The Precious Metals Week in Review – February 14th, 2020

1. The coronavirus was once again the top news story of the week as it continued to make its way around the globe. Globally, officials are becoming more and more distrustful of the data that is coming out of China over the number of confirmed cases and the number of deaths caused by the new disease.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment jumped by 2,000 claims from the previous week’s revised level to hit 205,000 for the week ending February 8. The previous week’s number was revised higher by 1,000 claims. The four-week moving average was unchanged from the previous week’s revised average and stood at 212,000 claims. The previous week’s moving average was revised higher by 250 claims. Unemployment data can be expected to remain volatile, particularly if efforts to contain the coronavirus continue to slow down the global economy.

3. The novel coronavirus that began its spread in Wuhan, China received an official name this week. The World Health Organization decided upon COVID-19, COVI from Coronavirus, D from Disease and 19 due to the year it was identified. The virus has continued to spread around the globe and it is already beginning to have an impact on the global economy. Gregory Gilligan, chairman of the American Chamber of Commerce in China, said that supply chain disruptions have already hit its members and that the organization is attempting to help companies navigate new and different regulations going into effect across various parts of China. Gilligan said “We’ve basically been working with folks to work around to get through the temporary regulations that are in place to try to slow down the virus. Many places have put up measures that impact logistics, transportation—so delivery of materials, getting materials that are, once produced, out, etc.”

4. Ed Hyman, Chairman of Evercore ISI, told CNBC this week that “Our team has GDP growth (in China) at zero for the first quarter. China is really slowing and that’s worrying people for sure.” Hyman said that he feels that the rapid spread of the virus should not have much impact on the U.S. economy, saying “We are so solid. It’s not the virus, it’s the trade that matters. People are not going out. They are not shopping, and that’s what’s hurting, particularly China.”

5. Chosun Ilbo, a newspaper based in South Korea, reported late Thursday night that COVID-19 has arrived and is spreading in North Korea. North Korea has not yet acknowledged any deaths from the virus, but given the fact that North Korea shares a border with China, experts believe they would be unable to avoid exposure to the virus. Several weeks ago North Korea reportedly blocked travel and trade between itself and China, according to a Wall Street Journal report but if the virus has already made its way in, then it is a near certainty that the response of the isolated regime will likely be brutal, especially against its own people.

6. In Europe, the spread of COVID-19 triggered the cancellation of the Mobile World Congress event in Barcelona this year. The event is the world’s largest trade show for the mobile phone industry and its cancellation could mean delays in product releases, massive flight cancellations, and an overall increase in concern over the growing economic impact of the newly discovered respiratory disease.

7. In other news, President Donald J. Trump continued to ruffle feathers this week, fresh out of his acquittal on impeachment charges brought against him by the House of Representatives. Trump tweeted his appreciation for Attorney General William Barr after the Justice Department reportedly stepped in to file new sentencing suggestions for Roger Stone after prosecutors suggested he serve 7 to 9 years for lying to Congress about his involvement with WikiLeaks during the 2016 presidential election. Barr was quick to denounce the tweet, saying that he had never discussed the case with anyone at the White House, including the President, and said that the President’s tweets were making it “impossible” for him to do his job. Democrats in Congress seized on the President’s tweet to target Barr himself, calling for him to resign or face possible impeachment and removal from the office of Attorney General.

8. The Treasury Department released data on Wednesday showing that the U.S. budget deficit had surged to 389.2 billion in the first four months of the fiscal year 2020. The figure is 25% higher than the same period last year and already equates to roughly 40% of the total deficit for all of FY 2019. The U.S. debt now stands at 23.3 trillion and over the last 12 months alone, the U.S. government has spent $1.06 trillion more than it has taken in. A separate report by the Federal Reserve showed that household debt appeared to be surging in tandem with government debt, climbing by the most in 12 years and topping $14 trillion for the first time since records began. In a blog post, Fed economists said “The data also show that transitions into delinquency among credit card borrowers have steadily risen since 2016, notably among younger borrowers.”

