The Precious Metals Week in Review – January 10th, 2020

1. The New Year got underway with a torrent of news. Market volatility skyrocketed this week as Iran followed through on its threat to retaliate for America’s airstrike that killed one of its top commanders last week.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 9,000 claims from the previous week’s revised level to hit 214,000 for the week ending January 4. The previous week’s data was revised higher by 1,000 claims. The four-week moving average decreased by 9,500 claims from the previous week’s revised average and stood at 224,000 claims. The previous week’s moving average was revised higher by 250 claims. Unemployment data will likely remain volatile well into February due to the changing landscape of the retail sector.

3. The final Non-Farm Payrolls Report for 2019 was released on Friday and was described as “disappointing”, though the mainstream media was quick to say it was “not as disappointing as it appears.” December’s report saw payroll and wage growth figures that both missed economist’s expectations, with the U.S. economy adding just 145,000 jobs to payrolls in December. Unemployment continued to hold steady at 3.5%, a 50-year low. Though the official unemployment figure remains low, a more thorough calculation that includes both underemployed and discouraged workers stood at 6.7%. Economists had expected that the U.S. economy would add 160,000 jobs to its payrolls and see wage gains of over 3%. The wage gain rate of 2.9%, combined with the worse-than-expected job growth, had the media scrambling to explain exactly how the numbers were not as bad as they appear to be on the surface.

4. Speaker of the House Nancy Pelosi finally appears to be moving forward with the formal process of transmitting the articles of impeachment to the floor of the Senate so that a trial can commence on whether President Donald J. Trump should be removed from office. Pelosi wrote to her colleagues in the House of Representatives that she has “asked Judiciary Committee Chairman Jerry Nadler to be prepared to bring to the Floor next week a resolution to appoint managers and transmit articles of impeachment to the Senate.” The impeachment managers will essentially act as the prosecutors against the President during the Senate trial. Pelosi has repeatedly refused to transmit the articles to the Senate, saying earlier this week that “We want to see what they’re willing to do, and the manner in which they will do it” before the House would agree to send them on to the Senate. Pelosi has been facing mounting pressure from both sides of the aisle however to move the impeachment process forward by formally transmitting the articles of impeachment to the Senate in a timely manner.

5. Iran followed through on its threat to retaliate for the airstrike that killed Major General Qasem Soleimani in Baghdad, Iraq last week. Soleimani was a key commander of the Iranian Revolutionary Guard Corps but had been labeled one of the world’s topmost terrorist figures for the operations that he was responsible for planning and overseeing throughout the Middle East. Iran fired more than a dozen missiles at air bases in Iraq late Tuesday night. President Trump announced on Wednesday that there had been no reports of casualties at the bases where the missiles struck, but it appears that Iran’s strike may have also been responsible for the downing of a Ukrainian civilian aircraft that was leaving Tehran for Kiev with hundreds of Canadian passengers aboard. Trump did not mention the downing of the aircraft on Wednesday during his speech, instead of saying that Iran appeared to be “standing down” after the initial attacks and that the U.S. would not retaliate in a similar fashion but would instead “immediately impose additional punishing economic sanctions on the Iranian regime.”

6. Despite President Trump’s assurances that Iran appeared to be standing down, the head of general staff in Iran’s armed forces told the Iranian Tasnim news agency that “the regime will impose a more severe revenge on the enemy in the near future” while the head of the Revolutionary Guard’s aerospace force said that Iran had “hundreds of missiles at the ready” while warning of the potential for a future slew of attacks. Iran’s supreme leader, Ayatollah Khamenei tweeted on Wednesday that Tuesday’s missile attacks were “not enough” to satisfy the debt for Soleimani’s death.

7. Mainstream media outlets were wondering what possible additional sanctions the U.S. could impose after the President’s statements on Wednesday but did not have to wait long for the answer. Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin jointly announced new sanctions on Friday targeting Iran’s metal and mineral exports as well as eight additional senior Iranian officials. The U.S. Treasury Department designated 17 Iranian metals producers and mining companies, including international entities based in China and Seychelles as targets for additional penalties. The previous sanctions against Iran primarily targeted its oil and finance industries.

8. Tehran vowed to completely back out of the 2015 international nuclear agreement that it was only marginally complying with after the U.S. disengaged from the deal in 2018, re-imposing economic sanctions against Iran when it did so. Despite reports that Iran intended to abandon the deal completely, Javad Zarif – Iran’s Foreign Minister – tweeted on Sunday that “Iran’s full cooperation w/IAEA will continue.” The IAEA is the International Atomic Energy Agency and is responsible for inspecting nuclear facilities and ensuring that nations abide by “safe, secure and peaceful use of nuclear technologies.”

9. The World Bank issued its biannual Global Economic Prospects report (GEP) on Wednesday. The Washington, D.C.-based group painted a bleak picture of the world’s economic status, outlining four waves of debt accumulation that have occurred over the last half century and the “unhappy endings” of the previous debt waves. The current wave, which the group said began in 2010, was described as “the largest, fastest and most broad-based increase” in global debt since the 1970s. Ayhan Kose, director of the World Bank’s Prospects Group said in the report that “The history of past waves of debt accumulation shows that these waves tend to have unhappy endings.” The group said that in 2018, global debt surged to an average of 230% of Gross Domestic Product (GDP). Despite the cautionary tone of the report, the World Bank increased its global economic growth forecast for 2020 to 2.5%, up from 2.4% in its previous report, but warned that downward risks to the global economy were likely to continue.

