The Precious Metals Week in Review – October 25th, 2019

1. As fears of further trade war escalations between the U.S. and China seem to be fading, eyes are turning to next week’s Federal Open Market Committee meeting by the Federal Reserve. Analysts will be parsing every word of Fed Chair Powell’s statements at the conclusion of next week’s meeting for indications on the near-term state of both the U.S. and the global economy.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 6,000 claims from the previous week’s revised level to a new level of 212,000 claims for the week ending October 19. The previous week’s claims level was revised higher by 4,000 claims making the net drop from originally reported figures just 2,000 claims. The four-week moving average decreased by 750 claims from the previous week’s revised average and stood at 215,000 claims. The previous week’s average was revised higher by 1,000 claims.

3. The Office of the U.S. Trade Representative (OUSTR) said this week that some parts of a “phase one” trade deal between the U.S. and China is making progress towards being finalized. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin apparently had a conversation with Chinese Vice Premier Liu He where “They made headway on specific issues and the two sides are close to finalizing some sections of the agreement.” The statement from the OUSTR continued, saying “Discussions will go on continuously at the deputy level, and the principals will have another call in the near future.”

4. News of the perceived progress in the trade discussions between the U.S. and China sent equity markets to new highs as investors chose optimism regarding trade in favor of evaluating the underlying market fundamentals that continue to flash warning signs of a correction/recession. On Friday, the U.S. Treasury said that the Federal deficit for fiscal 2019 increased by 26% from 2018 levels to hit $984 billion. Deficits typically decline during times of economic growth but have instead nearly doubled under President Trump’s watch due, at least in part, to the massive tax cut bill that was passed in 2019. The ongoing glut of global debt is completely unsustainable and may very well be the proverbial “straw that broke the camel’s back” when the next recession bubbles up in the global economy.

5. The U.S. Federal Reserve will meet next week to hold its Federal Open Market Committee meeting to determine the course of U.S. monetary policy. The body is widely expected to conduct another interest rate cut of at least 25 basis points despite facing an economy that has not been hit as hard by the U.S.-China trade dispute as was previously estimated. Ongoing negative, or near-negative interest rate policies by the world’s other central banks are certainly a factor in the Fed’s own rate cut decisions but the central bank continues to stick to its mantra that it will remain “data dependent” in its decisions on interest rates. President Trump has cited other global central bank’s negative interest rate policies as reason for the fed to continue cutting U.S. rates on multiple occasions. Many analysts, who had been calling for at least two more rate hikes in 2019, now believe the Federal Reserve may pause, holding off on further rate cuts to wait for further data on the health of the U.S. economy.

6. U.K. lawmakers failed to pass yet another revised Brexit deal this week, forcing Prime Minister Boris Johnson to go back to the EU to request another extension on the U.K.’s exit from the EU. Boris Johnson reportedly told parliamentarians on Thursday that they can have more time to debate his Withdrawal Agreement Bill if they called for a general election on December 12. If parliamentarians agree, it will be the first general election held during winter months in the U.K. in decades. Johnson’s calls for elections could be a moot point as the EU has not yet granted an extension to the October 31 deadline as yet. EU ambassadors had not agreed on a firm extension date by Friday, though they did acknowledge that the U.K. would likely need an extension. Officials agreed to meet over the weekend to continue the discussions on another extension.

7. In his last act as President of the European Central Bank, Mario Draghi opted to again hold rates at historic lows and kept the central bank’s guidance unchanged. Draghi has helmed the ECB for eight years, guiding it through some of Europe’s deepest financial crises. Christine Lagarde, former head of the International Monetary Fund will step into the role that Draghi is now vacating. It will be interesting to see if Ms. Lagarde’s time at the IMF, which she spent criticizing the very low rates that Draghi has continued to maintain for so long and has now left her with, will lead her to begin pushing the ECB to reverse course and begin raising rates.

