The Precious Metals Week in Review – January 31st, 2020

1. This week we saw the ongoing impeachment trial of President Donald J. Trump, further spread of the coronavirus outside of China, and will see the long-awaited exit of the United Kingdom from the European Union at midnight on Friday.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment decreased by 7,000 claims from the previous week’s revised level to hit 216,000 for the week ending January 25 The previous week’s number was revised higher by 12,000 claims, actually making the move a positive 6,000 instead of the negative move that the Bureau of Labor Statistics spun the data as. The four-week moving average decreased by 1,750 claims from the previous week’s revised average and stood at 214,500 claims. The previous week’s moving average was revised higher by 3,000 claims, also making the move for the week a positive number, instead of the negative number spun by the BLS. As the sizeable revisions to last week’s numbers show, unemployment data can be expected to remain volatile for several more weeks.

3. President Trump’s defense team wrapped up its arguments in his ongoing impeachment trial, not even taking up the full time they were allotted to do so. The trial will now move to the next phase, where the Senate and Impeachment Managers vote on any witnesses that will be called forward to testify in front of the Senate and Chief Justice John Roberts of the Supreme Court. Democrats still need to convince two Republicans to break party ranks in order to have any hope of admitting more witnesses and/or documents in the Senate trial. The vote on whether to admit further witnesses and documents is expected to take place today. If Democrats are successful in convincing their counterparts in the Republican Party to break ranks, the trial could drag on for weeks, or even months longer. If the Democrats are unsuccessful in their efforts, then the Senate could proceed to a final vote on whether to remove the President from office or not as early as next week.

4. Trade negotiations between the U.S. and China have taken a back seat as the spread of the coronavirus has continued. The U.S. has raised travel warnings for China as the number of confirmed cases has climbed past 10,000. The State Department issued a “do not travel” advisory for China and urged U.S. citizens currently in the country to consider evacuating.

5. The World Health Organization declared the coronavirus outbreak, which began in China, a global emergency this week as cases topped 10,000 and the death toll rose to over 200. Less than 24 hours after the WHO announcement, England confirmed its first two cases of the virus. Russia was reported to be considering closing its border with China but may have taken that step too late as it too confirmed its first two cases of coronavirus. Singapore also took steps to contain the spread of the virus this week, becoming the first Southeast Asian country to ban entry to all Chinese visitors and any foreigners with a recent history of travel to China. The ban exempts residents and long-term pass holders, but completely cuts off Singapore’s largest group of visitors, those from China, which could drastically affect its tourism economy.

6. After 47 years of membership, the United Kingdom will be exiting the European Union at midnight on Friday. The European Parliament voted to ratify the terms of the U.K.’s departure under the long-debated Brexit agreement, checking the final box in the exit process. Coming up with the exit agreement has been a long, drawn-out process that took over 3.5 years after the initial referendum took place in the U.K. that now will begin an 11-month transition period in which it will remain a single market and customs union member while it negotiates free trade agreements with the EU. Boris Johnson has repeatedly said that he will not ask for an extension to the December 31, 2020 deadline which means that a “no-deal” scenario, one in which the U.K. would revert to World Trade Organization rules to govern its trade with the EU, is still possible.

7. Crude oil dipped again this week, headed for a fourth straight weekly loss as analysts scrambled to try to determine the impact on global demand for crude as the coronavirus spreads. Brent crude was down to $58.09 per barrel on Friday while U.S. West Texas Intermediate dipped to $51.40 per barrel.

8. The euro opened the week moving relatively flat against the U.S. dollar but as Monday wore on, the euro began a downward trend that lasted through Wednesday. Late Wednesday, the euro reversed its trend against the dollar and began regaining the ground it had previously lost in the earlier part of the week. The euro was back to even against the dollar by late Thursday, saw a slight downward correction as Friday’s trading began, but then a surge to the upside on Friday will ensure that the euro ends the week higher against the U.S. dollar. The Japanese yen gapped higher against the U.S. dollar at the open of trading for the week, then traded sideways within a narrow band through early Tuesday. On Tuesday the yen dipped lower, but remained out of negative territory and bounced along sideways through early Wednesday. Late on Wednesday, the yen began a marked move higher against the U.S. dollar, but appeared to have completely reversed course late on Thursday. In Friday trading, the yen shot higher again, moving to its highs for the week and will close out to the upside against the U.S. dollar.

