The Precious Metals Week in Review – November 8th, 2019

1. Headlines regarding the ongoing trade dispute between the U.S. and China were again the primary drivers for market moves this week. It is increasingly odd that the mainstream media seems to find news coming out of China more reliable than their sources based in the U.S.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 8,000 claims from the previous week’s revised level to a new level of 211,000 claims for the week ending November 2. The previous week’s level was revised higher by 1,000 claims. The four-week moving average increased by 250 claims from the previous week’s revised average and stood at 215,250 claims. The previous week’s average was revised higher by 250 claims.

3. Markets seized on headlines out of China that the U.S. would be rolling back the tariffs it has implemented over the last year as part of the “phase one” trade agreement and immediately treated the news as fact, despite multiple U.S. sources refuting the claims. Reuters, citing people familiar with the negotiations, said that China is continuing to push for Washington to “remove all tariffs as soon as possible.” And that China’s negotiators want the U.S. to drop 15% tariffs on roughly $125 billion in Chinese goods that went into effect on September 1 in addition to offering relief on the 25% tariffs that went into effect earlier in the year on goods like semiconductors, machinery and furniture. President Trump continued to take the stance that “China wants a deal more than I do” when pressed on whether he had offered to roll back tariffs and on Friday told reporters that he had not agreed to do so, despite what the rumor mill says.

4. The Bank of England voted to hold interest rates steady at 0.75% ahead of the upcoming national elections in the U.K. on December 12. The central bank’s nine-member Monetary Policy Committee (MPC) saw seven of its members vote in favor of holding rates steady while 2 members of the committee actually voted for cutting rates further. In its Monetary Policy Report, the MPC said “With the risk of a no-deal Brexit falling recently, we expect the uncertainty facing households and businesses to fall. We also expect global growth to recover gradually.” The central bank also acknowledged that if those developments fail to materialize, that it “may need to lower interest rates to support U.K. growth and ensure that we return inflation to our 2% target sustainably.”

5. The euro came under fire from within this week as Gyorgy Matolcsy, the head of Hungary’s central bank, published an opinion piece in the Financial Times blasting the single currency. Matolcsy said “The common currency was not needed for European success stories before 1999 and the majority of euro zone member states did not benefit from it later. The time has come to wake up from this harmful and fruitless dream. A good starting point would be to recognize that the single currency is a trap for practically all its members – for different reasons – not a gold mine. EU states, both in and outside of the euro zone, should admit that the euro has been a strategic error.” Matolcsy continued, saying “Europeans must give up their risky fantasies of creating a power that rivals the U.S. Members of the euro zone should be allowed to leave the currency zone in the coming decades, and those remaining should build a more sustainable global currency.”

6. According to Jean-Claude Juncker, the outgoing president of the European Commission, U.S. President Donald Trump will not be announcing any new tariffs on European automobile manufacturers next week. Trump has until November 13 to decide on whether such tariffs should be implemented and according to Juncker, Trump “will ruffle a bit, but there will be no automobile tariffs.” Juncker did not offer any evidence as to why he believed the U.S. would not implement those tariffs.

7. Crude oil seemed to ignore fundamentals this week, moving higher despite a build in inventories and continued uncertainty over global demand and trade. Brent crude settled at $62.56 a barrel while West Texas Intermediate settled at a 6-week high of $57.24. Commerzbank said in a research note that “Even if a partial agreement is reached (between the U.S. and China), the impetus for demand will not be enough to avoid an oversupply next year, meaning that OPEC will still need to make bigger production cuts.”

8. The euro spent the entire week steadily declining against the U.S. dollar. The downward trend accelerated during the early part of the week but had plateaued by late Tuesday. The euro drifted sideways against the dollar through Thursday, then took another downward turn late in the day. The euro drifted sideways again through Friday afternoon, then saw another drop to the downside and will finish out the week at its lows against the U.S. dollar. The Japanese yen also spent the first part of the week steadily declining against the U.S. dollar, reversing course late on Tuesday. The yen attempted a recover through all of Wednesday but in early trading on Thursday, made another move to the downside. The yen bounced around near its lows through Friday’s trading, seeing a small pop just before closing, but will still finish out the week to the downside against the U.S. dollar.

The ongoing trade negotiations between the U.S. and China continue to be the primary driver for market moves. Markets swung on every headline regarding the upcoming “phase one” deal this week, despite little of the news headlines being verified as fact. China seemed to indicate that the U.S. was willing to roll back all of the tariffs it has already implemented prior to the “phase one” trade deal, and that it would also delay further tariff implementations that are due to take effect in December.  The news seemed to be taken as fact by the U.S. markets, despite repeated assurances from U.S. President Donald Trump and his White House spokespeople that he had made no such commitments to roll back any tariffs.

In Europe, the U.K. continues its inexorable move towards snap elections next month and Prime Minister Boris Johnson’s Conservative Party continues to show leads in the polls. Should the Conservative Party emerge from the December elections with a clear majority, then the likelihood that the U.K. will follow through with its plans to exit the European Union by the end of January will increase significantly. The current draft of the agreement that would govern the U.K.’s relationship with the EU after their divorce is, according to Brussels, the final draft. Brussels remains adamant that there are no further concessions to be made and that it will not conduct any further renegotiations on the deal. Johnson’s main opponent, Jeremy Corbin and his Labour Party, have vowed to seek yet another extension to Brexit if they should succeed in gaining a majority in the upcoming elections and continue to say that there is room for further concessions from Brussels.

The impeachment inquiry into whether U.S. President Donald Trump threatened to withhold aid support to Ukraine unless they launched investigations into what was, at the time, his chief Democrat rival in the upcoming 2020 elections continues to move forward. Republicans are trying to bring the anonymous whistleblower who launched the whole ordeal into the spotlight of the public hearing process but Democrats are blocking the move due to fears over the individual’s safety if their identity is exposed. The whistleblower’s report was essentially a secondhand account of the events of the phone call between Trump and Ukraine’s leader and Democrats contend that there is no need to expose the whistleblower’s identity since the individuals named in the second-hand report are willing to testify and give their first-hand accounts.

In the ensuing weeks since the report became public, Joe Biden, who is at the very heart of the issue under scrutiny due to dealings that his son Hunter had with a Ukrainian energy company under President Obama’s term, has seen his momentum shift as Senator Elizabeth Warren gains traction in the presidential race. Warren, who has long been a proponent of breaking up the “big banks”, wealthy corporations, and for redistributing the accumulated wealth of America’s wealthy, is continuing her obvious attempt to vilify the wealthy and punish success. Warren’s latest proposal for “Medicare for All” have been ridiculed as “mathematical gymnastics” that would do nothing more than increase the already obscene governmental debt load. Her proposals for a “wealth tax” would punish investors, forcing them assess their wealth each year and pay tax on it. Her proposal would likely see investors forced to pay taxes on even unrealized capital gains. The Democratic party has swung wildly to the left in recent years as Warren, and her counterpart Senator Bernie Sanders have put forth plans that would clearly put the U.S. on a path towards Socialism, despite the overwhelming evidence that Socialism is doomed to fail eventually as those that come to depend on governmental largesse become less and less productive members of society.

As election season begins to heat up, savvy investors continue to look for opportunities to acquire alternative assets that will help them ensure diversification of their investment portfolios. Precious metals continue to be viewed as one key asset in a well-diversified investment portfolio, given their historical role as a “safe haven” asset in times of economic turmoil. As equity markets continue their march ever higher into bubble territory, wise investors have continued to accumulate physical precious metals when price dips offer them the opportunity to acquire their products at a discount.

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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