1. Escalations in the ongoing U.S.-China trade war continued to trigger wild swings in equity markets this week. Volatility should be expected to remain elevated for the coming weeks as the trade dispute escalates further.

The Precious Metals Week in Review - August 23rd, 2019.
The Precious Metals Week in Review – August 23rd, 2019.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 12,000 claims from the previous week’s revised level to a new level of 209,000 claims for the week ending August 17. The previous week’s level was revised higher by 1,000 claims. The four-week moving average of claims increased by 500 from the previous week’s revised average to reach a new level of 214,500 claims. The previous week’s moving average of claims was revised higher by 250 claims.

3. China announced further retaliation against the U.S. this week for its upcoming tariff increases beginning in September. The Chinese State Council said it is placing tariffs from between 5 and 10 percent on $75 billion worth of U.S. goods in two batches on September 1 and December 15, the same dates the latest tariffs from President Trump are supposed to go into effect. The group also said it would resume its 25% tariffs on U.S. autos and 5% on U.S. auto parts and components which it had suspended in April. In a statement, the council said “In response to the measures by the U.S., China was forced to take countermeasures. The Chinese side hopes that the U.S. will continue to follow the consensus of the Osaka meeting, return to the correct track of consultation and resolve differences, and work hard with China to the end goal of ending economic and trade frictions.”

4. President Trump took to twitter on Friday after the announcement by the Chinese State Council to take an extreme step in the tense standoff between the two countries. In a series of tweets, President Trump said:

5. Federal Reserve Chairman Jerome Powell gave remarks at the annual Economic Symposium in Jackson Hole, Wyoming this week. Powell noted in his remarks that there was “no rulebook” on trade wars and that the Fed would remain poised to “act as appropriate to sustain the expansion.” Powell also noted that monetary policy is not a panacea for current problems facing the global economy, saying it is simply “a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade. We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook and adjust policy to promote our objectives.”

6. Seemingly immediately following Fed Chair Jerome Powell’s remarks, he was once again targeted, along with China’s President Xi Jinping, by President Trump in yet another critical tweet of the Fed. Even though the annual economic symposium in Jackson Hole is not a policy meeting, Trump seemed to treat it as one. In his tweet, Trump said “As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. will do great. My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”

7. Late Friday afternoon President Trump announced that in response to China’s new retaliatory tariffs on American goods, the U.S. would be raising existing tariffs on $250 billion in Chinese products from 25% to 30% on October 1. Trump also announced that the tariffs that are set to go into effect on another $300 billion in Chinese goods on September 1 would now be set at 15% instead of 10%. The announcement of the increases late in the day will certainly prompt a response from Beijing, perhaps even during the weekend.

8. The closely watched spread between the 10-year Treasury and 2-year Treasury yields in the U.S. inverted two more times this week. This indicator has predicted every recession over the last five decades. Analysts continue to downplay the risk, claiming “this time it’s different”, but consensus seems to be building that the U.S. may now be overdue for another recession and that it could come in tandem with another global recession event. Friday’s inversion of the yield curve appeared to be primarily driven by the escalation in the U.S.-China trade war, with the move accelerating immediately after President Trump’s tweet storm.

9. Italy has returned to political chaos. Prime Minister Giuseppe Conte announced his intention to resign on Tuesday, accusing Deputy Prime Minister Matteo Salvini of “grave contempt for Parliament” with his call for a vote of no-confidence. Conte also accused Salvini of putting Italy at risk for “a dizzying spiral of political and financial instability” by creating a crisis that would have been completely avoidable if the coalition government had continued to try to work together. The future of Italy’s government now sits in the hands of its president, Sergio Mattarella. If he determines that no other political parties can work together to form a majority then he will have to call for a new election, perhaps placing another technocratic caretaker government in place until such elections can be held.

10. The odds that the United Kingdom will leave the European Union in a hard “Brexit” seem to have diminished under new Prime Minister Boris Johnson’s leadership. German Chancellor Angela Merkel seemed to hint that Germany, and therefore perhaps the European Commission, might be willing to make further concessions on the so-called “Irish Backstop” that has much of the pro-Brexit crowd in the U.K. refusing to sign the draft exit agreement that Johnson’s predecessor, Theresa May, negotiated with the EU. Ms. Merkel suggested at a speech on Wednesday, with Johnson standing next to her, that both sides could find a solution to the backstop issue within the next 30 days. She further clarified those remarks on Thursday, saying “I said that what one can achieve in three or two years can also be achieved in 30 days. Better said, one must say that one can also achieve it by October 31.”

11. Crude oil fell victim, alongside stocks this week, to the escalating trade dispute between the U.S. and China. Brent crude futures were sitting just under $60 a barrel while West Texas Intermediate (WTI) were hovering just under $55 a barrel. The retaliatory tit-for-tat stance on tariffs in both the U.S. and China is leading analysts to project slowing demand for oil as the global economy slows further under the impact of higher costs for goods.

12. The euro drifted essentially sideways for nearly the entire week, moving up and down in a narrow band against the U.S. dollar. On Wednesday, the euro began a downward trend that lasted through late Friday morning. On Friday, following comments from President Donald Trump that implied that he views both Chinese president Xi Jinping and Fed Chair Jerome Powell as an “enemy”, the euro shot higher and moved to its highs for the week. The euro will close out the week higher against the U.S. dollar. The Japanese yen also drifted sideways in a narrow band against the U.S. dollar for almost the entire week. The yen too witnessed a near vertical spike higher after President Trump’s comments and will also close out the week to the upside against the U.S. dollar.

