The Precious Metals Week in Review – March 27th, 2020

1. Market volatility remains extreme as researchers scramble to find treatment protocols and preventative vaccines for COVID-19, the spread of which has brought the globally connected economy to a shuddering halt.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment surged by a staggering 3,001,000 claims from the previous week’s revised level to hit 3,283,000 claims for the week ending March 21. The previous week’s level was revised higher by 1,000 claims. This is the highest weekly level for initial claims since October of 1982 and the highest level in the history of the seasonally adjusted reporting series. The four-week moving average surged by 765,750 claims from the previous week’s revised average to reach a new level of 998,250. The previous week’s moving average was revised higher by 250 claims. Unemployment data can be expected to remain extremely volatile and new records will likely be set as the US continues to fight the spread of COVID-19 through “shelter in place” orders, triggering business closures, furloughs and layoffs as the general populace and their employers find themselves confined to their homes. Economists fully expect the unemployment rate to double when the Non-Farm Payrolls report is released next week.

3. The economist who projected last week that jobless claims in the U.S. could spike to 2 million this week missed his mark by over a million claims. Most economists feel that this is only the proverbial “tip of the iceberg” as COVID-19 continues to spread throughout the U.S. despite strict containment measures that have been put in place nationwide. Many dine-in restaurants, who had shifted to curbside pick-up and take-out orders only, have now decided to close their doors completely until the crisis abates and have since laid off their workforces. States that have seen the largest numbers of cases have asked their non-essential workforce members to stay home as well. Those who have the ability to work from home will likely continue to see paychecks, but those that do not, may soon be joining the ranks of the unemployed. As these types of situations increase, the unemployment level in the U.S. will surge as well.

4. The U.S. Congress finally managed to set aside differences and work together enough to come up with a bi-partisan rescue bill to aid American workers and companies that have been hardest hit by the ongoing pandemic. The bill contains $2 trillion in immediate economic relief, roughly double what was brought to bear in 2008, and includes direct payments to many of America’s workers who suddenly find themselves unemployed. Congress members were reportedly rushing back to Washington, D.C. in an effort to add their voices to a so-called “voice vote” on the floor of the chamber as reports came out that at least one Representative was on the verge of making an effort to block the bill, a move that could be tantamount to political suicide for said Representative. In a “voice vote”, members who are present in the chamber shout yea or nay and the presiding member decides which side yelled the loudest. President Trump said he was standing ready to sign the bill as soon as it lands on his desk and late on Friday, the House did manage to pass the bill and it was quickly signed into law by the President.

5. The rescue package that was just passed by Congress, and the steps being taken by the Federal Reserve to try to minimize economic shock are being described by some as “the biggest bazooka ever.” Billionaire hedge fund manager Paul Tudor Jones told CNBC’s “Squawk Box” that “Investors can take heart that we’ve counteracted this existential shock with the greatest fiscal, monetary bazooka. It’s not even a bazooka. It’s more like a nuclear bomb.” Jones went on to say “We did in two weeks what it took the Fed eight months to do in 2009. Remember, we didn’t even get quantitative easing until well after the great financial crisis had started, well into the recession.”

6. U.S. Consumer Sentiment saw its fourth largest decline in close to 50 years this month as the spread of COVID-19 and the accompanying furloughs and layoffs associated with its containment began to darken the global economic picture. The index dropped to 89.1 in March, down from 101 in February. Richard Curtin, chief economist for the Surveys of Consumers and the director of the survey said, “There is no silver bullet that could end the pandemic as suddenly as the military victory that ended the Gulf war.” Curtin continued, saying “The extent of additional declines in April will depend on the success in curtailing the spread of the virus and how quickly households receive funds to relieve their financial hardship.”

7. As the new “stay at home/work from home” economy expands, the internet is seeing an explosion of traffic that some providers are already struggling to deal with. In the U.K., internet providers have seen double-digit surges in broadband usage and a 50% increase in mobile data traffic in some areas. Most operators are saying that their networks have sufficient capacity to deal with the surge in traffic, but some analysts are projecting that it may become harder for providers to maintain their levels of service. If the traffic levels continue to surge and those who are responsible for repairing malfunctioning network equipment and resolving outages find themselves suddenly confined to their homes under lockdown, clearly service levels will begin to suffer.

8. U.K. Prime Minister Boris Johnson announced this week that he had tested positive for COVID-19 and was experiencing “mild symptoms.” Johnson announced that he would be self-isolating but would continue to lead his government from No. 10 Downing Street via video conferencing as he battles the disease. It was not immediately clear how many staff or other members of the U.K. government may be at risk of contracting the disease, having interacted with the Prime Minister over recent days.

9. International Monetary Fund director Kristalina Georgieva said on Friday that the global economy is now in a recession due to the spread of COVID-19. Georgieva told CNBC’s Sara Eisen during an interview that “We [the IMF] have stated that the world is now in recession and that the length and depth of this recession depend on two things: Containing the virus and having an effective, coordinated response to the crisis.” Ms. Georgieva continued, saying “I’m very encouraged by what I see now. I see much clearer understanding that if we don’t beat it everywhere, we won’t be able to get out of it.” She continued, saying “We should not go with small measures now when we know that it is a gigantic crisis. We’ve never seen the world economy standing still. Now we [do]. How we go about revitalizing it is another important topic.”

