The Precious Metals Week in Review – March 20th, 2020

1. Panic accelerated in all markets this week as the spread of COVID-19 around the globe forced massive shutdowns, business closures and even border closures across most countries. Global economic activity has essentially ground to a complete halt.

2. The weekly unemployment report released on Thursday was full of warnings that not only was the data being impacted by COVID-19, but that the methodology for calculating seasonal adjustments had also been revised. The seasonally adjusted number of Americans filing initial claims for state unemployment surged a massive 70,000 claims from the previous week’s unrevised level to hit 281,000 claims for the week ending March 14. This is the highest weekly level for initial claims since September of 2017. The four-week moving average surged by 16,500 claims from the previous week’s revised average to reach a new level of 232,250. The previous week’s moving average was revised higher by 1,750 claims. Unemployment data can be expected to remain extremely volatile as the spread of COVID-19 forces business closures, furloughs and layoffs throughout the U.S. and as local municipalities, states and governments all enact containment measures.

3. One economist is now projecting that new jobless claims in the U.S. could spike to 2 million next week as the brunt of the economic halt triggered by the spread of COVID-19 literally slams into America’s workforce. Economist Ian Shepherdson, of Pantheon Macroeconomics, commented to CNBC’s “Squawk Box” on Thursday ahead of the release of the weekly unemployment numbers that “states’ unemployment claims numbers that have been coming out over the last few days, it looks to me like the order of magnitude in most states seems to be about 10 times higher than the normal weekly numbers before the crisis.” Shepherdson continued, saying “That means next week’s jobless claims number could jump [from] 200,000-something this week to 2 million next week.”

4. U.S. Treasury Secretary Steven Mnuchin warned Republican senators this week that the unemployment rate in the U.S. could surge to 20% if they failed to act on a proposed coronavirus “rescue package” consisting of over $1 trillion in stimulus measures that would purportedly send cash to out of work Americans within two weeks, backstop airlines and other travel-related industries, and offer aid to other sectors and companies hit by the outbreak. Treasury spokeswoman Monica Crowley clarified Mnuchin’s remarks in an e-mailed statement, saying “During the meeting with Senate Republicans today, Secretary Mnuchin used several mathematical examples for illustrative purposes, but he never implied that [20%] would be the case.”

5. Despite valiant efforts around the world by governments and central banks to reassure investors that they would do their parts to shore up each of their economies, markets continued to experience near historic levels of panic selling across the board. Analysts are struggling to come to grips with the fact that an outside-driven economic shock is taking down markets, not just another “run of the mill” technical correction. A massive, global, and sudden economic downturn was never even close to being “priced in” to the market. All analysts appear to be struggling with the fact that fundamentals no longer apply, and likely won’t for some time to come.

6. World Health Organization officials warned this week that the world’s healthcare systems are “collapsing under the pressure of too many cases” of COVID-19. Mike Ryan, executive director of the WHO’s emergencies program said during a press briefing in Geneva “Take one look at what’s happening in some health systems around the world. Look at the intensive care units completely overwhelmed. Doctors and nurses utterly exhausted. This is not normal. This isn’t just a bad flu season.” Ryan further discussed the trouble in managing the spread of the ongoing health crisis, saying “It’s safe to say that the supply chain is under huge pressure.”

7. In the U.S., as COVID-19 testing efforts ramp up, the number of confirmed cases is beginning to climb dramatically. San Francisco ordered 7 million residents to “shelter in place” on Monday, asking people not to leave their homes except in “limited circumstances”. New York state followed San Francisco’s lead on Friday and also late on Friday, it appeared that Illinois was preparing to take similar action. Most states in the nation have already seen their local governments enact emergency orders to limit movement and curtail large gatherings of people. Most restaurants and bars are under orders to limit capacity and to close early, if not shut down their inside dining areas completely.

8. Italy appears to have been the model for the decision by some U.S. major cities to implement movement restrictions as that country took drastic measures to try to prevent further spread of the disease last week. London too announced on Friday that it was enacting measures to curtail movement of people. Prime Minister Boris Johnson announced that “We are collectively telling cafes, pubs, bars and restaurants to close tonight as soon as they reasonably can and not to open tomorrow.” Schools across the UK will also close “until further notice” beginning Monday. Johnson defended the decision to close the restaurants, saying “These are places where people come together, and indeed the whole purpose of these businesses in many cases is to bring people together. But, the sad thing is, I’m afraid today, for now at least, physically we need to keep people apart.” Johnson said that takeout services for restaurant businesses would be able to continue, and that the measures would be reviewed on a monthly basis until the threat of the virus had abated. Johnson further said “We are also telling nightclubs, theaters, cinemas, gyms and leisure centers to close on the same timescale.”