The dramatic escalation in the trade dispute between the U.S. and China this week sent markets reeling. Stocks plunged on Friday as both sides announced higher tariffs to come, with President Trump even going so far as to call “chairman Xi” an “enemy” in one of his tweets. The growing pressure on U.S. companies as their costs begin to escalate is very likely increasing the odds that an impending recession could be arriving sooner, rather than later.

The inversion of the 10-year/2-year Treasury note yield curve has taken place 3 times in just the last week. This event has been a harbinger of every recession over the last 50 years, though analysts are still quick to point out that the event itself is not necessarily the trigger and that most recessions occur up to 22 months AFTER the inversion of the yield curve takes place.

Globally, economic data seems to be weakening in tandem with the escalating trade war. Global central banks appear set to race each other to see who can devalue their currencies the fastest in what may be vain attempts to boost their economies by making exports cheaper. The International Monetary Fund has suddenly found itself issuing warnings that currency devaluations will not solve economic problems for any country. While the world and its media outlets continue to focus on the dispute between the U.S. and China, President Trump clearly still has designs on getting additional trade concessions out of Europe as well.

Trump told reporters at the White House on Tuesday that “Dealing with the European Union is very difficult; they drive a high bargain. We have all the cards in this country because all we have to do is tax their cars and they’d give us anything we wanted because they send millions of Mercedes over. They send millions of BMWs over.”

The leaders of the world’s largest 7 economies, collectively known as the G7, are convening in France this weekend for a summit. The summit usually ends with a joint communique issued by the attendees in a show of solidarity but due to growing differences over trade, it is likely that this year’s G7 summit will end without such a communique. At last year’s G7 summit, President Trump departed early and refused to sign the joint communique, clearly dissatisfied with the outcome of the meeting.

An emerging crisis in Brazil over fires that are destroying massive acreages of Amazonian rainforest may take precedence over attempts to resolve the ongoing trade crisis between the U.S. and China.

Hedge fund manager Kyle Bass commented this week on CNBC regarding the growing trend of negative yields across the world, saying “We’re [the U.S.] the only country that has an integer in front of our bond yields. We have 90% of the world’s investment-grade debt. We actually have rule of law and we have a decent economy. All the money is going to come here.” Bass apparently feels that the Federal Reserve will soon have no choice but to take rates in the U.S. to zero as well. Bass said “This is insane. The Japanese are going to keep going. The Chinese print money like it’s a national pastime today. Europe is going to restart QE.” He continued, saying “The unintended consequences of central bank printing are that it makes the rich even richer, it makes the middle class stay where they are and it makes the poor stay poor.”

As the global economy continues to slow and equity markets are whipsawed by every electronic missive that President Trump makes via Twitter, wise investors continue taking steps to make certain that their portfolios are sufficiently diversified to protect them from what may be an imminent recession. Many savvy investors long ago began a steady program of acquiring physical precious metals during the period of consistently low prices that the sector had experienced over recent years. Many of these same investors used temporary price dips in precious metals to acquire additional products at an even deeper discount, for the purpose of diversifying their investment portfolios, well ahead of the eventual rally that has recently taken prices back to multi-year highs. Precious metals have historically been viewed as a “safe haven” asset in times of economic and geopolitical turmoil and renewed safe haven interest in them has suddenly driven demand for physical product rapidly higher. Mining companies have been shuttering unprofitable mines for years as prices have languished and a sudden surge in demand for physical product cannot be immediately met with supply. It will take months for many of these closed mines to be restored to operational status and the mining companies are not likely to outlay the capital required to do that until they are certain that prices have solidly returned to levels that will earn them a profit on those facilities. This means that there will be a likely lag between the sudden surge in demand and the industry’s ability to meet those demands. A classic supply and demand crunch.

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.

Friday to Friday Close (New York Closing Prices)

August 16th2019 August 23rd2019 Net Change
Gold $1513.45 $1527.95 14.50 + 0.96%
Silver $17.15 $17.44 0.29 + 1.69%
Platinum $849.60 $853.20 3.60 + 0.42%
Palladium $1448.80 $1461.80 13.00 + 0.90%
Dow Jones 25886.01 25628.90 (257.11) – 0.99%

Previous year Comparisons

August 24th2018 August 23rd2019 Net Change
Gold $1207.10 $1527.95 320.85 + 26.58%
Silver $14.82 $17.44 2.62 + 17.68%
Platinum $790.40 $853.20  62.80 + 7.95%
Palladium $933.60 $1461.80 528.20 + 56.58%
Dow Jones 25790.35 25628.90 (161.45) – 0.63%

Here are your Short Term Support and Resistance Levels for the upcoming week.

Gold Silver
Support 1525/1500/1480 17.25/17.00/16.70
Resistance 1550/1580/1600 17.50/17.80/18.00
Platinum Palladium
Support 850/835/820 1450/1420/1400
Resistance 870/890/900 1480/1520/1560
This is not a solicitation to purchase or sell.
© 2019, Precious Metals International, Ltd.

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