The Precious Metals Week in Review – December 13th, 2019

1. The status of the U.S.-China trade negotiation continues to be in flux and remains the top factor affecting market volatility. The House of Representatives moved forward on their plan to impeach U.S. President Donald Trump for his actions towards Ukraine.

2. In a surprise move, the seasonally adjusted number of Americans filing initial claims for state unemployment surged by 49,000 claims from the previous week’s unrevised level to reach 252,000 for the week ending December 7. The move sent the unemployment measure to a two-year high. The four-week moving average increased by 6,250 claims from the previous week’s unrevised average and stood at 224,000 claims. We can expect the unemployment data to remain volatile through the end of December and into the following months as the Labor Department’s “seasonal adjustment” formulas continue to lag behind the modern hiring practices of the digital age.

3. The Judiciary Committee in the House of Representatives, led by Democratic Representative Jerry Nadler, drafted formal articles of impeachment against President Trump. The committee met for 14 hours on Thursday, after which they were supposed to vote on whether to move the articles to the House floor for a full vote. In what is being described as a “bush league play” and a “kangaroo court” by Representative Doug Collins, a Republican from Georgia, Nadler announced shortly after 11 p.m. on Thursday that the committee would not be voting on the impeachment during late-night hours, but would instead hold the vote at 10:00 a.m. on Friday – during Prime Time viewing hours.

4. At 10:00 a.m. local time on Friday in Washington, D.C., the House Judiciary Committee voted to advance two articles of impeachment against President Trump for abuse of power and obstruction of Congress to the House floor as expected. The vote was along party lines in the Democrat-controlled House, with the votes coming in at 23 votes to advance for the Democrats and 17 votes against the advancement of the articles for the Republicans. The full House of Representatives will now vote on the articles of impeachment next week before Congress leaves Washington for the holiday recess. If the articles pass the House, which is widely expected given the Democratic control of the chamber, then the Senate will conduct a formal trial of President Trump, most likely in January, which will be presided over by Supreme Court Chief Justice John Roberts.

5. The ongoing saga that is the U.S.-China trade negotiations continued this week, culminating in an announcement by Chinese officials on Friday that both sides have reached an agreement on the text of a “Phase One” trade deal and will move towards signing the deal “as quickly as possible.” According to the announcement, made by Vice Commerce Minister Wang Shouwen in China before President Trump announced it in the U.S., the deal involves intellectual property, technology transfers, agricultural goods, financial services and expansion of trade, all sticking points in the long-running negotiations. In turn, the U.S. will reportedly repeal existing tariffs on Chinese goods in phases. President Trump confirmed the Chinese announcement, tweeting that the December 15th tariffs would not be implemented due to “the fact that we made the deal.” Trump also said that the two sides would begin negotiations on Phase Two of the trade deal as soon as possible.

6. Reported on the same day that the U.S. and China supposedly came to an agreement over many of their trade issues, the Office of the U.S. Trade Representative (USTR) published a new list of European goods that it is apparently considering 100% levies upon. The new items include olive oil, cheese and liquor and other items that were previously not subjected to earlier tariffs implemented by the U.S. The tariffs would be a further response to the fallout over subsidies paid to European aircraft manufacturer Airbus. The World Trade Organization found in the U.S.’ favor in the long-running dispute earlier this year, saying that the subsidies paid to Airbus were damaging to U.S. aircraft manufacturer Boeing’s business. The trade body granted the U.S. approval to implement tariffs against the EU to offset the damage caused by those subsidies. On December 2, the USTR wrote: “As a result of the EU’s failure to address these subsidies, on October 18, the United States imposed tariffs of 10 percent on large civil aircraft and 25 percent on agricultural and other products.” The USTR continued, saying that since the EU has continued to fail to curb the subsidies, “the United States is initiating a process to assess increasing the tariff rates and subjecting additional EU products to the tariffs.” The new list of tariffs published this week is apparently the outcome of that process.

7. In the United Kingdom, Boris Johnson and his Conservative Party won a sweeping victory in the December 12 general election. The victory was the largest such for the Conservative Party since 1987 and means that Johnson will retain his post as Prime Minister and now has an unopposable majority in Parliament. Conservatives won 364 parliamentary seats giving them a clear majority of 78 in the House of Commons, far more seats than initial polls had suggested they would secure. The win could have far-reaching effects on the future and overall political landscape of the U.K. In the wake of the elections, in Scotland, First Minister Nicola Sturgeon announced that she wants a new independence vote for Scotland, saying “Boris Johnson has a mandate to take England out of the EU but he must accept that I have a mandate to give Scotland a choice for an alternative future.” In a separate statement to Sky News, Sturgeon, who leads the Scottish Nationalist Party, said: “There is a clear desire and endorsement for the notion that Scotland should not be landed with a Boris Johnson government and ripped out of Europe against our will.” In a 2014 referendum on independence, Scotland voted 55% to 45% to remain in the United Kingdom.

8. Johnson’s victory on Thursday likely means that the current draft of the Brexit agreement sitting in Parliament will now be swiftly passed. At a victory celebration in Central London, Boris Johnson said: “We will get Brexit done on time by the 31st of January, no ifs, no buts, no maybes.” Analysts at Citi said in a research note that “With limited time to negotiate, we expect the U.K. and the EU would likely only agree core elements of a new Canada-style free trade agreement, such as zero-tariffs in time for the end of the transition, under this scenario.” The analysts continued, saying “The U.K. would gain freedom to deviate from EU regulation, negotiate its own trade relations and set its immigration rules. However, exiting the single market and customs union would see the re-imposition of non-tariff barriers, as well as lingering uncertainty in key areas such as financial services.”

