The Precious Metals Week in Review – April 3rd, 2020

1. The continued spread of COVID-19 remains the predominant factor affecting volatility in all markets. The emergency containment measures enacted worldwide to attempt to halt the outbreak have now been expanded in most countries, deepening the economic decline that began weeks ago.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment more than doubled this week, climbing by a massive 3,341,000 claims from the previous week’s revised level to hit a record level of 6,648,000 claims for the week ending March 28. This marks the highest level of initial claims ever in the history of the seasonally adjusted reporting series. The previous week’s level was revised higher by 24,000 claims. The four-week moving average of claims surged by 1,607,750 from the previous week’s revised average to reach a new level of 2,612,000. The previous week’s moving average was revised higher by 6,000 claims. Unemployment data can be expected to remain extremely volatile and new records will likely continue to be set as the US continues to fight the spread of COVID-19.

3. The Non-Farm Payrolls Report (NFP) for March showed a drop in payrolls of 701,000 and, surprisingly, an official unemployment rate of just 4.4%. The decline in payroll growth is the first since September of 2010 and thus far remains below the 2009 peak of 800,000 which was hit during the early days of the Great Recession. Nearly two-thirds of the payroll decline was in the hospitality industry, mostly due to bars, restaurants and hotels that have all been forced to shut their doors under COVID-19 containment measures. Nick Bunker, economic research director at the job search web site “Indeed”, said “Today’s numbers are shockingly bad and an understatement of the damage already done to the U.S. economy. If this is an indication of what was happening before the full force of the crisis hit, then it will be hard to come up with the words to describe the numbers in future months.”

Mark Zandi, chief economist at Moody’s Analytics said prior to the release of the report, “My sense is that when we get April data a month from now, we’ll see that the economy lost somewhere between 10 and 15 million jobs. That would be consistent with the initial claims for unemployment insurance data that we’re getting.” The government methodology used in the gathering of data for the NFP means that the data in the report tends to lag the real situation in the economy.

The Bureau of Labor Statistics used the week ending March 12 as their cut off for the data calculations appearing in the March report. This period was just prior to the near complete shutdown that the nation is now enduring in its efforts to combat the ongoing pandemic and therefore likely to severely understate the current situation.

4. Friday marked the start of the initial application time period for U.S.-based small businesses to begin applying for the “Paycheck Protection Program” that was part of the relief package that Congress passed last week to try to stave off economic damage to small businesses that might be brought about by the spread of COVID-19. The plan is already marred by confusion and borderline chaos as business owners say that the details provided by the government are confusing and that their banks do not have the answers that they need to make sure their applications are successful. The “Paycheck Protection Program”, as it is called, makes up roughly $349 billion of the $2 trillion rescue package known as the CARES Act which was passed by Congress late last week and allows those businesses with fewer than 500 employees to receive up to 2.5 times their monthly payroll expense to keep paying those employees that are unable to report for work due to ongoing efforts to contain COVID-19.

5. Economists say that it will likely be at least 2023 before the U.S. gets back to “normal” unemployment levels of 4.5%. Unemployment is expected to surge into the high teens as the global economic shutdown continues in the ongoing fight against the global pandemic. Millions of workers have already been laid off as their employers have been forced by official orders to either close completely, or to so strictly limit the number of customers allowed inside their establishments at any one time that it is now nearly impossible to turn a profit. Economists remain unable to predict the pattern that the expected economic recovery will follow after the virus abates since no one, not even the medical professionals on the front line of the fight against the disease, can identify when the so-called “Peak Virus” will hit. “Peak virus” refers to reaching a maximum number of reported new cases of the disease, after which the number of newly reported cases per day can be expected to decline.

6. U.S. Treasury Secretary Steven Mnuchin says that he will return to Congress to ask for more small business loan funding relief if the current $350 billion pool allotted in the CARES Act runs dry. The odds of that happening are increasing as the initial reports come in showing just how many small businesses have already applied for assistance in the first day alone. Early reports from Bank of America, the first bank to say that it’s online application system for small businesses was up and operating, said that it had 10,000 applications for loans within the first hour of bringing its application portal online on Friday. Late Friday afternoon, BofA reported that 58,000 small businesses had so-far asked for $6 billion in loans on its web site alone. Other large banks in the U.S. appeared to be struggling with bringing their own loan application portals online. Wells Fargo, JPMorgan and other smaller banks and credit unions were all still struggling until well after 12 PM on Friday to bring their programs online.

7. The colossal efforts that the U.S. Federal Reserve is undertaking to try to limit the extent of economic damage that will be wrought by the COVID-19 containment efforts in place across the world have driven its balance sheet to over $5 trillion for the first time in history. The Fed has been steadily increasing the amount of Treasurys and other assets that it owns to try to keep markets and the struggling U.S. economy moving forward during the crisis. Mark Cabana, a rates strategist at Bank of America Global Research, said in a note that “Unlimited QE & emergency liquidity programs should see the Fed balance sheet double in size over 2020.” Fed chair Jerome Powell told the “Today” show on Thursday that the Fed will “aggressively and forthrightly” continue its efforts to boost the economy and will not “run out of ammunition.”

