The Precious Metals Week in Review – June 21th, 2019

1. The U.S. Federal Reserve’s FOMC meeting decision, followed by uncertainty over the geopolitical climate in the Middle East were the two primary factors that drove market moves this week. The ongoing trade spat between the U.S. and China also remains unresolved and can be expected to trigger further market volatility ahead of the G-20 meeting in Japan next week.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment was 216,000 for the week ending June 15, a decrease of 6,000 claims from the previous week’s unrevised level. The four-week moving average of claims increased by 1,000 from the previous week’s unrevised average to reach a new level of 218,750.

3. The Federal Reserve held its latest Federal Open Market Committee (FOMC) meeting to determine the course of U.S. monetary policy this week and despite the widely held view that the Fed would begin cutting interest rates this month to attempt to head off a potential recession, the Fed held interest rates firm. The Fed indicated that while it was considering a move to cut interest rates, it will not likely take any action in that direction until 2020. Despite the indications that the Fed won’t make a move on rates until next year, markets still appear to be expecting a rate cut as early as the next FOMC meeting in July.

4. Iran stepped up the already elevated tension in the Middle East this week by shooting down an unmanned aerial surveillance drone that the U.S. claims was flying over international waters. Iran disputes the U.S.’ claim, saying that they only fired on the drone because it had violated Iranian air space. Late Thursday night, the U.S. was reportedly prepared to order an air strike on Iranian targets in retaliation for the downed vehicle when President Trump called off the attack just 10 minutes prior to its launch. Trump reportedly called off the attack after discovering that an estimated 150 Iranians might die in the event, saying their deaths were “not proportionate to shooting down an unmanned drone.”

5. In the U.S., the East Coast’s largest gasoline refinery experienced a massive series of explosions in the early morning hours on Friday. The massive explosions rained debris on nearby neighborhoods, frightening residents as clouds of smoke billowed into the air. Only minor injuries were reported and the cause of the blaze is as yet undetermined. The blaze will result in a serious outage in refining capacity on the East Coast and is expected to trigger a rise in fuel costs if the final damage assessment turns out to be severe.

6. The Philadelphia Federal Reserve’s closely watched manufacturing gauge plummeted to 0.3 in June, its lowest level since February. The index stood at 16.6 in May and economists had expected a read of 9.3 for June. The huge drop appeared to largely be triggered by manufacturing prices which plunged to their lowest levels since October of 2016 as inflation continues to remain stubbornly low across the U.S.

7. President Trump took aim on the European Central Bank this week after it opened the door for additional monetary stimulus in Europe. In a tweet following the ECB’s decision on monetary policy, Trump said:

Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.

— Donald J. Trump (@realDonaldTrump) June 18, 2019

Trump continued, saying “German DAX way up due to stimulus remarks from Mario Draghi. Very unfair to the United States!” Earlier in the day, Mario Draghi had said: “In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.”

8. Protesters in Hong Kong demanded that the city’s leader resign on Friday and marched on the headquarters of the Hong Kong police to demand that they release those that were arrested in an earlier demonstration. The protests were a continuation of the demonstrations that began last week, calling for Carrie Lam, Chief Executive of Hong Kong, not only step down but also fully withdraw the legislation that sparked the protests in the first place. The new bill would allow for extraditions to mainland China from Hong Kong and is viewed by most Hong Kong citizens as an avenue for Beijing to further undermine the autonomy that Hong Kong has continued to enjoy after Britain surrendered control of the territory and it became a “special administrative area” of China. As political uncertainty escalates in Hong Kong, analysts fear that companies may begin to move their operations to Singapore.

9. U.S. West Texas Intermediate crude oil surged 10 percent for the week on growing tensions between Iran and the United States while the international benchmark, Brent crude, was up over 5 percent. President Trump’s aborted strike on Iranian targets in retaliation for the drone that was downed earlier in the week had analysts fearing that supply interruptions could occur if tensions escalate further. Gasoline prices on the East Coast of the U.S. may be in for a supply shock due to a massive explosion at the largest refinery in the region. Officials were still trying to determine the cause of the explosion and the extent of the damage late into Friday.

