell some of its central bank’s gold holdings.

The majority of the world’s central banks have begun stockpiling gold for the purposes of “diversifying” their foreign reserves. Russia appears to be leading the charge in such gold purchases, buying enough gold last year to surpass China and become the world’s fifth largest holder of gold. Other central banks have taken up the diversification banner and begun adding to their own gold reserves in similar fashion to Russia.

The U.K. continues to spread uncertainty across the European Union with its failure to take a strong stance in either direction with regards to whether it will follow through on the results of the referendum calling for it to exit the bloc. Should the U.K. parliament fail to pass a Brexit package prior to May 22, the whole legal process of European parliamentary elections could be called into question.

Savvy investors have been watching the world’s central banks begin to stockpile gold under claims of a need for diversification of their holdings and have taken steps to undertake their own diversification plans. These investors have sought out buying opportunities to acquire physical precious metals for their own portfolios to aid in diversification against the possibility of a coming correction in equity markets that have come to be viewed as heavily overextended.

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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