The Precious Metals Week in Review – February 21st, 2020

1. COVID-19 continues to be the primary issue that is triggering extensive market volatility across the world. Every headline out of China seemingly sends equity markets immediately higher or lower, depending on analyst and algorithmic interpretation of how the news pertains to the spread of COVID-19 and its impact on the global economy.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment jumped by 4,000 claims from the previous week’s revised level to hit 210,000 for the week ending February 15. The previous week’s number was revised higher by 1,000 claims. The four-week moving average dropped by 3,250 claims to reach a new level of 209,000. The previous week’s moving average was revised higher by 250 claims. Unemployment data can be expected to remain volatile, particularly if global supply chains continue to be constrained by the spread of COVID-19 throughout China and into the rest of the world.

3. Confirmed cases of COVID-19 in China and South Korea jumped again overnight Thursday leading equity markets to open lower as Friday trading began. China’s National Health Commission reported over 75,000 confirmed cases and the number of deaths on the mainland surpassed 2,000. China saw 800 new cases overnight and South Korea reported 52 new cases on Thursday, bringing its number of confirmed cases to 150. Later Friday, South Korean health officials said they have now confirmed 204 cases of the disease.

4. The Center for Disease Control announced that it was reviewing all of its pandemic materials and assessing their effectiveness against COVID-19. The U.S.-based agency also said that it is collaborating with supply chain partners, hospitals, pharmacies and manufacturers to assess what medical supplies are needed to help combat the spread of the virus. Dr. Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases, told reporters during a conference call that “We’re not seeing community spread here in the United States, yet, but it’s very possible, even likely, that it may eventually happen. Our goal continues to be slowing the introduction of the virus into the U.S. This buys us more time to prepare communities for more cases and possibly sustained spread.” Messonnier also noted during the call that China has been forced to close schools and businesses in its efforts to contain the outbreak of the virus and said that the U.S. may eventually be required to do the same, saying “The day may come where we may need to implement such measures in this country.”

5. COVID-19 has now made its way into the Middle East, according to the World Health Organization. Local health officials in Iran reported 18 new cases of the disease and 4 deaths in just two days. Officials at the WHO said that the outbreak in Iran is “very worrisome.” Tedros Adhanom Ghebreyesus, director-general of the WHO, said at a news conference at the agency’s headquarters in Geneva that “The cases that we see in the rest of the world, although the numbers are small, but not linked to Wuhan or China, it’s very worrisome. These dots are actually very concerning.” He continued, saying that “The window of opportunity [to contain the virus] is still there, but our window of opportunity is narrowing. We need to act quickly before it closes completely. This outbreak could still go in any direction.” Iranian health official Minou Mohrez said “Based on existing reports, the spread of the coronavirus started in Qom and with attention to people’s travels has now reached several cities in the country, including Tehran, Babol, Arak, Isfahan, Rasht, and other cities. And it is possible that it exists in all cities in Iran.” WHO officials are especially concerned that the virus could spread to countries that have weaker health systems than more developed nations which could lead to an explosion in the number of confirmed cases of the disease worldwide.

6. The spread of COVID-19 triggered protests in Ukraine as buses carrying evacuees from China were attacked on their way to a quarantine destination. Demonstrators attempted to block the route that the buses were taking and threw stones and other objects at the vehicles. According to Ukrainian officials, none of the passengers on the buses were confirmed to have the virus and Ukraine itself has no known cases yet, so the people’s fear was unwarranted. The passengers will spend the next to weeks in quarantine for monitoring and observation.

7. In non-virus-related news this week, the field of Democratic candidates took to the stage in Nevada this week to debate each other and the event was described as a “circular firing squad.” The candidates spent more time attacking each other than they did offering up their views on why any of them would make a better president than Donald J. Trump. The Democratic primary in Nevada is set to take place this weekend and it is possible that the voting process will be marred by the same technical difficulties that plagued the Iowa primary. The state party has said that it will not be using the app that eventually forced Iowa to tabulate its votes by hand and caused massive delays in the reporting of results. Instead, the state has come up with something they are calling the “Caucus Calculator”, which will not require any software to be downloaded to the personal devices of those counting the votes.

