The Precious Metals Week in Review – October 18th, 2019

1. Hopes that were lifted after last week’s “phase one” deal was worked out between U.S. and Chinese officials as markets were closing on Friday did not remain elevated as the week began. In fact, those hopes were dashed early in the week when China appeared to begin placing additional demands on the U.S. as preconditions to signing any official document on “phase one” of the resolution to their trade issues.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment jumped by 4,000 claims from the previous week’s unrevised level to a new level of 214,000 claims for the week ending October 12. The four-week moving average increased by 1,000 claims from the previous week’s unrevised average and stood at 214,750 claims.

3. The “phase one” trade deal worked out between the U.S. and China last week is supposed to be drafted up within the next three weeks, but China has already begun to indicate that they may not sign a deal even if it is successfully drafted. The U.S. agreed to suspend the tariff increases that were due to have gone into effect this week as part of the deal, but China’s Ministry of Commerce said on Thursday “China’s position, principle and goal for the China-U.S. trade negotiations has never changed. Both sides’ ultimate goal for the negotiations is to end the trade war, cancel all additional tariffs. This is good for China, good for the U.S. and good for the world.” Gao continued, saying “We hope both sides can continue to work together to advance the negotiations and, as soon as possible, reach a phased agreement and make new progress on canceling tariffs.” Gao’s comments seemed to imply that China was not completely satisfied with phase one of the deal, nor did he give any indication that China was ready and willing to sign an agreement.

4. China Daily, the state-owned English language said, regarding the deal that the two countries worked out last week, “While the negotiations do appear to have produced a fundamental understanding on the key issues and the broader benefits of friendly relations, the Champagne should probably be kept on ice, at least until the two presidents put pen to paper.” Earlier in the week, state-owned media outlets issued warnings that the U.S. should avoid “backpedaling” on the partial agreement and questioned Donald Trump’s classification of the agreement as “very substantial”.

5. Moody’s Analytics’ chief economist Mark Zandi said this week that he thinks “risks are awfully high that if something doesn’t stick to script then we do have a recession.” Zandi continued, telling CNBC’s Squawk Box Asia program “I’ll say this also: Even if we don’t have a recession over the next 12-18 months, I think it’s pretty clear that we’re going to have a much weaker economy.” When asked what he thought the chances were that a global economic recession could occur, Zandi replied simply “I think high, uncomfortably high.”

6. U.S. President Donald Trump apparently sent a sternly worded letter to Turkey’s president Recep Tayyip Erdogan over his decision to send military forces into Syria on October 9. The letter urges Erdogan to strike a deal with the Kurdish forces in Syria and Trump closed the missive with “Don’t be a tough guy. Don’t be a fool!” When asked for his reaction to receiving such a letter, Erdogan said Turkey would “do what’s necessary when the time comes.” Erdogan further commented, saying “President Trump’s letter, which did not go hand in hand with political and diplomatic courtesy, has appeared in the media. Of course we haven’t forgotten it. It would not be right for us to forget it.”

7. The United Kingdom continued its efforts to establish a viable agreement that would govern its relationship with the European Union after it exits the bloc, ostensibly on October 31. In last-minute talks on Thursday, negotiators from the U.K. and EU came up with a draft Brexit Deal after the U.K. agreed to make some concessions on the Irish border. The so-called “Irish Backstop” issue has been the biggest roadblock to getting a deal done. European Commission President Jean-Claude Juncker tweeted “Where there is a will, there is a #deal – we have one! It’s a fair and balanced agreement for the EU and the UK and it is testament to our commitment to find solutions. I recommend that #EUCO endorses this deal.” U.K. Lawmakers will vote on the latest agreement on Saturday and Prime Minister Boris Johnson said he is “very confident” that the House of Commons will support his agreement. Serious doubts remain on whether the U.K. parliament will pass this final version of the agreement.

8. If UK lawmakers do not pass the latest version of the withdrawal agreement on Saturday, Boris Johnson will be forced to ask for yet another extension of the timeline for the UK’s exit from the EU. Jean-Claude Juncker has already implied that if Johnson is forced to ask for an extension that the EU is not likely to grant it, which would effectively kick the U.K. out of the bloc in a de facto “no-deal” Brexit.

