The Precious Metals Week in Review – November 1st, 2019

1. It was a heavy news week as the Federal Reserve took further action on interest rates, the October Non-Farm Payrolls report was released, and the impeachment inquiry into U.S. President Donald Trump gained traction in the House of Representatives.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment increased by 5,000 claims from the previous week’s revised level to a new level of 218,000 claims for the week ending October 26. The previous week’s level was revised higher by 1,000 claims. The four-week moving average decreased by 500 claims from the previous week’s revised average and stood at 214,750 claims. The previous week’s average was revised higher by 250 claims.

3. The Federal Reserve held its Federal Open Market Committee (FOMC) meeting this week and opted to cut interest rates by another 25 basis points as was widely expected. Most analysts had projected that the Fed would conduct four interest rate cuts this year, with the fourth cut coming in December, but the Federal Reserve appeared to hint that it was entering a holding pattern on future rate cuts, putting that expected December cut in jeopardy. The Fed modified some of the languages in its press release but continues to maintain that it will remain data-dependent, monitor the state of the U.S. and global economies, and act “as appropriate” if economic data begins to weaken further.

4. The October Non-Farm Payrolls report was released on Friday and showed better than expected performance in the U.S. jobs market. Despite the recently resolved automotive worker’s strike at GM causing a hit to jobs numbers, the U.S. economy still added 128,000 jobs in October. Past numbers had some large revisions applied as well with August’s numbers surging from the 168,000 initially reported to 219,000 and September’s jumping from 136,000 to 180,000. Despite the better-than-expected report, and positive revisions to previous numbers, the unemployment rate managed to edge higher, moving from 3.5% to 3.6%. U.S. unemployment remains around the lowest levels the U.S. economy has seen in half a century.

5. Despite the positive data on the jobs front, other economic data in the U.S. continued to show signs of weakness. The Institute for Supply Management released its manufacturing purchasing managers’ index this week and the number came in at 48.3% which means the U.S. manufacturing sector remains in a contractionary phase. Any number below 50% indicates a contraction in the sector.

6. The Chinese Ministry of Commerce said Vice Premier Liu He, US Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin held a phone call on Friday and that the two sides conducted “serious and constructive” discussions on the trade dispute between the U.S. and China. The White House released a statement later in the day saying that the trade representatives had “made progress in a variety of areas and are in the process of resolving outstanding issues.” The White House statement continued, saying “Discussions will continue at the deputy level.”

7. The Impeachment Inquiry into President Donald Trump gained further traction this week as the Democrat-held House of Representatives passed a resolution outlining the next phase of the impeachment inquiry. The vote was largely along party lines, with 232 Democrats voting for, 2 voting against, and all Republicans voting against moving forward with the Inquiry. The resolution lays out guidelines for public hearings during the inquiry process, as well as the president’s expected participation in the process, and essentially formalizes the impeachment inquiry. The White House released a statement after the vote, saying that the proceedings did “nothing more than enshrine unacceptable violations of due process into House rules.” The statement further claimed that Democrats have “conducted secret, behind-closed-door meetings, blocked the Administration from participating, and have now voted to authorize the second round of hearings that still fails to provide any due process whatsoever to the Administration.”

8. Late Tuesday, U.K. lawmakers voted to hold nationwide elections on December 12, the first such winter vote since the 1970s and the first vote held in December since the 1920s. The move was in response to the European Union granting yet another extension of the deadline for the U.K. to exit the EU in the process that has come to be called “Brexit”. Early polls show that the Conservative Party, led by current Prime Minister Boris Johnson, has a clear lead over its rivals. Boris Johnson has said that if his party wins the majority in December’s election then he would ratify the most recent deal his government reached with Brussels and “get Brexit done in January, and the country will move on.” The EU decided on Monday that it would grant the U.K. yet another extension to January 31, 2020, to come up with a workable deal to govern the relationship between the two, post-Brexit. The extension allows for the possibility of an earlier exit if parliament ratifies the current deal, however, and the EU was adamant that it would not offer further renegotiations to the current Brexit package that is on the table.

9. The European Commission (EC) leadership was due to change over this week, but its current members will now apparently stay in power for longer but will hold only restricted powers. The incoming president, Ursula von der Leyen, presented the members of her team in September, but 3 of her 27 total appointees were rejected by European lawmakers in October, which will prevent von der Leyen from taking the reins on Friday. There have been three other occasions where the incoming leadership has had to delay their first day in office, and an EC spokesperson said “As on previous occasions in such cases, the Commission’s powers are limited to dealing with current business, continuing the day-to-day administration of ongoing files and procedures without pre-empting the political choices of the upcoming Commission.” France, Hungary, and Romania all submitted choices that lawmakers said would have a conflict of interests and must now go back to the drawing board to come up with new names to submit as candidates for the Commission.