8. Crude oil attempted a recovery this week and was on track for a weekly rise before further news of additional COVID-19 cases sent both Brent crude and West Texas Intermediate lower on Friday. Brent Crude was at $58.46 a barrel while U.S. WTI stood at $53.38 a barrel. Analysts remain concerned that factory closures and travel restrictions across China will lead to a renewed glut in the global supply of crude oil as one of the world’s largest economies and consumers of oil remain basically offline.

9. The euro jumped higher against the U.S. dollar at the start of the week, then drifted steadily lower back towards its open through late Tuesday afternoon. On Tuesday the euro took a sharp turn lower, then bounced back near opening levels before embarking on a trend to the downside in a series of spikes and drops that saw the euro touch its lows for the week late Thursday night. The euro reversed course late Thursday and began clawing its way higher against the dollar and a sharp spike to the upside in late morning trading on Friday appears set to see the euro close out the week higher against the U.S. dollar. The Japanese yen spent the first part of the week moving nearly flat sideways against the U.S. dollar. On Wednesday, the yen began a downward turn that took it to its lows for the week by mid-afternoon on Thursday. The yen underwent a shallow reversal late Thursday but did not regain positive ground and appears set to close out the week to the downside against the U.S. dollar.

The ongoing spread of COVID-19 across the globe remains of primary concern for all markets. Confirmed cases of the virus have now topped 75,000 and the number of deaths now stands over 2,200. The economic impact of the outbreak is already beginning to make its way into the system, as evidenced by the growing number of earnings reports where companies are stating that the spread of the virus will have a definite impact on their bottom lines. Supply chain disruptions and travel restrictions across China could have a further impact on the ability of global manufacturers to produce the very goods that earn them their profits and keep them in business.

A revelation by the Center for Disease Control that only 3 U.S. states have the ability to test for COVID-19 due to “inconclusive results” brought about by a flaw in their test kits added to fear that the virus could be spreading undetected. Those fears were further elevated when the CDC released information saying that it was sending replacement materials to at least 30 countries suspected of having received the very same flawed test kits that were found to be as good as useless in the U.S.

Stock analysts are beginning to get concerned that the global nature of the economic impact brought about by COVID-19 could force the U.S. Federal Reserve into a position where it must cut interest rates to combat the effects. One Central Bank official, St. Louis Fed President James Bullard, seemed to be remarkably nonchalant about the economic impact of the virus. Bullard, speaking on CNBC’s “Squawk Box” morning program, said, “There’s a high probability that the coronavirus will blow over as other viruses have, be a temporary shock and everything will come back.” Mr. Bullard made certain to hedge his remark, however, saying “But there’s a low probability that this could get much worse. Markets have to price that in, and that drags down the center of gravity a little bit. But if this all goes away, I expect that pricing will come back out of the market and we’ll be back to the on-hold scenario.” Bullard said “If you think that this virus is going to dissipate and we’re going to have temporary shocks and then everything’s going to go back to normal, then I think the Fed’s in great shape and we don’t have to lower rates in that scenario. A lot of news on the U.S. economy has been good in the last couple of months. I’ve been arguing we’re in good shape for a soft landing in the U.S. economy.”

A frenzy of “buy the dip” activity took place in the stock market this week as signs of mania and “irrational exuberance” seemed to increase further. Precious metals continued to see support this week as well, with Gold shooting to seven-year highs as wiser investors turned to physical precious metals as a tool to diversify their portfolios away from overexposure to equities. The rally that began in 2019, even before the new coronavirus was discovered, has continued as the outbreak has grown in scope.

Wise investors that began purchasing physical precious metals for diversification purposes long before the rally began are now holding tight to the metal that they purchased and appear to be actively purchasing more products despite the continued rise in prices. Larger institutional investors also appear to have jumped on the proverbial bandwagon as well, perhaps not sharing in the overly optimistic view of the Fed that the massive supply chain crunch now underway in China as a result of the virus will be short-lived. Precious metals have a long history of representing a store of value in times of geopolitical and economic turmoil and it appears that investors have once again returned to that view.

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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