10. Crude oil plunged for what looks to be the fifth straight weekly loss on Friday as the demand destruction that has been wrought on the industry by the global pandemic looked to overshadow any possible gains due to stimulus measures that world governments could enact. Brent crude was down to $24.54 per barrel while U.S. West Texas Intermediate (WTI) fell to $21.46 per barrel. Fatih Birol, head of the International Energy Agency, urged major oil producers to help stabilize oil markets, saying that with roughly 3 billion people going through some sort of movement and travel restrictions, global oil demand could easily fall by another 20%. Commerzbank analyst Eugen Weinberg said, “We have our doubts about whether Saudi Arabia will allow itself to be persuaded so easily to return from the path of revenge that it only recently embarked upon.” The collapse in oil prices, brought about by the price war between Russia and Saudi Arabia, has only served to exacerbate market fears as the world’s economy has been brought to a sudden and near complete halt in an unprecedented effort to stop the ongoing spread of COVID-19.

11. The euro dipped against the U.S. dollar at the start of trading for the week, but quickly reversed course late Sunday night in the Asian market and began a relatively steady climb higher. The euro slightly reversed early on Tuesday but had resumed its upward climb against the dollar by late Tuesday evening. The euro maintained its steady upward move through Friday, reversed course again during early trading, but quickly recovered and touched its highs for the week against the U.S. dollar just before the market closed. The Japanese yen had a rougher ride against the U.S. dollar than the euro did, jumping higher at the open, then trending downward in a series of peaks and valleys through late Wednesday afternoon before reversing course. The yen touched its lows for the week on Wednesday and then turned steeply higher, climbing into positive territory and maintaining momentum through Friday morning’s trading. The yen briefly reversed on Friday but quickly resumed its upward climb and managed to touch its highs for the week against the U.S. dollar just before the market closed.

COVID-19 remains the prevailing, if not the only, factor affecting market volatility as the world attempts to contain the spread of the disease, create effective treatment methods for those already infected, and come up with a vaccine that can successfully protect mankind against the novel coronavirus that causes the disease. The virus has now infected well over half a million people across the globe, if testing results are accurate.

In some areas, particularly in the U.S. and Italy, the spread is accelerating. All 50 states in the U.S. have now reported at least one case of COVID-19 and the government has effectively asked the entire population to stay home unless they are “essential” employees – medical personnel, infrastructure or food supply workers, military and first responders – to try to limit the spread of the outbreak.

The U.S. Government and the Federal Reserve have pulled out all the stops in an effort to counter the economic impact resulting from the spread of the disease. Congress passed a $2 trillion dollar rescue package that is designed to aid the American workers, small businesses and industrial corporations that have been crushed by the sudden interruption of nearly all economic activity. Restaurants have watched their profits disappear along with their patrons and many have furloughed or been forced to lay off nearly their entire work force. Even those restaurants that moved to hastily adopt take-out or curbside pickup options after their in-house dining rooms were ordered closed have seen their profits plummet.

Airlines and other travel industry companies have similarly seen their customers disappear, with no indication on when or if they will return. Reports are surfacing that many airlines have parked their planes and shut down routes in an effort to limit cash burn while other planes fly empty or take off with just 1 or 2 passengers on board. Cruise ships have no one aboard but their crews and some of them have recently had to be evacuated off their ships due to having contracted the illness themselves.

Countries have shut their borders and even in the U.S., there are reports that some states may take the drastic step of shutting their borders to traffic from their neighbors. The number of cases of the disease in the U.S. has now apparently surpassed those of every other country in the world. The interruption to commerce and trade as a result of the pandemic has been felt across the board, affecting every country and every industry on the planet. Governments are scrambling to put together rescue packages for their citizens in an effort to help them stay afloat economically while government mandated lockdowns limit their ability to report for work or otherwise generate an income.

Market volatility remains at extreme levels, whipsawing on every headline as investors and analysts alike try to make sense of the data coming in. The impact of the spread of COVID-19, the effectiveness of the steps being taken to contain it, the total economic damage that has been created, and the effectiveness of the broad stimulus measures and rescue packages rapidly being passed as a result of that damage are all unknown as yet. The true economic impact of this unprecedented global shutdown will likely not be understood for years, but what appears certain is that the world is on the brink, if not in, a global recession. As central banks and governments of the world rush to offer relief to their struggling economies and populaces, the already staggering levels of global debt will surely rise to heretofore unimaginable levels. At no time in recorded history has a globally coordinated injection of money on this scale ever happened. The uncertainty created by global debt loads and the excess money that will begin flowing through the financial system as fast as central banks can print it will have long-term effects that will likely not be easy to navigate.

Market volatility can be expected to continue as long as no clear and defined treatment or prevention for COVID-19 exists. Until the world’s economies shudder back into action, economists cannot even begin to measure the true amount of economic damage that has been done. Bankruptcies are sure to occur as a result of the extended shutdowns that the world’s businesses have had to endure. Supply chains are likely going to take months to bring back to full capacity once the “all clear” signal is given for the world’s businesses to resume operations.

Well-prepared investors began diversifying their portfolios long before this most recent crisis hit and continued to take further steps to increase that diversification as markets showed signs of stress in the early days of the pandemic. Many of these investors long ago chose to undertake a plan of steadily acquiring physical precious metals as temporary price dips presented them with buying opportunities to do so, taking the long-term view on 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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