The Precious Metals Week in Review – April 10th, 2020

1. It was a shortened trading week due to markets being closed on Friday in observance of Easter and Passover. Market volatility remains at extreme levels, with markets shifting and swinging on every headline that relates to the ongoing pandemic. The U.S. continues to be the country experiencing the highest number of cases of the disease, with New York remaining one of the largest “hot spots” of infections.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment surprisingly dipped for the week ending April 4, dropping by 261,000 claims from the previous week’s revised level to 6,606,000. The previous week’s claims level was revised higher by 219,000. The four-week moving average of claims surged again, climbing by 1,598,750 from the previous week’s revised average to reach a new level of 4,265,500. The previous week’s moving average was revised higher by 54,750 claims. Unemployment data can be expected to remain extremely volatile and new records will likely continue to be set. Antiquated state unemployment reporting systems have been unable to handle the surge in claims brought about by COVID-19 and it is highly likely that the reported data does not reflect the true level of devastation that the U.S. labor market has experienced as the disease has continued to spread.

3. U.S. citizens continue to be urged to stay home by federal, state, and local officials to help slow the spread of COVID-19. Though the number of initial claims for unemployment dropped this week, the ranks of the unemployed in the U.S. now numbers well over 16 million. The entire nation has essentially shut down its economy except for those services that officials have deemed essential – such as grocers, infrastructure services, food growers, first responders and military personnel. Many main street dine-in restaurants across the country initially tried to make a go of using curb-side pick up orders to keep revenue coming in during the crisis, but the model simply does not work in an environment where citizens are urged to avoid being in public altogether. Many such businesses that have been forced to shut down as the outbreak widened may not have the means to reopen when citizens are finally allowed to return to some semblance of normalcy. Even after the outbreak subsides, the mentality and shopping habits of the both the U.S. and global consumer may be irrevocably changed by the social distancing practices they have been forced to adapt to.

4. Efforts to bring further financial aid to the over 16 million unemployed in America, who cannot return to work due to government mandated shutdowns of their employers, stalled out in Washington ahead of Congress adjourning for the upcoming Easter break. The Trump administration made good on Treasury Secretary’s promise last week to return to Congress to ask for more money if existing funds ran out. The administration attempted to gain more funding for those affected by the economic shutdown early in the week by asking Congress to quickly approve another $250 billion in aid. The request for additional funding was blocked in the Senate after Republicans and Democrats could not agree over where the money should go. Republicans argued that the small business loan program, which is quickly becoming depleted after its initial launch last week, despite difficulties with bringing the application programs online, should be the target of the new funds while Democrats urged for the funding to be earmarked for hospitals and state and local governments. The House of Representatives was to meet for a procedural session on Friday but was not expected to try to vote on the additional funding.

5. With Congress all but deadlocked on providing additional aid, the Federal Reserve took action on its own Thursday, announcing that it would use Treasury Department funds to purchase municipal bonds and would expand its purchases of corporate bonds. The Fed hopes that such a move will help shore up companies as well as provide the funding so desperately needed by state and local governments that are finding their budgets strained as they battle against the spread of COVID-19.

6. U.S. consumer prices fell by the most in five years as gasoline and other travel costs shot lower on lack of demand. Airfare and hotel prices cratered as the world entered a near total lockdown in what appears to be a mostly unsuccessful attempt to bring a halt to the pandemic. Gasoline prices, already driven lower by the abrupt price war which began between Russia and Saudi Arabia, saw further declines as commuters and vacationers all put their collective keys on their dressers and stopped driving. JPMorgan economist Daniel Silver said “In terms of the core measure, the March decline was one of the weakest readings on record, and it was pulled down by record-large drops in the prices of airfares…lodging away from home…and apparel.” Economists are now struggling to try to determine what inflation data will look like in April. With the near total economic shutdown across the globe, economists are beginning to discover that their computer algorithms can’t generate accurate data. Software engineers know this as the dreaded “Divide By Zero” error, the result of which is always “undefined.”

7. U.K. Prime Minister Boris Johnson was reportedly released from intensive care this week, where he was admitted after it became clear that the symptoms from his own bout of COVID-19 were more than he could overcome by trying to recover at home on his own. Johnson had the misfortune of being the first government leader on the globe to be diagnosed with the disease. On Friday, the U.K. issued advice for everyone to stay at home after a record spike in daily deaths from COVID-19.