8. European business activity has plummeted as the COVID-19 pandemic has continued to run its course. The IHS Markit survey, which began in 1998, noted in its March report that Italy’s services industry dropped at the fastest rate since the survey began. Germany laid off employees in its services sector at the steepest rate in 23 years and in Spain, services contracted for the first time in 6.5 years. Chris Williamson, chief business economist at IHS Markit said “The data indicate that the euro zone economy is already contracting at an annualized rate approaching 10%, with worse inevitably to come in the near future.” The survey, which was released on Friday, showed that the Composite Purchasing Managers’ Index plunged to 29.7 in March from 51.6 in February.

9. President Trump told CNBC this week that he fully expected Saudi Arabia and Russia to take at least “15 million barrels” of crude off the market as supply now far exceeds global demand. It was not immediately clear if Trump was referring to the traditional “barrels per day” figure usually used in referring to oil production or some arbitrary number of barrels that would be otherwise removed. On Friday, Azerbaijan’s energy ministry said that a virtual meeting between OPEC members and non-OPEC partners, frequently referred to as OPEC+ had been scheduled for Monday, April 6 to discuss the ongoing crisis in oil prices. Oil analysts appeared to take Trump’s tweet to mean that 15 million barrels per day might be coming off the market, sending oil up more than 12% to post its best week in history on the hopes that OPEC+ and the U.S. will both move to limit production during the crisis. On Friday, Brent crude jumped 13.9% to settle at 34.11 per barrel while West Texas Intermediate, the U.S. benchmark, rose 12% to trade at $28.56 per barrel – over a 30% gain for the week.

10. The euro spent nearly the entire week in steady decline against the U.S. dollar. The battered currency attempted to stage a reversal late Tuesday, but quickly plateaued and eventually resumed its downward trend late on Wednesday afternoon. The euro touched its lows for the week against the U.S. dollar on Friday, seeing only a slight recovery just before the close. The Japanese yen whipsawed back and forth this week against the U.S. dollar, climbing higher at the start of trading, only to reverse sharply and head into negative territory on Monday morning. The yen surged back into positive territory on Tuesday, trending higher in a series of sharp peaks until late Wednesday. On Wednesday evening, the yen began a downward trend that took it back into negative territory against the dollar by Friday. The yen appears set to close out the week slightly to the downside against the U.S. dollar.

COVID-19 remains the defining factor affecting the outlook for the global economy and volatility levels in all markets. Volatility remains at extreme levels, exacerbated by the ongoing price war in oil between OPEC+ and the United States. The collapsing price of oil is also closely related to the ongoing pandemic. The initial collapse in the oil price can be blamed on the overt price war between Russia and Saudi Arabia that began just at the outset of the spread of COVID-19 out of China and into the rest of the world. The resultant collapse in demand for oil, however, can solely be traced back to the near complete economic shutdowns that are still taking place in virtually every country across the globe.

President Trump is applying pressure to OPEC+, based upon his tweets regarding oil production this week, and also brought together the heads of U.S. energy companies on Friday to discuss how to address the ongoing crash in oil prices. OPEC+ is expected to hold a virtual meeting early next week and oil markets took that headline alone as enough positivity to send prices higher on Friday.

Governments continue to scramble to come up with viable plans to rescue their citizens from the economic collapse that the spread of the virus has wrought. Unemployment in the U.S. alone is skyrocketing to levels not seen since the Great Depression as nationwide business closures and “stay at home” orders by both Federal and State governments have now been extended to April 30. Nearly 7 million U.S. workers filed for state unemployment last week and that number is expected to continue to rise. Some economists estimate job losses of between 10 and 15 million before the crisis comes to its eventual end.

The head of the International Monetary Fund, Kristalina Georgieva, in an emotional address on Friday said that the pandemic has created an economic crisis “like no other” and one that is “way worse” than the 2008 global financial crisis. Speaking at the World Health Organization’s headquarters in Geneva, Ms. Georgieva said “Never in the history of the IMF have we witnessed the world economy come to a standstill.” She went on to say that we are in…

“humanity’s darkest hour, a big threat to the whole world and it requires from us to stand tall, be united and protect the most vulnerable of our citizens.”

In Europe business activity has ground to a halt and Brussels is scrambling to find a funding plan to rescue the economy that all of the various members of the European Union can agree to. Data from the most recent IHS Markit survey show that the euro zone economy is already contracting by nearly 10%, and the numbers show that the contraction rate is likely to increase as the virus continues to spread. The individual nations in Europe disagree on how best to address the ongoing crisis. Those in the south want Brussels to go so far as issuing joint debt to finance the costs of the crisis, coining the term “corona bonds”, while Northern nations who tend to be more fiscally conservative are in favor of conditional loans to help fight the economic devastation on the immediate horizon. The European Commission proposed on Thursday to set up a 100-billion-euro fund to aid the hardest hit European nations – Italy and Spain in particular. The European Union has basically eliminated its fiscal rules, allowing countries to spend more to fight the ongoing crisis, relaxed state aid rules, and has set up a 37-billion-euro investment fund to try to aid businesses all over Europe.

The European Central Bank has gone the farthest in its actions, announcing that it would be buying 750 billion euros in European bonds through the end of the year in a bid to lower the costs for European governments in financial markets. As the crisis impacts the world’s economies, already sending them into a recession according to the IMF, market volatility can be expected to continue at extreme levels.

Savvy investors continue taking steps to make sure that their portfolios are well-diversified to help protect them from overexposure to equity markets. Many investors continue to purchase physical precious metals as part of their diversification plans, hearkening to the long-held historical view that physical precious metals represent safer havens in times of economic and geopolitical turmoil.

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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