The Precious Metals Week in Review – January 17th, 2020

1. It was another news-filled week, particularly with regards to the ongoing U.S.-China trade dispute. The Senate impeachment trial for President Donald J. Trump also began its initial stages this week and will likely eclipse news from mainstream media outlets over the coming weeks.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 10,000 claims from the previous week’s unrevised level to hit 204,000 for the week ending January 11. The four-week moving average decreased by 7,750 claims from the previous week’s unrevised average and stood at 216,250 claims. Unemployment data can be expected to remain volatile for several more weeks as seasonal workers continue to find that their temporary jobs are being cut after the post-holiday returns season.

3. The House of Representatives followed through on Nancy Pelosi’s statements last week indicating that it would likely be transmitting the articles of impeachment against President Trump to the Senate this week. John G. Roberts Jr., the Chief Justice of the United States Supreme Court, was sworn in and will preside over the coming trial. Senate Majority Leader Mitch McConnell said that the trial will begin “in earnest” next week. The general consensus remains that the Senate will likely not convict and remove the President from office during the trial, given the entirely partisan nature of the way the impeachment articles were drawn up, to begin with. Regardless, there are sure to be some ugly facts on both sides of the aisle that will arise as the trial officially gets underway and witnesses begin to be called. In a somewhat ironic twist of fate, Ken Starr, the prosecutor of the last U.S. President to face impeachment, has joined the team that will now defend President Trump during his impeachment.

4. China and the U.S. came together in Washington, D.C. this week to sign the “Phase One” trade deal that the two have finally hammered out after months and months of tense negotiations. The event sent world stocks surging to record highs as the long-running uncertainty over global trade seemed to be on the verge of being resolved. Despite the historic moment, questions remain over how in-depth the Phase One deal truly is. The terms of the deal apparently do not require the removal of all of the tariffs currently in place against China by the U.S. and seem to be more biased towards the U.S.’ stance on trade rather than a compromise between the two. Media outlets were falling over themselves to try to determine whether the deal goes far enough to truly ease the tensions between the two superpowers that have festered over the years or whether truly resolving the dispute between the two countries will actually hinge on “Phase Two” of the negotiations.

5. Iran, faced with backlash over the downing of the Ukraine-bound flight out of Tehran that was carried out by its own Revolutionary Guard last week, spent this week trying to pin the blame for the disaster on the United States of America and its allies. In a Friday sermon, apparently, a rare event, Iran’s Supreme Leader Ayatollah Ali Khamenei came to the defense of his elite Guard’s actions in downing the plane, even though now enemy projectiles ever entered Iranian air space. Khamenei said that the Revolutionary Guard had “maintained the security” of Iran by shooting down the plane and called for “national unity” saying that Iran’s enemies “were as happy about the plane crash as we were sad.” Authorities in Iran initially denied that the country’s own troops had been responsible for downing the plane, but after facing mounting international pressure and growing satellite and eyewitness video evidence to the contrary, officials finally admitted that the Revolutionary Guard had mistaken the plane for a “cruise missile” the night of the tragedy and deliberately fired the shot that downed the craft. Despite the blame being directly attributed to his own troops, Khamenei used his sermon to level heavy criticism at the “evil” administration of Donald Trump, calling him a “clown”, and also leveled criticism at Britain, Germany, and France for their roles in triggering the formal dispute mechanism surrounding the 2015 nuclear deal.

6. Russia’s government resigned on Wednesday with Tass, the Russian state news agency, saying that the move was made to make way for major new constitutional changes that Vladimir Putin had outlined in his annual address which he gave just hours before the government resigned. Putin is reported to be considering appointing Mikhail Mishustin, the head of Russia’s Federal Tax Service as the country’s new Prime Minister. Putin, in his address, proposed a national vote on constitutional changes that would grant more power to the Prime Minister and the parliament, peeling power away from his own office of President. The move is seen as placing limits on Putin’s successor, should he decide to step down from the office in 2024.

7. Crude oil dipped this week as sluggish economic data out of China triggered fears of a drop in demand for Crude. Brent crude settled at $64.87 per barrel while U.S. West Texas Intermediate (WTI) settled at $58.54 per barrel. The decline was marginal, Brent only falling 0.2% and WTI losing 0.8% but should economic data continue to be soft in China, declines in oil could accelerate.