10. The euro started the week sliding basically sideways against the U.S. dollar until Tuesday when a near vertical drop to the downside took place. After the ECB announced that it may be contemplating additional monetary stimulus, the euro began a slow climb higher that took the currency to its highs against the dollar by Friday’s close. The Japanese yen spent most of the week moving sideways against the U.S. dollar but began a relatively steep climb higher late on Wednesday after the Federal Reserve failed to cut interest rates. The yen hit its highs for the week early Friday morning before retreating slightly but will still finish the week out higher against the U.S. dollar.

Continuing escalations of tensions in the Middle East will likely result in increased market volatility over the coming weeks. Prior to downing an American surveillance drone estimated to be worth approximately $100 million, Iran had already announced that it would intentionally breach the internationally agreed upon limit for its low-enriched uranium stockpiles within 10 days. A spokesperson for the Iranian Atomic Energy Organization said that the country needed to increase enrichment levels to 20% for use in “local reactors” but was quick to say that Europe could still rescue the 2015 Obama era nuclear deal if it found a way to bypass U.S. renewed economic sanctions.

President Trump announced last year that the U.S. would be backing out of the Iranian nuclear agreement and renewed economic sanctions on Tehran for what the U.S. said was Iran’s failure to abide by the deal. After Monday’s announcement, the U.K. government warned that it would consider “all options” if Tehran did, in fact, breach the agreed upon levels.

The Pentagon announced this week that it was preparing to send additional troops to the Middle East as tensions continued to rise. Acting Secretary of Defense Pat Shanahan said in a statement on Monday “I have authorized approximately 1,000 additional troops for defensive purposes to address air, naval, and ground-based threats in the Middle East.” Referring to last week’s attacks on two oil tankers, Mr. Shanahan continued, saying “The recent Iranian attacks validate the reliable, credible intelligence we have received on hostile behavior by Iranian forces and their proxy groups that threaten United States personnel and interests across the region.” After the Pentagon’s announcement, Russia called on the U.S. not to provoke a war with Iran and to “show restraint” in its dealings in the Middle East.

The downing of the American surveillance drone this week could prompt the Pentagon to up the additional number of troops it is going to send if it feels that its assets overseas may be under further threats. President Trump reportedly had authorized a strike on Iranian targets in retaliation for the downing of the U.S. drone but called it off just 10 minutes before it was to launch late Thursday night, saying that he would instead add more sanctions. State Department officials did not immediately confirm the addition of any further sanctions on Iran.

Next week the “G-20 meeting” is set to take place in Osaka, Japan. Political pundits have been eagerly speculating whether President Trump and China’s President Xi Jinping will meet on the sidelines of the summit to discuss reopening negotiations in the trade dispute between their two countries. Trump announced through a tweet this week that he would be meeting with Xi. Trump said:

Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.

— Donald J. Trump (@realDonaldTrump) June 18, 2019

The long-running trade dispute between the U.S. and China will not likely be settled on the sidelines of the G-20, but if any progress can be made at all in getting the two sides back to the negotiating table, the global economy may gain some respite from the news.

In Europe, ECB President Mario Draghi cleared the way for further interest rate cuts or other stimulus measures if inflation does not reach its target. The ECB had already announced that it was postponing any potential rate hikes until at least 2020. President Trump, who has been pressuring his own central bank to cut rates, did not take the news well. Trump essentially accused the ECB of being “unfair” and said it was deliberately manipulating the euro lower against the U.S. dollar to gain unfair advantage over the U.S.

Savvy investors continue to take steps to ensure that their portfolios are diversified as global uncertainty continues to escalate. Precious metals appeared to return to favor following the Federal Reserve’s failure to raise interest rates at its latest FOMC meeting. Prices for Gold surged to more than 5-year highs following the Fed’s announcement. The sudden surge in Gold led those investors who have long followed their plan of accumulating physical precious metals when price dips present them with a buying opportunity to do so to be thankful that they ignored the mainstream media’s seemingly constant ridicule of their diversification approach.

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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