9. Brent crude dipped under $60 and West Texas Intermediate fell into the low $50 a barrel range on weak economic data out of China. Brent settled at $59.35 a barrel and WTI was at $53.78 as China’s economic growth slowed to 6% year-on-year in the third quarter. That is China’s weakest GDP print in nearly 30 years and was well short of expectations. Factory production led the decline, likely falling as a result of continued trade tensions with the U.S.

10. The euro drifted sideways against the U.S. dollar through much of the week, dipping slightly on Tuesday. The euro began a fairly steady, stepped climb to the upside as it became apparent that the EU was likely going to accept Boris Johnson’s new version of the Brexit deal. The euro continued its climb after the EU agreed to the deal and will close out the week higher against the U.S. dollar. The euro may still be at risk for further declines if the U.K. parliament fails to pass the deal in parliament on Saturday, kicking the whole process back into a state of limbo once more. The Japanese yen drifted sideways against the U.S. dollar at the start of trading for the week, but saw a relatively steep drop on Tuesday that sent it near its lows for the week. The yen bounced along sideways for most of the rest of the week but by Friday had staged a recovery that pushed it back near its opening levels for the week.

U.S.-China trade tensions will likely remain at the heart of market moves for the next several weeks as both sides draft up their “phase one” agreement. Economic data out of Europe this week stoked fears that the global economy may be setting up for another recession.

Manufacturing activity in Germany dropped to its lowest level since the days of the financial crisis this month and its services sector also saw signs of decline, growing at its slowest pace in nine months. For the eurozone as a whole, manufacturing fell to better than six-year lows while services grew at their slowest pace in eight months. Data from IHS Markit showed that the U.S. manufacturing sector pushed to five-month highs in September while services grew at their fastest pace in two months, despite ongoing trade tensions. IHS noted that despite the positive data “Prospects also look gloomy, with inflows of new business down to the lowest since 2009.”

Analysts have been heavily expecting the U.S. economy to begin feeling the sting of the tit-for-tat tariff battles that the U.S. has been waging with China.

The U.K. faces a tough weekend as parliament gets set to vote Saturday on whether the latest Brexit agreement will satisfy its expectations. The governing body has tried, and failed, three times to pass an viable Brexit agreement and the odds that this latest draft will successfully pass on Saturday appear to be growing slimmer as more details of the agreement emerge. Reportedly, Johnson will make a statement at 9:30 a.m. Saturday morning, take any questions about his discussions with the EU and then ask parliament to either “approve the deal or approve a no-deal Brexit.” Lawmakers previously passed a law that will force Johnson to ask for an extension if Saturday’s vote fails, but even if he asks for such an extension, the EU may not necessarily grant it. If the EU fails to grant another extension to the U.K. political chaos will likely ensue. A failure to pass yet another draft of the Brexit agreement could also cost Prime Minister Boris Johnson his job and make way for parliament to attempt to put the question of whether the UK should leave the EU back to the people of the U.K. in another referendum.

In the U.S., President Trump continues to face backlash for his comments and behavior. A strongly worded and rather insulting letter that he wrote to Turkey’s President Erdogan surfaced this week. The letter was written on October 9, just days after the U.S. pulled troops out of the region of Syria that Turkey sent its forces into. Erdogan reportedly “received the letter, thoroughly rejected it and put it in the bin”, according to BBC sources. Fears are growing that Turkey’s incursion into Syria could further destabilize the region, leading to a resurgence in Jihadist activity. The U.S. apparently brokered a ceasefire between Turkish forces and the Syrian Democratic Forces, but as of Friday shelling was still continuing, according to eyewitnesses in the area. Trump’s integrity has been called into question yet again by announcing his decision to host the next G7 summit at the Doral golf club that he owns in Miami.

As economies continue to slow on a global basis, and geopolitical stability escalates in the Middle East, investors have apparently turned to precious metals with renewed interest as they seek out ways to diversify their investment portfolios against a sudden plunge in stock markets. Central banks have also continued purchasing Gold, with the Dutch central bank actually saying: “If the entire system collapses, the gold stock[pile] provides a collateral to start over.”

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.

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Precious Metals International, Ltd.

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