The Precious Metals Week in Review – July 12th, 2019

1. Trade and speculation about the moves of the Federal Reserve moved back to the forefront of factors affecting market volatility this week. Continued escalation of tensions in the Middle East region also remains a factor.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 13,000 from the previous week’s revised level to a new level of 209,000 claims for the week ending July 6. The previous week’s level was revised higher by 1,000 claims. The four-week moving average of claims decreased by 3,250 from the previous week’s revised average to reach a new level of 219,250 claims. The previous week’s moving average was revised higher by 250 claims.

3. Federal Reserve Chairman Jerome Powell spent two days giving testimony before Congress this week and seemed to indicate that a July cut in interest rates could still be on the table when the FOMC meeting to determine monetary policy takes place later this month. During his testimony, Fed chair Powell made it clear that uncertainty in both the global economy and U.S. trade policy was foremost among concerns for the Fed when determining its next monetary policy moves.

4. The Treasury Department kicked off the what is sure to be the next big battle in Congress this week when it asked the legislative body to raise the U.S.’ “debt ceiling” again, before they leave for summer recess. In a letter to House Speaker Nancy Pelosi, Treasury Secretary Steven Mnuchin said “Since there is a reasonable uncertainty in projecting government cash flows, it is impossible to identify precisely how long extraordinary measures will last. We model various scenarios for our cash projections. Based on updated projections, there is a scenario in which we run out of cash in early September, before Congress reconvenes. As such, I request that Congress increase the debt ceiling before Congress leaves for summer recess.” Congress typically leaves for summer recess through the entire month of August, which leaves only a couple of weeks for the debt ceiling battle to play out.

5. Economic data out of the U.S. this week showed that core inflation finally posted its largest gain in nearly a year-and-a-half in June. The overall Consumer Price Index (CPI) crept higher by 0.1% in June, weighed down by cheaper food and gasoline prices. The so-called “core” CPI figure, which excludes the frequently volatile food and energy components of the index, jumped by 0.3%, the largest gain since January of 2018. Health care and rent costs also jumped

6. Tensions between the U.K. and Iran continued to rise this week as Iran apparently followed through on its threat to retaliate for the U.K.’s seizure of an oil tanker bound for Syria in violation of EU sanctions last week by attempting to seize one of the U.K.’s boats in return. Five boats, believed to belong to Iran’s Revolutionary Guards, approached a British oil tanker at the northern entrance of the Strait of Hormuz and apparently attempted to force the ship to halt in Iranian waters. The boats were warned off by a British warship in the region that was acting as an escort for the tanker. The Revolutionary Guards’ navy issued a statement saying that “in the past 24 hours there has been no encounter with foreign ships including English ships.” British officials disagreed, saying “HMS Montrose was forced to position herself between the Iranian vessels and British Heritage and issue verbal warnings to the Iranian vessels, which then turned away.” Later reports in the week indicated that Britain was stepping up its presence in the Persian Gulf region, sending a destroyer class vessel to replace the HMS Montrose, which is a frigate and less heavily armed than a destroyer.

7. The U.S. may soon be opening yet another front in its ongoing trade disputes. On Thursday, France’s Senate approved a 3% tax on the French revenues of tech giants, including U.S. companies like Google, Amazon and Facebook, that is being called a “digital tax”. President Trump ordered an investigation into the tax the day before France voted to enact it and U.S. Trade Representative Robert Lighthizer said that the investigation would determine whether the tax is “discriminatory or unreasonable and burdens or restricts United States commerce.” The investigation could ultimately result in the U.S. imposing tariffs or other trade restrictions on French goods.

8. In the U.S.-China trade dispute, President Trump took to Twitter once more to criticize Beijing, saying:

Mexico is doing great at the Border, but China is letting us down in that they have not been buying the agricultural products from our great Farmers that they said they would. Hopefully they will start soon!

— Donald J. Trump (@realDonaldTrump) July 11, 2019

Trump and Chinese President Xi Jinping met on the sidelines of the G-20 meeting in Japan earlier this month and announced that trade discussions between their respective nations would resume. Trump left the meeting with the impression that China would be buying American crops during the negotiation period, saying “We’re holding on tariffs, and they’re going to buy farm product.” Thus far, those farm product purchases have not materialized despite no further tariff increases on the American side of the dispute.

