The Precious Metals Week in Review – June 28th, 2019

1. All eyes are on the G-20 meeting in Osaka Japan this week, with heavy market expectations for some sort of progress to be made between the U.S. and China on restarting their trade talks to try to resolve the dispute between the two.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment surged by 10,000 from the previous week’s revised level to a new level of 227,000 claims for the week ending June 22. The previous week’s level was revised higher by 1,000 claims. The four-week moving average of claims increased by 2,250 from the previous week’s revised average to reach a new level of 221,250 claims. The previous week’s moving average was revised higher by 250 claims.

3. President Trump and Chinese President Xi Jinping are slated to meet on Saturday on the sidelines of the G-20 summit meeting in Osaka, Japan and market hopes are that the two can strike a truce and bring about the true resumption of trade negotiations between their two countries. Many Wall Street analysts believe that the result of the meeting will likely be a cease-fire between the two, where the U.S. maintains some or all of the tariffs it already has in place but announces that it will postpone the implementation of new ones. The ongoing issue of the U.S.’ decision to blacklist Chinese technology firm Huawei will also likely be on the agenda. The U.S. has essentially cut off Huawei’s ability to do business with U.S.-based companies on which it depends for supplies. The White House maintains that it believes Huawei’s strong ties to the government in Beijing pose a national security risk. The U.S. has also asked its allies to do the same and called upon them to reject the use of Huawei’s “5G” technology in their own cellular networks.

4. Treasury Secretary Steven Mnuchin said on Wednesday in an interview with CNBC that the U.S. was “about 90% of the way there [on a trade deal] and I think there’s a path to complete this.” Mnuchin continued, saying “The message we want to hear is that they want to come back to the table and continue because I think there is a good outcome for their economy and the U.S. economy to get balanced trade and to continue to build on this relationship.” Should the meeting between Trump and Xi Jinping fail to restart trade talks, some economists feel that the escalation of the trade war could put the global economy at risk for a full-blown recession in the coming months.

5. U.S. Consumer confidence plunged to its lowest level in nearly two years in June according to The Conference Board’s consumer confidence index. The index dropped to 121.5 in June, its lowest level since September of 2017. Conference Board senior director Lynn Franco said in a statement that “The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence. Although the Index remains at a high level, continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion.”

6. Economic data out of Germany on Monday showed that the manufacturing sector of Europe’s largest economy has weakened significantly over the last two months. A slowdown, or recession in the German economy would likely spread contagion into the rest of Europe, particularly areas such as Italy who are already struggling to boost their own economies. The continued uncertainty over whether the U.K. will undergo a so-called “hard Brexit” puts the German economy under further pressure as the U.K. represents the single largest export for German auto manufacturers, according to the German Association of the Automotive Industry.

7. The 2020 Presidential campaign in the U.S. kicked off this week as two nights of primary debates for the current Democratic candidate field were held in Miami, Florida. Twenty Democratic presidential hopefuls had their first chance to convince the American public why they should be the next president on Wednesday and Thursday of this week and the results were largely underwhelming. The second night was of particular interest as it was marked by a severe amount of infighting and bickering among the presidential hopefuls. Joe Biden appeared to remain the front-runner of the pack, but as the campaign season goes into full gear the polls are sure to swing as the field of candidates begins to narrow and those that appear weaker than the others begin to fall by the wayside.

8. Oil prices seemed to be on pause this week as analysts awaited news from the G-20 meeting in Japan. According to Russian President Vladimir Putin, the OPEC+ production cut was expected to be on the agenda for discussion at the G-20. Analysts are also eagerly awaiting the outcome of the OPEC+ group meetings that are supposed to take place on July 1 and 2 in Vienna where they are expected to decide whether the supply cuts should be extended. Brent crude was solidly in the mid-$60 per barrel and U.S. West Texas Intermediate (WTI) was just under $60 per barrel ahead of the meetings.