The coronavirus which originated in Wuhan, China has well and truly become a global issue. The World Health Organization issued a global health emergency warning as the number of cases topped 10,000 this week and the number of deaths topped 200. The virus has now been confirmed in Australia, Cambodia, Canada, France, Finland, Germany, India, Italy, Japan, Malaysia, Nepal, Philippines, Russia, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, the U.K., the U.S., the U.A.E, and Vietnam.

Factories in the most severely affected areas, such as China, have been shut down, with some of the affected areas projecting it may be mid-March before they could resume full production once more. Top chipmaker SK Hynix warned that a prolonged expansion of the coronavirus could pose a threat to its chip production, warning that it would bring down its annual investment after announcing a sharp fall in its quarterly profits on Friday.

Multiple countries are now banning flights to and from China in an effort to contain the spread of the virus, effectively cutting off, in some cases, what is their largest group of tourists from reaching their shores.

The DOW Jones slid 650 points at one point on Friday on growing fear that the economic impact of the spread of the virus could be far-reaching and long-term. Ilya Feygin, a senior strategist at WallachBeth Capital said “there’s fear going into the weekend. The theme coming into this year was the Fed and Trump are going to bail us out of any problems, but the virus is something neither one can do anything about. That’s a reason to become more fearful.”

Stephen Roach, one of the world’s leading authorities on Asia who was in China during the SARS outbreak in 2003, warned that the fallout of the coronavirus could be worse than that of SARS because of the growth of the global economy was already weakening when the coronavirus outbreak began. Roach, who was Morgan Stanley’s Asia Chairman at one time, said: “Big shocks for weak economies that don’t have cushions to withstand them could lead to unexpected recessions.” Roach went on to say “Hopefully, as was the case during the SARS-related disruption of 2003, this will be a temporary disruption to China and the world economy, followed by a post-virus rebound in the second half of 2020. But with China and the world on a far weaker growth trajectory, this could be wishful thinking.”

The United Kingdom will finally make good on its threat to leave the European Union on Friday after 3 and a half years of wrangling over its “Brexit” agreement. The referendum to leave the EU, narrowly passed by the British people so long ago, has cost many career U.K. politicians, including multiple Prime Ministers, their jobs. Current Prime Minister Boris Johnson was able to bring about Brexit only after engineering a sweep of enough Conservative seats to pass the latest agreement by calling for new National Elections after the most recent Brexit deadline of October 31, 2019, came and went. The U.K. will now return to the negotiating table with the EU to try to hammer out a free trade agreement that will, by its very nature, have to contain enough compromises to satisfy both sides.

The EU has taken an adamant stance against giving up any of the privileges that its single market and single customs union provides to its members and has said that the U.K. must not come to the table with any terms that would give it an unfair competitive advantage over other EU members. How Brexit will affect London’s status as one of the world’s premier financial hubs remains to be seen and likely won’t be known for months, if not years.

In the U.S., the impeachment trial of President Donald J. Trump wrapped up its arguments phase and the Senate is expected to vote on whether to call forward any new witnesses or request further documents as evidence. If the vote goes against calling for further testimony or documents, it could pave the way for an acquittal for Trump as early as next week. If the Senate votes in favor of further testimony or documents then the trial could drag on for weeks, or even months.

Stock market volatility can be expected to remain elevated as uncertainty grows over the state of the global economy due to the impact of the spread of the coronavirus out of China. A speedy acquittal of President Trump might trigger a brief bounce in equities, however, the danger of the expansion of the virus will remain a headwind for the foreseeable future, particularly now that the World Health Organization has categorized it as a global emergency.

As concerns grow over the weakness of the global economy and the potential for a looming recession, savvy investors continue to take steps to diversify their portfolios away from overexposure to any single asset class, particularly those that perform poorly in a crisis. Many investors have once again turned to physical precious metals, which have long been viewed as a safe-haven asset during times of crisis, to assist in the diversification of their portfolios. Many began accumulating products while prices were suppressed over the last several years and have continued to do so even after the rally began in 2019.

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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