8. The euro spent the first part of the week surging and dipping between positive and negative territory against the U.S. dollar. The euro dipped sharply on Tuesday, but quickly recovered ground and began trending upward through Thursday, when the euro touched its highs for the week. Late on Thursday, the euro saw a steep drop, but the decline was short-lived, and the euro quickly halted its plunge, moving sideways into Friday’s trading. Late Friday morning the euro resumed its decline, dropping sharply to close the week out lower against the U.S. dollar. The Japanese yen moved steadily lower against the U.S. dollar as the trading week began but had halted its decline and attempted to stage a weak recovery by Tuesday. The yen drifted higher through late Wednesday afternoon. On Wednesday, the yen reversed course, drifting lower through Friday morning, when it touched its lows against the U.S. dollar for the week. The yen reversed again, climbing slightly higher just before the close, but will still finish out the week lower against the U.S. dollar.

Next week will be another shortened trading week in the U.S. as Martin Luther King, Jr. Day is celebrated on Monday, January 20. As the impeachment trial of President Donald J. Trump gets underway in the Senate next week, the partisan politics that have become such a staple of the current U.S. Congress are likely to be taken to new lows. Surprisingly, despite the House of Representatives’ nearly singular quest to remove President Trump from office, Congress has actually managed to accomplish some recent business – specifically the passing of the U.S.-Mexico-Canada Agreement (USMCA) which will replace the now outdated North American Free Trade Agreement (NAFTA) once it is signed into law.

The new trade agreement, combined with the “Phase One” trade agreement between the U.S. and China that was signed this week appears to have triggered a new surge in equity markets as they accelerate even faster into the bubble that many analysts now fear is now long overdue for bursting and dropping into a major correction. The term “irrational exuberance” is beginning to be thrown around by media pundits and analysts alike once more. The term, coined by former Fed Chair Alan Greenspan to describe the blind rush into stocks that the 1990’s “tech boom” ushered in, was used to describe the behavior of those investors that blindly bought any stock that had a “.com” in the name with no thought towards researching the fundamentals or future viability of the actual companies behind the name.

More and more, it seems that equity markets continue to shrug off what would have been damaging negative news just a few short years ago, such as the growing tensions between the U.S. and Iran, or the continued trade tensions between the U.S. and its global trading partners, in favor of simply surging higher on momentum alone. Those analysts that voice that urge caution, research and restraint are being largely drowned out by “this time its different” and “this market can’t possibly go down!.” But other markets have also begun moving higher as other, more cautious investors, seek out ways to ensure that their investment portfolios are diversified against the eventual correction that will likely come to the equity markets.

Precious metals, which began to rally in 2019 as geopolitical and macroeconomic data turned gloomier, have maintained their support as the new decade has gotten underway, despite an apparent easing of tensions between the U.S. and its trading partners.

As global economic data remains soft and geopolitical tensions remain high, savvy investors continue to take the historical view that precious metals offer a “safe haven” and a means to diversify their portfolios in times of economic and geopolitical turmoil.

The trial of Donald J. Trump to determine whether he should be removed from office will likely consume the news in the coming weeks, but it is important to monitor markets for the effects of other news-worthy events. The United Kingdom is fast approaching its January 31 deadline for exiting the European Union and will have not even a full year to hammer out new trade agreements between itself, the remaining members of the European Union, and its other global trading partners. It took the U.S. and China over 18 months to come to just a partial agreement on trade so it is increasingly unlikely that the U.K. can construct a comprehensive trade policy in just 11 months.

Maintaining a well-diversified portfolio in the face of uncertainty remains a key part of a sound investment strategy. Acquiring underperforming assets ahead of a sudden surge in public demand for them has long been viewed as a means to achieve such diversification. Precious metals investors who continued acquiring the physical product for their portfolios, even as analysts and prominent investors alike declared metals a “barbarous relic”, know this well. Anyone who invested in Palladium on January 15, 2016, when it was priced at $487 and held on to that investment until today when it has reached $2,464.90 have watched the value of their initial $487 investment climb over 400% – barbarous relic indeed.

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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