9. Crude oil prices continued their drop this week as the spread of the coronavirus stoked fears that demand for crude is in real danger of falling off the proverbial cliff. Global demand for oil is expected to see its first quarterly drop in over 10 years, according to new data from the International Energy Agency, as the shutdowns and factory closures in China in response to the spread of COVID-19 cause a significant decrease in oil demand.

10. The euro began the week drifting sideways against the U.S. dollar but took a shallow dip lower late on Monday. The euro drifted sideways through Wednesday when it spiked briefly higher before beginning a steady decline into late Wednesday night. The euro tried to stage another recovery late Thursday but resumed its downward trend and had headed to its lows for the week by Friday morning. The euro turned higher again in Friday trading, but could not maintain its upward momentum and will close to the downside against the U.S. dollar. The yen had a relatively volatile week against the U.S. dollar right from the open. The yen moved in jagged steps and stages throughout most of the week, but the overall trend was to the downside. The yen hit its lows for the week late on Wednesday but had surged back through its opening levels by late Thursday afternoon and shifted into positive territory. The yen dipped back lower late on Thursday however but bounced along just underneath its opening levels as it entered Friday’s trading. In Friday trading, the yen moved higher again and appears set to close relatively flat against the U.S. dollar for the week.

Market volatility brought about by confusion and inaccuracies in the data being reported from China on the spread of COVID-19 is likely to continue. China has changed its reporting methods on both the number of active cases and the number of deaths caused by the new virus multiple times now, and each time they do global leaders lose more and more faith in the accuracy of the data. China has now enforced a mandatory 14-day self-quarantine for all travelers, including residents, returning to Beijing. Those who fail to abide by the order will be “punished according to law.”

Newell Brands, the company that makes Sharpie pens, Crockpots and Coleman coolers among other products, said that it is experiencing delayed startups in its factories in China and the movement of goods has slowed due to travel checkpoints and new regulatory restrictions across the region. Other companies who have a large dependence on factories and goods within China for the manufacture and sale of their products are reporting similar experiences. Many major manufacturers that had already been considering looking for manufacturing facilities outside of China due to mounting financial pressure from the trade war that has been ongoing between China and the U.S. are now redoubling their plans to widen their logistics pipelines. A mass exodus of manufacturing out of China would have devastating long-term impacts on the Chinese economy.

Analysts are torn over the impact that the outbreak of COVID-19 will have on China’s first-quarter GDP but some are now of the belief that China may print a GDP of zero, if not even moving into negative territory as a result of its efforts to contain the spread of the illness. Bottlenecks in supply lines as other global manufacturers begin to whittle down their stores of stockpiled components from China that are required to make their goods could lead to a “trickle-down” effect into the global economy as manufacturers cease to be able to acquire the parts they need to assemble their products and those products begin to disappear from shelves.

Industry analysts are suddenly finding themselves trying to determine how much exposure to factory and transportation shutdowns in China that U.S. and European manufacturers truly have. It is hard to imagine any electronic component that does not contain some assembly or chip from a factory in China. Until China, or at least a more transparent country which has since seen exposure to the virus, comes out with the true statistics on infection rates, transmission methods, and a viable treatment protocol to combat it, we can expect further economic slowdown that will likely begin in China and spread throughout the world as shipping delays and production halts take aim straight at the bottom line of the world’s manufacturers.

Stock analysts are torn between recommending immediate diversification of investment portfolios, and the fear that “maybe this time it’s different” and the long-overdue correction in global equities just won’t happen, in spite of what now seems to be a steadily growing chance of a global recession as each day passes.

Savvy investors long ago began acquiring physical precious metals as part of their diversification plans for their portfolios long before the current “black swan” event began. These investors have continued their steady acquisition of physical precious metals, taking advantage of prices that have remained suppressed as stocks surged higher and higher into bubble territory.

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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