9. The euro plunged slightly lower against the U.S. dollar at the start of trading for the week but had clawed its way to its highs for the week by early trading on Tuesday. Tuesday the euro began a relatively steady decline that lasted through Wednesday morning when it attempted to stage a recovery. Mid-day on Wednesday the euro surged back near its opening levels for the week, but the momentum did not last. The euro had reversed course and touched its lows for the week by early trading on Thursday. Late Thursday the euro staged a mild recovery, then moved sideways into Friday’s trading. Early Friday morning the euro again surged back near its opening levels for the week, but still appears set to close out the week slightly lower against the U.S. dollar. The Japanese yen began the week moving nearly sideways against the U.S. dollar before spiking slightly higher in early morning trading on Tuesday morning. The yen touched its highs for the week on Tuesday, but then began a steady downward move that had taken it to its lows for the week by Thursday morning. The yen began moving higher Thursday but the momentum could not carry it back to its opening levels and it appears set to close out the week lower against the U.S. dollar.

The G-20 meeting in Osaka, Japan carries through the weekend and should be watched closely for market-affecting events. If the meeting between President Trump and China’s President Xi Jinping on Saturday results in a further derailment of the trade talks between their two countries, equity markets could take a tumble when they open for trading late Sunday night.

In a remarkably underreported situation, Switzerland and the European Union are embroiled in a standoff that could see the London Stock Exchange and other European bourses halt trading on as many as 254 equity securities issued by Swiss companies from Monday forward. Switzerland is not a member of the EU but was granted “stock market equivalence” to allow its equities to trade on European exchanges and vice versa. Switzerland’s stock market equivalence grant expires at the end of June, in just two days’ time.

Brussels and Switzerland have thus far failed to reach an agreement over a partnership treaty between the two which would guarantee the rights of EU workers in Switzerland. Switzerland has said it is reluctant to sign such a treaty without “clarifications” on some of the items contained within it. If the two fail to reach an agreement by the start of trading on Monday in Europe, European exchanges could face immediate restrictions on their ability to trade the equities of Swiss-based companies.

Italy could likely soon be facing stricter demands from Brussels to tighten its belt and reduce its public spending, according to the June 5 meeting minutes of the European Commission. The minutes showed that Italy may be directed to substantially reduce its public debt by the end of the year. The minutes also seemed to show that the Commission views Italy’s current government with suspicion and should proceed with caution when it makes statements addressing the Italian economy due to “the context of the current domestic political situation, in view of the possible partisan interpretation and misuse of messages from the European institutions.”

In Germany, economic data showed an additional slowdown and analysts are beginning to fear that a recession in the European Union’s largest economy could be in the making. A recession in Germany would have an impact on the other members of the bloc, given its importance to their own economies. The U.K. depends heavily on Germany for its automobiles and Italy, who are struggling under its own set of economic difficulties, depends heavily on German tourists for a significant portion of its economy.

The situation in between Iran and the U.S. seemed to be pushed to the back burner this week by news of the G-20 summit later in the week. President Trump enacted new sanctions Monday against Ayatollah Ali Khamenei and others and reportedly plans to place sanctions against Iran’s Foreign Minister, Mohammad Javad Zarif all in response to the downing of an American surveillance drone last week. Iran immediately responded to the additional sanctions, saying “The fruitless sanctions on Iran’s leadership and the chief of Iranian diplomacy mean the permanent closure of the road of diplomacy with the frustrated U.S. administration.” The regime went further, saying that the White House was suffering from a “mental illness.” Iran had warned the remaining signatories to its 2015 nuclear deal that it would intentionally violate the uranium enrichment limits contained in the deal if Europe did not come up with a way to circumvent the sanctions the U.S. has placed upon it. On Friday, the remaining parties to the agreement met in Vienna to try to salvage the deal. Iran’s deputy foreign minister said that the talks were a start, but that “the decision to reduce our commitments has already been made and we will continue [to further enrich uranium] unless our expectations are met.”

As global uncertainty continues to escalate, wary investors have continued their efforts to diversify their portfolios away from overexposure to equities, which are now long overdue for a correction. Savvy investors have been acquiring alternative assets, such as physical precious metals, for their portfolios to aid in that diversification effort.

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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