10. Crude oil surged briefly after Iran’s retaliatory attack on U.S.-affiliated assets in Iraq but President Trump’s assurances that Iran appeared to be standing down and not escalating the situation sent crude tumbling shortly after the surge began. Crude oil posted its worst week since July with Brent crude settling at $64.82 while West Texas Intermediate dipped back below $60 to settle at $59.04. Despite the decline, analysts were still cautiously optimistic about prices after the U.S. implemented a new set of sanctions and Iran vowed further “severe revenge” coming in the near future for the U.S.

11. The euro began the week with a short sideways move against the U.S. dollar, followed by a short spike to the upside that began on Monday. The euro touched its highs for the week by Monday afternoon and began what appeared to be a shallow drift lower which lasted through Tuesday afternoon. The euro took a steeper dip to the downside after Iran’s retaliatory attacks but had recovered back near its opening levels by the end of the day. The euro could not maintain momentum however, resuming its downward glide before leveling out to bounce along sideways late Wednesday night. The euro touched its lows for the week against the U.S. dollar on Friday but staged a slight recovery just before the close. Despite the last-minute efforts, the euro will still close out the week to the downside against the U.S. dollar. The Japanese yen moved briefly higher at the start of trading but soon began a steady, but shallow downward move that lasted through late Tuesday evening. The yen spiked to its highs for the week in the early morning hours of Thursday but quickly resumed its downward trend, before leveling out slightly by Friday morning. The yen too saw a shallow recovery on Friday but will also close out the week lower against the U.S. dollar.

The escalating tensions in the Middle East will likely continue to take center stage in the mainstream media in the coming weeks. Iran’s retaliatory strikes against U.S. assets in Iraq failed, according to the Trump administration, to result in any U.S. casualties.

The apparent downing of a Ukrainian airliner as it left Tehran for Kiev, just hours after Iran carried out the missile strikes in Iraq, however, has the very real potential to create a larger international incident. Amateur video footage obtained from Iran appears to show a missile making contact with the plane just minutes after it left the airport in Tehran. The aircraft turning back towards the airport after the explosion but burst into flames and crashed to the ground before it could make an emergency landing, presumably killing all aboard. Canadian Prime Minister Justin Trudeau announced that 138 of the 167 passengers aboard the plane were traveling to Canada, representing the largest loss of Canadian citizens via an aviation incident since 1985, when Air India flight 182 was destroyed by a bomb.

The U.S. responded to Iran’s strikes against its Iraqi assets by implementing additional sanctions against Iran, targeting several new officials as well as its mining and mineral sectors. The U.S. Congress was angry that President Trump’s decision to conduct the Baghdad airport strike that killed Major General Qasem Soleimani, one of Iran’s top military commanders, had not been vetted by the so-called “Gang of Eight” in Congress before it was carried out. The argument from the Trump administration appears to be that Soleimani was in Baghdad, where the U.S. is already conducting operations, and therefore the strike did not require additional review by Congress.

The House of Representatives acted on its displeasure over the strike this week, approving a measure loosely related to the current War Powers Resolution of 1983, which would restrict Trump’s authority to strike Iran again without Congressional approval. The resolution passed the House by a vote of 224 to 194 and will now go to the Senate. The bill is a specialized piece of legislation called a “concurrent resolution” which means it only has to be approved in both chambers of Congress and does not go to President Trump for signature into law and thus risk a presidential veto.

It is uncertain whether the Senate will vote to approve the resolution, or whether the piece of legislation would even be legal under the Constitution of the U.S. On Wednesday, House Speaker Nancy Pelosi said that the House might also be considering repealing the 2002 Authorization for Use of Military Force, and is looking at additional legislation that would block the president from spending funds on further engagements against Iran without direct congressional approval. All of this is occurring concurrently with the ongoing impeachment proceedings against President Trump that were initiated and approved in the House last year. Speaker Nancy Pelosi has yet to transmit the two articles of impeachment that the House voted to adopt to the Senate but has apparently given the Judiciary Committee the go-ahead to select managers, which will essentially be the President’s prosecutors in a Senate trial. This step may finally allow the articles to be formally transmitted sometime next week and could thus move the impeachment process forward.

Virtually no one expects the Republican-controlled Senate to vote to remove President Trump from office after his trial, given the highly partisan nature in which the impeachment articles were drafted and adopted.

In Europe, having passed the final parliamentary hurdle to adopting the long-delayed Brexit agreement, the U.K. will soon begin attempting to negotiate a brand-new Free Trade Agreement between itself and the European Union in the 11 months after it exits the bloc. The U.K. will also have to negotiate similar trade agreements with other countries of the world since it will be exiting the EU on January 31 at the expiration of its latest, and final, Brexit extension. The pressure is on the U.K. to get these trade agreements in place as Prime Minister Boris Johnson has said he will not request an extension to the 11-month transition period following the U.K.’s exit on January 31. Failure to secure new trade agreements would effectively be akin to the “No Deal” Brexit that created no small amount of uncertainty over the state that the economy of the U.K. would be left in following its exit from the bloc.

With all of the heightened geopolitical uncertainty, wise investors have continued taking steps to diversify their portfolios away from equities, even as stock markets continue making record highs. Many of these investors have returned to the view that precious metals may represent a safe haven during times of economic turmoil and have continued acquiring or increasing their physical product holdings in a quest to create a diversified and well-balanced investment portfolio ahead of such turmoil.

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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