9. Oil prices headed for weekly gains after Tropical Storm Barry formed in the Gulf of Mexico, forcing the evacuation of nearly half of the oil rigs in the region around Louisiana and Mississippi. Oil prices also saw some upward pressure due to growing tensions between Iran and Britain. Tehran said on Friday that Britain was “playing a dangerous game” after it seized an Iranian oil tanker suspected of transporting oil into Syria in violation of EU sanctions last week. Brent Crude futures pushed into the upper $60-a-barrel range while West Texas Intermediate (WTI) pushed over $60-a-barrel.

10. The euro spent the first part of the week drifting marginally lower against the U.S. dollar. On Wednesday, as Fed Chair Jerome Powell began his pessimistic testimony in front of the U.S. Congress, the euro surged higher and had touched its highs for the week on Thursday just after Mr. Powell finished his testimony. The euro did reverse course late Thursday, but the fall was brief, and it attempted to recover its highs as it moved into Friday’s trading. Another decline began on Friday morning, but the drop soon halted, and it appears that the euro will close out the week to the upside against the U.S. dollar. The Japanese yen bumped higher at the start of the week, but soon began drifting lower against the U.S. dollar. The downward trend lasted through Wednesday but dramatically reversed course on Wednesday as Fed Chair Powell began his testimony. The yen touched its highs for the week early Thursday morning and then reversed course again, moving back near its opening levels for the week by Friday morning. Another reversal took place early Friday and the yen moved back higher again, where it appears set to close out the week to the upside against the U.S. dollar.

Oil and gas activity on the Gulf Coast of the United States is grinding to a halt as Tropical Storm Barry approaches. The waters of the Mississippi River are already at flood stage levels due to severe flooding in the mid-west earlier in the year and the coming storm surge from Barry, despite expectations that it will be a relatively weak storm, could potentially inundate areas in and around New Orleans that were similarly flooded during Hurricane Katrina. The storm is expected to dump up to two feet of rain on some regions in the immediate path of the storm.

Market pressure is ramping up on the Federal Reserve to cut interest rates at its next FOMC meeting at the end of July. The market views a rate cut as an “insurance policy” to keep the U.S. economy moving forward at its current pace. Stocks appear to be increasingly dependent on moves from the Federal reserve, as evidenced by their run to all new highs after Fed Chair Jerome Powell appeared to imply that the Federal Reserve may still cut rates in July due to “increasing uncertainty” in the global economy.

Despite what was perhaps one of the most pessimistic two days of testimony in front of Congress that any sitting Fed chair has given in recent memory, equity markets seemed to move higher at every negative statement that was uttered. The fact that statements which reflect a clearly negative outlook for the long-term picture for global and U.S. economies sent stocks soaring would seem to be further proof that the Fed itself is the primary thing that is fueling the bubble in stocks. Equity markets appear to be completely ignoring the increasing trade disputes between the U.S. and seemingly every other nation.

The ongoing feud between China and the U.S. is putting serious pressure on American farmers, manufacturers and retailers. Manufacturer costs are increasing due to the tariffs in place that force them to pay more for any components for their products that come from China; farmers in particular are increasingly at risk of taking massive revenue losses as their perishable products cannot simply be stored indefinitely while the trade dispute is resolved; retailers, who are looking at increasing costs from the manufacturers of the goods they sell, must soon pass those price increases on to customers or face losing revenue themselves, which could devastate many of them.

The U.S. appeared to fire salvos at France and India for their trade practices, opening two more fronts in increasingly appears to be a trade war between the U.S. and the rest of the world. France’s Senate voted to enact a “digital tax” which would see large tech firms like Facebook, Google and Amazon, all based in the U.S., paying a 3% tax on any revenues that France deems to have been generated inside its borders. President Trump called out India for its “unfair” tariff structure against U.S. products which could mean they may be the next target for the Trump administrations ever-changing tit-for-tat tariff policy.

Stock analysts are saying, right and left, that equity markets are now long overdue for a correction and should be considered to be in a bubble, yet these same negative sounding analysts still trot out a new hat to celebrate the event every time the bubble floats higher and their markets hit new all-time highs. Cautious investors recognize the possibility that the negative factors that Fed Chair Powell appeared concerned enough about to hint at a rate cut, despite an apparently booming U.S. economy, could bring about the correction in equities that analysts feel is so long overdue.

Many of these savvy investors have already taken appropriate steps to ensure that their portfolios are sufficiently diversified away from overexposure to a single asset class ahead of the bursting of the current bubble. Physical precious metals, which have historically been viewed as a “safe haven” in times of economic distress, are one means of diversification that some investors have continued to seek out and add to their portfolios. Many such investors acquired their precious metals products at a relative discount, as prices have remained largely suppressed over the last few years, languishing as the Fed continued to fuel the ongoing stock bubble.

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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