The Precious Metals Week in Review – September 27th, 2019

1. The trade dispute between the U.S. and China took a new turn this week as the Democrat-controlled House of Representatives announced this week that it was opening a formal impeachment inquiry against President Donald Trump over alleged abuse of power surrounding a phone call he made to the President of Ukraine back in July. The move will likely give Beijing additional bargaining power in the discussions.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment jumped by 3,000 claims from the previous week’s revised level to a new level of 213,000 claims for the week ending September 21. The previous week’s level was revised higher by 2,000 claims. The four-week moving average dropped by 750 claims from the previous week’s revised average and stood at 212,000 claims. The previous week’s moving average of claims was revised higher by 500 claims.

3. Political gridlock in Washington, D.C. can be expected to escalate in the coming months as the House of Representatives opens a formal impeachment inquiry against President Donald Trump. The action will likely embolden Beijing to hold out for further concessions in the ongoing trade negotiations with the U.S. and only serves to inject further uncertainty into the process. With Presidential elections taking place next year, Beijing could be willing to hold out in the trade war and take a chance that President Trump could either be impeached or suffer so much political damage via the impeachment process that he could lose the 2020 election, opening the door for a Democratic candidate who would likely not take such a strong stance against China’s trade practices as President Trump has done.

4. Reports surfaced on Friday that the White House was considering placing limits on U.S. investment flows into China. The proposals include blocking all American investment in China-based companies, which could have far-reaching impacts, given the numerous Chinese stocks that are listed on U.S. exchanges. The move would likely aggravate the already tense negotiations between the U.S. and China ahead of a renewed trade talks that are set to begin on October 10th in Washington, D.C.

5. Orders for U.S. core capital goods fell unexpectedly in August, dropping at the steepest pace during the second quarter over the last 3.5 years. The dip points to continued weakness in the business sector. Core capital goods are non-defense related and exclude aircraft. They are closely watched as a proxy for upcoming business spending plans and continued declines could be a prelude to cost cutting, which could include layoffs. The drop in orders is being directly attributed to the ongoing trade war between the U.S. and China which has now gone on for nearly 15 months.

6. Consumer confidence in the U.S. saw its largest drop in nine months, according to a report by the Conference Board released on Tuesday. The index plunged 9 points, accelerating to the downside after a slight decline in August. The drop could be an indicator that U.S. consumers are getting nervous about the outcome of the U.S.-China trade war, or that they too see recession indicators on the horizon and are growing fearful.

7. U.S. consumers are beginning to hold tighter to their wallets as the trade war between China and their homeland continues, finally making its way into an increase in prices for consumer goods. Consumer spending in August rose by just 0.1%. The U.S. consumer is the primary growth engine for the country’s economy, comprising nearly 70% of U.S. gross domestic product. A dip in spending, combined with increasing costs as tariffs start to impact consumer goods could act as an accelerant for what many analysts feel is an impending recession.

8. As the House-led impeachment inquiry gets underway against President Trump, Wall Street Democrats have begun voicing their displeasure with the way Democratic presidential candidate Elizabeth Warren has been climbing in the polls against her main rival, Joe Biden. Democratic donors on Wall Street, and in large corporations, appear ready to refuse to participate in campaign fundraising for Ms. Warren. Some are apparently even considering the unthinkable – backing President Trump for reelection – if Elizabeth Warren wins the Democratic Party nomination for President. One senior private equity executive, speaking to CNBC strictly on the condition that he remain anonymous, said “You’re in a box because you’re a Democrat and you’re thinking, ‘I want to help the party, but she’s going to hurt me, so I’m going to help President Trump.’” As part of her campaign process, Elizabeth Warren and Bernie Sanders have both floated a so-called “wealth tax” which is aimed at cutting the fortunes of the U.S.’ wealthiest people in half, in some cases.

9. In the United Kingdom, as the Brexit deadline approaches, Boris Johnson was dealt a blow to his plans this week when the U.K.’s highest court ruled on Tuesday that his suspension of Parliament was unlawful. Johnson immediately faced calls for his resignation but essentially ignored them. When questioned about the Court’s decision, Johnson would not rule out that he might make a second request to suspend parliament again. Labour Party leader Jeremy Corbyn told his party conference in Brighton following the announcement of the Court’s decision that “The PM has acted wrongly in shutting down Parliament. It demonstrates a contempt for democracy and an abuse of power by him… I will be in touch immediately to demand that parliament is recalled.” Corbyn continued, saying “I invite Boris Johnson, in the historic words, to consider his position and become the shortest-serving prime minister there has ever been.” Johnson, who was in New York for a UN summit, said that while he disagreed with the Supreme Court’s verdict, he would respect the decision. He also said that he would continue working toward Britain’s exit from the European Union on October 31. Parliament was indeed recalled in his absence and the governing body reconvened on Wednesday, just one day after the Supreme Court’s decision.

