The Precious Metals Week in Review – July 5th, 2019

1. The G-20 meeting appeared to result in a truce between China and the U.S. on the trade front, as was generally expected. Stock analysts eagerly awaited the release of the June Non-Farm Payrolls report on Friday for indications of what the Federal Reserve’s next monetary policy move might be. It was a shortened trading week due to the Independence Day holiday in the U.S.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 8,000 from the previous week’s revised level to a new level of 221,000 claims for the week ending June 29. The previous week’s level was revised higher by 2,000 claims. The four-week moving average of claims increased by 500 from the previous week’s revised average to reach a new level of 222,250 claims. The previous week’s moving average was revised higher by 500 claims.

3. The Non-Farm Payrolls report for June was released Friday and came in well above expectations. Non-Farm payrolls for the month of June jumped by 224,000 instead of the 165,000 that economists were expecting. Unemployment did increase marginally to 3.7% but is still hovering near 50-year lows. May’s numbers, which were already fairly dismal, were revised lower to 72,000. Andrew Hunger, senior U.S. economist at Capital Economics said of the report that it “would seem to make a mockery of market expectations” and that the job growth in the U.S. “is still much stronger than the levels that have usually prompted the Fed to cut rates in the past and, although we do still expect the weakening economy to prompt the Fed to loosen policy, the first rate cut will probably be delayed until September.”

4. Next week Fed Chair Jerome Powell will testify before the U.S. Congress for two days and market analysts are eagerly waiting to parse his every word. Powell could take the opportunity to drop hints on whether the Fed could move to cut interest rates at its next meeting during his testimony. June’s strong jobs report has many stock analysts, who all appear to be “pricing in” a rate cut, fearing that the Fed may hold off on any cuts and wait for further economic data to make its next interest rate move. The Fed minutes from its last meeting are also due out next week on Wednesday afternoon and analysts will also likely parse every word of those and continue trying to predict the Fed’s next move. Economists project increased market volatility if the Fed does not embark on a course towards cutting rates.

5. The U.S. and China seemed to come to a sort of truce following the G-20 summit in Japan over the weekend. President Trump said on Monday that trade talks had “already begun” following his meeting with President Xi Jinping. The two apparently agreed, during their meeting in Osaka, that each will hold off on imposing any new tariffs on imports of goods so that the renewed talks can move forward. Trump still maintains that any deal between the U.S. and China would have “to be better for us than for them because they had such a big advantage for so many years.” China maintains that no deal can be reached unless “all imposed tariffs” are removed but Trump insists that the current 25% tariffs already in place on $250 billion in Chinese goods will remain in place during discussions.

6. U.S. consumer spending increased in May and prices rose slightly according to new data from the U.S. Commerce Department. Spending was up just 0.4% as U.S. consumers purchased autos and spent more at restaurants and hotels. Consumer spending accounts for over two-thirds of the U.S. GDP so any slowdown there will directly translate to a greater slowdown in the U.S. economy.

7. Tensions flared up between China and Britain this week as Beijing accused the British government of meddling in “internal affairs” in Hong Kong. Chinese ambassador to the U.K. Liu Xiaoming said on Wednesday that the U.K. had “intervened in Hong Kong affairs and encouraged violent lawbreakers.” Liu also said he was “disappointed” in British Foreign Minister Jeremy Hunt he reportedly “expressed support for the lawbreakers.” Liu went on to say “I think Foreign Secretary Hunt is dead wrong about freedom. This is not a question of freedom.” Hunt had said earlier in the week that the Hong Kong government should “listen to the legitimate concerns of the people of Hong Kong about their freedoms.” Hunt clarified his statement after he was chastised by Liu, saying “Let me clear what I said. I said that I condemned, and we as the United Kingdom, condemn all violence and that people who supported the pro-democracy demonstrators would have been very dismayed by the scenes they saw.”

8. An English language editorial in the state-run China Daily newspaper said: “Britain no longer has any responsibility for the governance of Hong Kong or any supervisory rights.” Liu Xiaoming reinforces this view, telling reporters “Hong Kong is still seen by some as a former British colony. But the reality is that Hong Kong has returned to the motherland, and it is a special administrative region of China, not part of the British territory.” Liu continued, saying “I tell them: hands off Hong Kong and show respect. This colonial mindset is still haunting the minds of some officials or politicians.”