8. Crude oil posted its largest weekly gain in over a month as the market closed on Friday, driven higher by optimism that the U.S. and China were moving closer to settling their trade dispute. Brent crude settled up nearly 4% at $61.91 per barrel while West Texas Intermediate (WTI) settled at $56.66. Higher prices were supported by a surprise draw on U.S. inventories, with stocks dropping by about 1.7 million barrels over the previous week.

9. The euro spent most of the week drifting steadily lower against the U.S. dollar. The battered currency attempted to stage a reversal on Wednesday but had dipped back lower by Thursday. The euro accelerated its decline on Friday and will close out the week lower against the U.S. dollar. The Japanese yen began the trading week drifting slightly lower against the U.S. dollar, but reversed course early Tuesday morning and had hit its highs for the week by Wednesday. The yen had dropped back to its lows by late Wednesday evening and spent the rest of the week trading in a narrow range, briefly dipping to its lows for the week on Friday before recovering slightly just before the close. The yen too closed out the week to the downside against the U.S. dollar.

As U.S.-China trade negotiations continue to show some signs of success, it will likely be the Federal Reserve’s upcoming Federal Open Market Committee meeting that will drive market volatility next week. Analysts are already parsing every word uttered by any official from the Fed to try to glean an early indication of where it might take interest rates when it meets next week. Most concur that the Fed will conduct at least one more quarter point rate cut next week before pausing to take the pulse of the U.S. economy once more. European economic data continues to show signs of weakness which is likely to spread out into the global economy, so the Fed may continue to take a wait-and-see stance to watch the global economy to see if it shows signs of stabilizing amid warming U.S.-China relations.

The International Monetary Fund (IMF) reported this week that it was expecting growth in major Asian economies to slow more than previously expected as 2020 approaches. The IMF said “Risks within the region include a faster-than-expected slowdown in China, a deepening of regional tensions such as Japan’s and Korea’s bilateral relationship, rising geopolitical risks” were all reasons that it was lowering growth projections. Earlier in the week the IMF said that it was projecting that the Chinese economy could slow to a growth rate of 5.8% in 2020, weaker than its 2019 forecast of 6.1% and a level that would be its slowest growth rate in decades.

The IMF also cited the potential for deepening U.S.-China trade tensions and the possibility of a “disorderly Brexit” as other reasons economic growth in the Asian region could suffer in 2020. In Europe, the U.K. parliament stymied yet another attempt to draft a workable Brexit agreement, forcing Prime Minister Boris Johnson to go crawling back to the European Union to request yet another extension to the deadline for Britain to leave the EU. Johnson had previously stated he’d “rather be dead in a ditch” than ask the EU for another extension but legal maneuverings by parliament forced his hand on the matter after they failed this week to pass the final copy of the agreement that Johnson had negotiated with the EU. As of Friday, the EU had not yet granted an extension beyond the upcoming October 31 deadline, but while its ambassadors could not agree on a date, they did seem to agree that an extension would be required. Johnson has called for a general election to be held on December 12 in a final move to gather a parliament that could overcome the roadblocks that the current coalition government cannot seem to cross to get an agreement passed.

Debt levels across the globe continue to skyrocket, as evidenced by the U.S.’ near trillion-dollar deficit reported this week. Europe and Asia too continue to see their debt loads skyrocket, while interest rates remain at record lows. South America continues to see its share of debt troubles as well. Argentina appears headed for default once more and Venezuela continues to struggle under the illegitimate leadership of Nicolas Maduro. As Maduro continues to try to hold power in a country that has seen its economy crater and hyperinflation skyrocket, the number of refugees fleeing the country are expected to cross 5 million mark.

Turkey too could be faced with another economic crisis if the U.S. follows through on its threat to implement sanctions on its economy over their military incursion into Syria.

As wise investors continue to watch global economic and geopolitical uncertainty escalate, they also continue to take steps to make sure that their portfolios are well-diversified. Many of these investors have been acquiring physical precious metals for their portfolios as prices have remained suppressed over the last several years. Precious metals have long been viewed as a “safe haven” asset during times of economic turmoil and the many analysts that continue to say that the world is overdue for another recession have only reinforced that view among investors once more.

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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