10. Signs of progress in the ongoing U.S.-China trade talks lent support to oil prices, particularly on Friday, but despite the more positive tone, crude still closed over 3% down for the week. Brent crude settled at $61.74 while West Texas Intermediate (WTI) closed at $56.20 a barrel. The International Energy Agency released its latest monthly report this week and cut its demand growth figure for both 2019 and 2020, saying that the world could face another oversupply scenario in 2020 due to a production boost during a period of weak demand.

11. The euro spent nearly the entire week drifting higher against the U.S. dollar, despite modest dips on Tuesday and Wednesday that sent it back near opening levels. The euro spiked higher late on Wednesday, touching its highs for the week on Thursday before falling slightly and then moving relatively sideways through Friday trading. The euro saw some volatility just before the close on Friday but will finish out the week to the upside against the U.S. dollar, closing near its highs. The Japanese yen dipped marginally lower against the U.S. dollar at the start of the week but then drifted nearly straight sideways through late Wednesday. The yen saw a near-vertical, but shallow dip late Wednesday and then immediately began a move higher that took it into positive territory, touching its highs for the week around mid-day on Thursday. The yen drifted sideways through the rest of the week, taking a slight downturn as trading neared the close on Friday. The yen will also finish out the week higher against the U.S. dollar.

As the House of Representatives ramps up the political pressure on President Trump by voting to move the impeachment process into a public hearing forum, we can expect gridlock to increase in Washington, D.C. Congress is already trying to avoid yet another partial government shutdown in November, taking steps to extend existing federal spending measures by several weeks, or even into early February. Under current legislature, money for a wide array of government agencies is set to expire on November 21, meaning that those offices would be forced to shut down without a new spending bill in place.

Senate Minority Leader Chuck Schumer has said that he is “increasingly worried” that President Trump could force a shutdown in a move to distract the Democrats from their ongoing impeachment probe. Any stopgap spending measures that the Congress comes up with will have to be signed into law by President Trump to be valid and his increasingly hostile relationship with House Speaker Nancy Pelosi, and the Democratic Party as a whole, is likely to sway his decision to sign such a piece of legislation into law.

Federal Reserve Chairman Jerome Powell indicated at the conclusion of this month’s Federal Open Market Committee meeting that the Fed was essentially “on hold” for further interest rate moves in either direction, up or down, until economic data warranted further action. The Non-Farm Payrolls report for October seemed to back up the Fed’s decision to hold off on near-term future rate moves, coming in better than expected and indicating that the U.S. economy was not yet ready for the recession that analysts have been calling for. The jobs report also lends ammunition to President Trump in his ongoing trade war with China because the severe economic damage that analysts all said would come as a result of the ongoing tariffs between the two countries that have never materialized.

China announced this week that it had reached a general consensus “in principle” with the U.S. over the text of the so-called “phase one” trade deal that was announced last month. Even if the two sides can come to an agreement over “phase one” of their trade agreement, “phase two” is still largely up for negotiation. With the impeachment inquiry now officially underway, China too has some negotiating power since even though its economy appears to be slowing, it has room to choose to wait out the results of either the impeachment inquiry or the 2020 election, or both, to see if a less “unpredictable” leader could take the helm in the White House.

In Europe, Brexit remains in chaos as the EU has granted yet another extension to the U.K. to come up with a plan for its long-overdue exit from the bloc. Prime Minister Boris Johnson was successful in his bid to get parliament to agree to hold snap elections in December, potentially paving the way for his Conservative Party to take the majority in government, if the early polls can be believed. Johnson has stated that if he can secure a majority after the December elections then his new government will ratify the current Brexit agreement and take the U.K. out of the EU by the new January deadline.

As political gridlock looks to be setting up for the long-term in Washington, D.C., the U.S.-China trade saga continues, and Brexit gets dragged out for yet another couple of months, savvy investors continue seeking ways to make certain that they are keeping their portfolios sufficiently diversified against a sudden downturn in any single asset class. As central banks around the world stockpile Gold, stating the very same desire for diversification, many investors have followed suit.

Precious metals have a long history of being viewed as a safe-haven asset in times of economic and geopolitical turmoil and it seems to be clear that central banks, and savvy investors, appear to have embraced that view once again.

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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