9. Oil prices remained sluggish this week despite growing tensions with Iran and mixed manufacturing data from the global economy. Brent crude remained in the mid-$60 per barrel range while West Texas Intermediate (WTI) was hovering just below the $60 per barrel mark. British forces stormed an Iranian oil tanker in Gibraltar this week after reports surfaced that the vessel was bound for Syria and loaded with oil in violation of sanctions. Iran threatened to seize a British ship in retaliation for the event. A rise in output by Saudi Arabia did not offset continued losses in Iranian and Venezuelan output due to outages and ongoing U.S. sanctions.

10. The euro dipped at the start of trading this week and then began a near horizontal move sideways against the U.S. dollar. The euro dipped to its lows for the week just prior to closing on Friday and will close out the week lower against the U.S. dollar. The Japanese yen moved basically sideways against the U.S. dollar through the start of the trading week but by Tuesday had begun to move to the upside. The yen touched its highs for the week in early trading on Wednesday, drifted sideways through Thursday’s U.S. holiday and then began to drop as Friday’s trading began. The yen touched its lows for the week late Friday and will also close out the week lower against the U.S. dollar.

The apparent trade truce between the U.S. and China, while they reopen negotiations and try to come to an agreement on their trade differences, appeared to tame market fears this week. It was widely expected that some sort of agreement would come out of President Trump and President Xi Jinping’s meeting on the sidelines of the G-20 meeting in Osaka, Japan over the weekend.

Rising tensions between the United Kingdom and China over the ongoing situation in Hong Kong are worth paying attention to over the coming weeks for potential impact in Asian markets. Beijing is clearly unhappy with the U.K. over what it perceives as meddling in “internal affairs” with regards to the protests that have broken out over a newly proposed law that would allow extraditions from Hong Kong to mainland China. Hong Kong’s citizens view the new legislation as further erosion of their freedoms and if China should choose to crack down it could drastically alter the trade relations between Hong Kong, the U.K. and even the U.S. The U.S. has so far allowed Hong Kong to be excluded from the tariffs it has placed on China but has made no secret of the fact that those exclusions could be removed if Hong Kong becomes nothing more than a puppet of Beijing.

Tensions are also rising between the U.K. and Iran. British soldiers stormed an Iranian oil tanker earlier in the week after reports surfaced that the tanker was bearing oil bound for Syria in direct violation of sanctions. Iran has threatened that it will seize one of the U.K.’s ships in retaliation.

News of increased sanctions on Iran by the United States seemed to be pushed to the back burner this week as news that China and the U.S. had decided to resume trade talks and call a truce in their tit-for-tat tariff war took center stage. Dr. Nouriel Roubini, nicknamed “Dr. Doom” for his long-term bearish views, weighed in on the effects of the trade disputes the U.S. has taken up under the Trump administration. Roubini is the head of Roubini Macro Associates and was the first to note that the housing bubble that triggered the 2008 financial crisis was about to pop. Roubini feels that the dispute between the U.S. and China could have detrimental effects on the entire global economy. Roubini said in an interview with Bloomberg TV on Tuesday that “The consequences of this trade and tech war and cold ware are the beginning of de-globalization and the decoupling of the global economy. We’ll have to redo the global tech supply chain. And eventually by next year, if this escalates, it will be a global recession.” Roubini continued, saying “My base case is the trade and tech war between the U.S. and China is going to get worse. Manufacturing is already in a recession globally. It’s affecting services. The tech sector is in a slowdown. It has already been in the data – the collapse of capex [capital expenditures]. And once the capex is down, then the industrial production is down and the employment is down, and you have the beginning of a global recession that starts in tech, then in manufacturing, then in industry and then goes to services.”

Savvy investors, recognizing that the current economic expansion is long overdue for a correction, continue taking steps to ensure that their portfolios are well-diversified. Many of these investors have long used temporary price dips in precious metals to add further physical precious metals to their investment portfolios for diversification purposes.

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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