8. OPEC+ met this week and reached an agreement to make further production cuts to try to offset the plunge in oil prices that began after Russia and Saudi Arabia initiated a price war with each other. The move took place just as the coronavirus that causes COVID-19 was emerging from China, where it was originally discovered, to become a true pandemic, and sent oil prices plummeting. The group apparently agreed to cut 10 million barrels per day, about 10 percent of normal production, in both May and June. In a statement released after the meeting, OPEC said that the cuts were “agreed by all the OPEC and non-OPEC oil producing countries participating in the Declaration of Cooperation, with the exception of Mexico, and as a result, the agreement is conditional on the consent of Mexico.” Mexico’s Secretary of Energy said in a tweet after the meeting that his country would be willing to cut production by 100,000 barrels per day for the next two months. OPEC+ had reportedly asked them to cut by 400,000 barrels, so it was not immediately clear if the smaller figure would be sufficient to qualify as the “consent” that OPEC+ was looking for. Despite news of the agreement, U.S. West Texas Intermediate fell by over 9% to settle at $22.76 per barrel on Thursday while Brent crude, the international benchmark, dropped over 4% to settle at $31.48 per barrel.

9. The euro drifted only slightly lower against the U.S. dollar at the start of trading for the week but began a sharp move higher in the early morning hours on Tuesday that lasted through mid-day. The euro reversed course late Tuesday, drifting lower through Thursday when it reversed again. The euro began moving higher late on Thursday in the aftermarket hours, then drifted along sideways to end out the week higher against the U.S. dollar. The Japanese yen spiked higher, then shot immediately lower as trading began on Sunday night. The yen touched its lows for the week on Monday morning and then began a move higher in a series of sharp peaks and valleys through late Tuesday. The yen saw a slight reversal in the early morning hours of Wednesday, drifting lower in a similar peak and valley pattern until Thursday, when the yen shot back into positive territory. The yen was able to maintain its grip on positive territory despite a slight dip late Thursday night and will finish out the week slightly to the upside against the U.S. dollar.

COVID-19 will be the primary news focus for all media and business news outlets for the foreseeable future. The outbreak of the virus has triggered a global economic shutdown that, despite lessons learned from the 1918 Spanish Flu pandemic, has taken the now globally connected economy into uncharted territory. Businesses throughout the U.S. are expected to remain closed through most of April now as the spread of the virus has continued. Similar situations are playing out world-wide as nearly every country on the planet works to contain the virus within their various populations.

Globally, a glut of fiat currency is being flooded into the system as governments and central banks attempt to slow the economic devastation under way as the world’s workers are forced to shelter in their homes. The size of the aid and rescue packages being proposed by the world’s central planners is unprecedented. The impact of the creation of that much money out of thin air will likely be nothing short of staggering.

The U.S. is in the process of making loans to small businesses, many of which can be forgiven if the employer maintains the majority of their employees on the payroll during the crisis. The U.S. is also in the process of sending funds directly out to its citizens, over 16 million of which have suddenly found themselves unemployed. It is still not immediately clear if the government expects those funds to be paid back somehow. The virus is even beginning to affect the supply of fresh fruits and vegetables as farmers suddenly find themselves without their normal supply of migrant workers at the peak of their usual harvest time.

Deborah Elms, executive director at the Asian Trade Centre, believes that governments around the world will become more protectionist in nature as they try to contain the economic damage wrought by the virus. Ms. Elms told CNBC’s “Capital Connection” that “There is a much bigger wave of protectionism in the near term that we should expect, that is not just in medical supplies… but it will also start to affect food.” Ms. Elms continued, saying “As countries get nervous about food stocks and food supply, food security, they’re going to stop allowing the export or restrict the import of food products.” She continued, saying…

“As the economic distress increases, the response by many governments will be to assist favored industries, favored sectors or sectors where they’re particularly concerned about catastrophe, especially in jobs. And they will respond, most likely, by pursuing protectionism. But for each individual country, that’s the solution that makes sense – so restrict trade, focus domestically, keep your own people as employed as you can and then don’t worry about anyone else. But of course, the net result is everyone else is worse off.”

As market volatility continues to swing wildly, investors remain cautious over the potential of exposing their portfolios to another drastic equity market correction. Many investors have continued to purchase physical precious metals, viewing the price drop that took place as equities sold off as a temporary phenomenon. These same investors view ownership of physical precious metals as a vital part of their plan to keep their portfolios diversified against further uncertainty in equity markets due to lasting effects of the pandemic.

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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