9. Globally, governments are scrambling to come up with emergency bailout packages to aid those businesses and people who have suddenly found themselves with no clear source of revenue or income during the global health crisis. The U.K. announced that it would pay 80% wages for its employees who are unable to work due to the harsh containment measures – up to 2,500 pounds per month – and the U.S. is taking similar steps to send “checks directly to” its own workers, particularly the hard-hit service industry employees, who find they no longer have customers to serve.

10. President Donald Trump said on Friday that he was activating the Defense Production Act in response to the COVID-19 pandemic. The Act allows the President to order American companies to retool and begin producing materials that are in short supply as the outbreak continues. This could alleviate the shortage of so-called “N95 masks” and the scarce supply of ventilator parts that are desperately needed by the world’s Intensive Care Units as they face a massive influx of patients struggling to cope with the respiratory effects of the disease.

11. Crude oil plummeted this week as lockdowns and travel restrictions went into place across the globe. Analysts see oil demand slumping massively as the need for fuel and refined petroleum products plunges due to curtailed travel by the global populace. Oil was already on track to suffer its worst monthly performance on record as the spread of COVID-19 causes demand to crater, and the ongoing price war between Saudi Arabia and Russia is only exacerbating the situation. Brent crude, the international benchmark, was trading at 27.20 per barrel on Friday while U.S. West Texas Intermediate crude settled at $22.53 per barrel.

12. The euro held its own against the U.S. dollar, drifting sideways in a narrow range through Tuesday morning when the battered currency began a downward move. The euro moved steadily lower against the U.S. dollar through early trading on Friday, when it attempted to stage a minor recovery. The euro could not maintain its upward momentum and turned lower again on Friday around mid-morning, heading back towards its lows for the week. The euro will close out the week lower against the U.S. dollar. The Japanese yen moved higher, also in a narrow band, against the U.S. dollar through late Monday afternoon. The yen fully reversed course on Monday afternoon and began a decidedly steady move lower that saw the yen touch its lows by early Friday morning. The yen attempted to stage a recovery mid-morning on Friday but could not maintain its upward momentum and had returned to its lows for the week against the U.S. dollar just prior to the close.

COVID-19 has become the defining crisis that has now come to affect every market, every economy, and nearly every individual around the globe. Virtually no one is untouched by the spread of this disease as nations around the world take drastic measures to attempt to contain it. These are unprecedented times and they have led equity markets to fall in dramatic fashion. As evidenced by CNBC and other mainstream media outlets, life, as we know it, has changed. Those who can, including many of the hosts that appear on those same media outlets, are finding themselves forced to work from home for what may be the first time. The technology required to allow many of CNBC’s hosts to continue reporting for work and conducting coordinated broadcasts from their own homes was not only in place, but clearly functional and operating smoothly within a single week.

The NYSE is closing its floor and going to strictly electronic trading in its own efforts to contain the virus. These facts alone may be a testament to the fact that commutes to the office may become a rare thing in the post-COVID-19 future world. The sheer amount of workers that have been forced into turning their homes into offices as the outbreak has spread across the globe could have long-term impact across multiple sectors. Businesses, finding their workers can be productive when telecommuting after fighting it for years, may seek to downsize their corporate offices in the future, impacting the commercial real estate market. New telecommuters, finding that they enjoy not having to expose themselves to the packed quarters of mass transit, could strive to continue their telecommutes once the epidemic subsides, impacting the revenues of these mass transit systems. Those newly minted telecommuters that are no longer faced with using their own vehicles and fighting traffic to get to the office on a daily basis could decide they just don’t need that new car after all, which could impact both the oil industry and the automobile industry as demand for each of those products wanes.

The amount of debt across the globe that will be created by the world’s governments as they attempt to coordinate a massive bailout of not only their workforces, but also the companies that employ them all, is almost unimaginable. Global unemployment rates are set to skyrocket as workers are forced into quarantine or “shelter in place” situations and the financial shock that will surely travel up to the so-called “C-suites” of the companies employing those people are only now just beginning to appear. Revenues are going to take a hit across the board, from main street to the government level, as the crisis continues.

The Dow Jones Industrial average saw its worst month since 1931 as of Friday’s close, and other global markets have seen similar shocks.

As the global economy grinds to a halt, wise investors continue seeking safer havens for their hard-earned capital. Well-prepared investors had already diversified their portfolios away from overexposure to equity markets that were already long overdue for a correction. No one however, predicted the massive and near instantaneous correction that took place as COVID-19 escaped the confines of China and spread into the rest of the world. Even the well-prepared investor has likely suffered under what is surely the worst drop in equity markets in living memory.

Even precious metals, long believed to be a safer haven in times of economic turmoil, have suffered as the equity markets began their collapse and investors began panic liquidations to generate cash. Those investors that still maintain the view that precious metals are a safe haven asset, one that should be owned during times of turmoil, were again poised to take advantage of lower prices. Many took advantage of the buying opportunity that lower prices presented them to acquire more physical precious metals to assist in further diversification of their portfolios.

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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