10. Oil prices slid this week amid ongoing trade friction between the U.S. and China. Iran claimed late in the week that the U.S. had offered to lift its sanctions in exchange for negotiations, but President Trump swiftly denied that report. Iranian President Hassan Rouhani posted on his official website on Friday, saying “The German chancellor, the prime minister of England (Britain) and the president of France were in New York and all insisted that this meeting take place. And America says that it will lift the sanctions. It was up for debate what sanctions will be lifted and they (The United States) had said clearly that we will lift all sanctions.” The State Department called the report “baseless” and reiterated that the U.S. has no plans to lift its sanctions against Iran any time soon. Brent crude was near the low $60 a barrel range while West Texas Intermediate continued to hover around the $55 a barrel range.

11. The euro began the week fairly flat against the U.S. dollar and then saw a near vertical drop lower as it entered trading early Monday. The euro spent most of Monday and Tuesday staging a recovery back to near opening levels, but by Wednesday had begun a steady march lower against the dollar. The euro moved to its lows for the week on Friday and then attempted to stage a minor recovery. Despite the attempt to move higher, the euro will close out the week to the downside against the U.S. dollar. The Japanese yen dipped briefly at the start of trading for the week, drifted sideways into Monday’s trading and then returned to positive territory against the U.S. dollar by Monday afternoon. The yen drifted lazily lower through Tuesday and then spiked higher, touching its highs for the week late Tuesday evening. The yen spent the rest of the week moving lower in a stepped pattern, touching its lows for the week by the close of trading on Friday. The yen will close out the week slightly lower against the U.S. dollar.

The late-in-the-day report that the White House was considering a block on all U.S. investments in China sent markets plunging lower just before the close on Friday. CNBC reported, via an anonymous source, that the discussions were still in the preliminary stages and that nothing has been decided as of yet. Restricting all U.S. investments in Chinese entities is being pitched as a way to protect US investors from a lack of regulatory supervision in China. But given the number of Chinese companies that are listed on U.S. stock exchanges, the move would have wide-ranging financial impact. Trade talks are set to resume between the two sides on October 10 in Washington, D.C., and the Trump administration is clearly looking for additional pressure points to use in the talks now that Beijing has the upper hand due to mounting political pressure on President Trump at home.

House Speaker Nancy Pelosi announced this week that the Democrat-led House of Representatives would launch a formal impeachment inquiry against President Trump. The most recent excuse to try to impeach the president revolves around his alleged conduct in a July 25 phone call to Ukrainian president Volodymyr Zelensky. According to a “whistleblower complaint” filed with the House, President Trump allegedly tried to pressure President Zelensky to conduct some investigations on Joe Biden and his son over possible corruption surrounding his son’s activities in Ukraine. The complaint was filed based on second-hand information and President Trump is already denying he did anything wrong. When directly questioned about the phone call on the sidelines of a UN meeting in New York, President Zelensky said he did not feel pressured by any of President Trump’s comments during the phone call. Gridlock in the U.S. government can be expected to escalate and the rhetoric on both sides will likely become even uglier, the longer the inquiry drags on.

The move to impeach the President by the Democrats could also turn out to be risky if the inquiry eventually finds no grounds to impeach President Trump. If he is cleared of any wrongdoing, his numbers in the polls could actually move higher as the impeachment process could make the Democrats appear petty and more concerned with trying to oust Trump than they are with actually performing the jobs they were elected to do.

In the U.K., the Brexit chaos resumed this week as the Supreme Court ruled that Prime Minister Boris Johnson’s move to suspend parliament through October 14 was unlawful. Johnson’s opponents in parliament met the Court’s decision with glee and immediately began calling for the embattled prime minister to step down from his post. Johnson was out of the country at a UN meeting in New York but stated that he would respect the Supreme Court’s decision and would continue his attempts to successfully lead the U.K. out of the European Union by the October 31 deadline. Before the suspension, parliament passed legislation that would essentially force Johnson to request yet another extension to the U.K.’s exit if no viable deal has been reached by October 19 but Johnson has said that he would “rather be dead in a ditch” than ask for another extension.

Economists have come to the conclusion that France’s economy is now a “better option” than Germany as the German manufacturing sector continues to slow, primarily due to the ongoing global trade tensions. It is amazing that economists have come to this conclusion given the massive pile of public debt France has accumulated over the last few years.

In the Middle East, Saudi Arabia continues to investigate who was directly responsible for the missile attacks on its oil facilities last week. The Kingdom has moved far faster than analysts believed possible in repairing the damage that was done to its facilities and oil markets have seen some downward pressure on prices as it appears that there will be no imminent shortage in the supply of oil. Iran continues to deny responsibility for the attack. In the wake of the impeachment proceedings against President Trump, his administration has been remarkably quiet on the Saudi attack in recent days.

As global uncertainty grows and the world’s economy continues to show signs that a recession may be looming, investors continue to seek out ways to make sure that their portfolios are well-diversified. Savvy investors continue to add precious metals to their investment portfolios for just such purposes, taking advantage of buying opportunities to acquire more physical product for their portfolios when temporary price dips allow them the opportunity to do so.

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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