9. Crude oil continued to get a boost from perceived progress in the U.S.-China trade talks. The U.K. election results also seemed to lend support to oil prices as some of the palls of uncertainty over whether the U.K. will actually follow through on its exit from the EU seemed to clear. Brent crude settled at $65.19 per barrel while West Texas Intermediate pushed through the $60 mark to settle at $60.07 per barrel.

10. The euro opened the week fairly flat against the U.S. dollar, but soon began trending higher as the U.K. elections approached. The euro staged a shallow climb through Wednesday afternoon and then surged higher in a stepped pattern through Friday’s trading. The euro moved sideways, with a downward trend through much of Friday, but following the release of the election results in the U.K. and the announcement of the U.S.-China trade deal, the euro took a sharp dip back lower. Despite the sharp drop on Friday the euro will still finish out the week higher against the U.S. dollar. The Japanese yen moved basically sideways-to-flat for much of the week but took a relatively sharp dip lower late Thursday evening as reports surfaced that a compromise on the U.S.-China trade deal could be near. The yen attempted to stage a recovery late on Friday morning but could not gain enough momentum to move back into positive territory. The yen will finish out the week lower against the U.S. dollar.

The U.S. and China have supposedly put ink on paper in their “Phase One” trade deal that was announced back in October. Both sides confirmed that a deal was reached, but details on the agreement are thus far fairly slim. The two sides are reported to be moving towards signing a physical agreement sometime in January and, until then, the U.S. has agreed to suspend the upcoming December 15 implementation of additional tariffs and has apparently agreed to begin rolling back other tariffs already in place on Chinese goods, but done in stages. The delay in signing the document, according to officials, is due to the fact that the final draft must be translated to Chinese, approved by Chinese officials, then translated back to English once more and approved by U.S. officials to ensure that both copies of the documents match before they can be signed.

Later in the day, President Trump tweeted that the White House would leave 25% tariffs on $250 billion in goods in place but would cut existing tariffs on another $120 billion in Chinese products to 7.5%. Robert Lighthizer, the U.S. Trade Representative, said in a statement that “President Trump has focused on concluding a Phase One agreement that achieves meaningful, fully -enforceable structural changes and begins rebalancing the U.S.-China trade relationship.” The USTR office apparently decided that since the U.S.-China situation appeared to now be on track, that it should open another front in the U.S.’ multiple trade disputes by placing up to 100% tariffs on additional European goods in response to the EU’s failure to resolve the long-running dispute over aircraft subsidies paid to Airbus.

The World Trade Organization approved the U.S. to place tariffs on European goods earlier in the year in response to the subsidies, which the U.S. partially implemented at the time, but the USTR has apparently determined that the EU has failed to address the situation adequately and intends to take further action.

In Europe, the U.K. held its first general election during the winter months since 1974 and its first election in December since 1923. The outcome shocked even the pollsters who had already predicted that Boris Johnson and the Conservative Party would likely gain a majority. Johnson and the Conservative party effectively won by a landslide, paving the way for the current draft of the much-debated Brexit agreement to finally be passed in Parliament. The Conservatives gained a 78-seat majority in the House of Commons and theirs is the party that has been the leader in the charge to take the U.K. out of the EU with or without an agreement in place. The coming weeks are likely to be fraught with hectic, last-minute, negotiations on the finer details of the Brexit agreement. The last extension to Brexit granted to the U.K. in October only gives them until January 30 to pass the Brexit agreement and formally remove itself from the European Union. Failure to do so would mean a “No Deal”, or “hard” Brexit takes place the next day. The hard-won Conservative victory is not all roses for Johnson’s party however, as the Scottish Nationalist Party (SNP) gained a significant share of seats as well.

The SNP was responsible for a referendum back in 2014 calling for the independence of Scotland from the U.K. The measure was defeated, but only by a margin of 55% to 45% and Nicola Sturgeon, the SNP’s leader, says the party now has a renewed mandate to call for another Sottish independence referendum.

The political landscape in the U.S. is also likely to become heated as we close out the second decade of the 2000s. The House Judiciary Committee followed through on its vote to move two articles of impeachment against President Trump, one for abuse of power and another for obstruction of Congress, to the full floor of the House of Representatives for a vote. The House will very likely vote in favor of impeaching President Trump before they leave for the holiday recess, paving the way for what will surely be a showdown in the Senate as they are forced to put the president on trial for his alleged actions. Most analysts feel that the evidence gathered over the last several months since the now-infamous “whistleblower” reported his hearsay evidence to Congress is weak, at best, and that the Senate will acquit the President during the trial on a lack of direct evidence of the alleged actions.

The behavior of the Democrats involved in the process has been questionable at times, particularly when one of the legal experts they called upon as a witness in determining whether Trump’s actions violated his oath of office was then allowed to aggressively question the Republican party’s witness. As we enter the final half of the final month of the decade, the political landscape remains questionable.

Stock markets took the news of the U.S.-China trade pact as a sign to resume their epic run into what most analysts seem to agree is now extreme bubble territory. These same analysts have commented more and more frequently that a correction in equities is now long overdue. Cautious investors continue to seek out alternative, undervalued assets for the purposes of diversifying their portfolios away from a sudden correction in equity markets.

Many investors have returned to the historical view that precious metals often represent a safe haven store of wealth during times of economic turmoil. These investors have continued accumulating physical precious metals for the purpose of diversifying their portfolios as the prices for these products have remained suppressed over the last several years.

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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