The Precious Metals Week in Review – April 17th, 2020

1. COVID-19 continues to be the major headwind affecting all markets. Volatility remains extreme as news headlines regarding “flattening the curve” and potential treatments in the works for mitigating the effects of the virus shift markets up, only to be sent lower again when officials and medical professionals take to the airwaves and walk back previous comments.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment surprisingly dropped again for the week ending April 11, dropping by 1,370,000 claims from the previous week’s revised level to reach 5,245,000. The previous week’s claims level was revised higher by 9,000. The four-week moving average of claims surged again this week, climbing by 1,240,750 from the previous week’s revised average to reach a new level of 5,508,500. The previous week’s moving average was revised higher by 2,250 claims. Unemployment data can be expected to remain extremely volatile as the nation ponders reopening the economy. To date, over 22,000,000 Americans have filed for unemployment. This puts the unemployment rate at roughly 16%, which would be the worst level since the Great Depression.

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 but there was a glimmer of hope this week that the nation may soon begin moving in phases to slowly reopen the economy. As the “curve” – the graph signifying the rate of new infections in the U.S. – begins to flatten, Federal officials have begun indicating that they will work with state governments to coordinate reopening their economies, all of which ground to a halt as the virus began to spread through the U.S. Every state in the Union has now issued Emergency Declarations as a result of the pandemic and most have issued a state-wide stay at home orders that have confined citizens to their homes except when engaging in activities deemed essential. The resulting immediate drop in customers has crushed small “main street” businesses that depend on local foot traffic such as bars, restaurants, and many retail outlets. The economic devastation wrought on America’s small businesses by the outbreak has not even come close to being assessed and likely will not be known for years.

4. The Paycheck Protection Program (PPP), part of the emergency package that Congress passed to try to help small businesses keep their employees on the payrolls during their forced closures, officially ran out of money on Thursday of this week. Reports have already surfaced that some businesses have applied for and received funding under the PPP, but do not intend to use the funding they received to pay their employees. Other reports have surfaced that large companies, and even some hedge funds, have applied for and received funding under the PPP, basically siphoning off much-needed funds from America’s struggling small businesses. Such reports are stoking the ire of small business owners across the nation.

5. Congress still has not acted to provide further funding to America’s small businesses, despite knowing full well that the PPP program has now completely run dry. Democrats remain adamant that further funding is routed to state and local governments and hospitals, not just small businesses, and they continue to obstruct Republican efforts to act quickly to funnel further funds to small businesses. Senate Minority Leader Chuck Schumer said on Friday that Congressional Democrats and the Trump administration would continue their talks through the weekend to try to strike a compromise on a new emergency bill to replenish the PPP program.

6. US home construction in March plummeted, falling by 22.3 percent from the month before as COVID-19 began spreading throughout the country. The drop, according to the Commerce Department, is the largest monthly decline since March of 1984. The drop will likely persist into the coming months as nationwide lockdowns remain in effect. A confidence index that the National Association of Home Builders and Wells Fargo jointly released on Wednesday showed a massive decline in homebuilder sentiment. The index plunged by 42 points in April to a new reading of 30. As with most indexes, any reading below 50 signals a decline. The last time the index ran below 50 was in June of 2014.

7. On Friday, an official at the World Health Organization warned that the antibody tests that much of the world seems to be hoping will be the indicator that lets them know when their populace can get back to work, may not be an indication of safety from further virus spread. Dr. Maria Van Kerkhove, head of the WHO’s emerging diseases and zoonosis unit, told reporters at the organization’s headquarters in Geneva that “These antibody tests will be able to measure that level of serology presence, that level of antibodies, but that does not mean that somebody with antibodies are immune.” She added, “Right now, we have no evidence that the use of a serological test can show that an individual is immune or protected from reinfection.” Dr. Mike Ryan, executive director of the WHO’s emergency program, agreed, saying “With regards to recovery and then reinfection, I believe we do not have the answers to that. That is an unknown.”

8. Gita Gopinath, Chief Economist for the International Monetary Fund (IMF), said on Tuesday “It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.” Speaking to CNBC later on Tuesday, Gopinath said “This is a crisis where the economic shock is something that is not exactly controlled by economic policy,” and she noted that it was impossible to predict when the pandemic will end. The IMF expects a “partial recovery” for the global economy in 2021 if the pandemic eases as 2020 progresses. In a separate report last week, the World Trade Organization noted that global trade will likely contract by between 13% and 32% due to the pandemic, with the Organization for Economic Coordination and Development also warning that the impact of the economic damage caused by the spread of the virus out of China would be felt “for a long time to come.”

9. The pandemic is also threatening to cripple Brexit talks between the European Union and the United Kingdom, especially as Prime Minister Boris Johnson continues to recuperate at home, unable to work due to a severe case of COVID-19 that sent him to Intensive Care last week. British and EU negotiators held a conference call on Wednesday, which is the first time they have done so since both lead negotiators were forced into the same lockdown that has been crippling the rest of the world’s economy. The EU’s negotiator, Michel Barnier, tested positive for the virus in March but has fully recovered. Despite the delays, David Frost, the negotiator for the U.K. said that Downing Street had no intention to ask for an extension to the December 31 deadline to reach a deal. Vicky Pryce, chief economic adviser at the Centre for Economics and Business Research in London said on Thursday “The government insists that all is on track, but we all suspect not. I am hearing that quite a lot of civil servants who were doing Brexit have been moved temporarily to coronavirus and that must delay the putting into U.K. law what was EU law.”

10. The International Energy Agency (IEA) said Wednesday that it expects the impact of the COVID-19 crisis to shave off nearly a decade’s worth of growth for oil. In its monthly report, the IEA said: “Even assuming that travel restrictions are eased in the second half of the year, we expect that global oil demand in 2020 will fall by 9.3 million barrels a day versus 2019, erasing almost a decade of growth.” The group noted that for the second quarter of the year, it expected demand to be up to 23.1 million barrels per day lower than levels seen just one year ago. The news sent Brent Crude, the international benchmark for oil, down to $28.74 per barrel while U.S. West Texas Intermediate (WTI) was also down, trading at $19.77.

11. The euro drifted mostly sideways against the U.S. dollar as trading opened this week, but spiked higher before quickly sliding into negative territory early on Monday. The euro appeared to attempt a recovery Monday afternoon, climbing to its highs for the week by late Tuesday evening. The euro plunged lower in Wednesday morning trading, then trended lower for the rest of the week in a series of sharp spikes and drops. The euro touched its lows for the week on Friday morning, then saw another spike higher just before the close. The move was not enough to move the euro back into positive territory and it will close out the week lower against the U.S. dollar. The Japanese yen spent the first part of the week steadily climbing higher against the U.S. dollar, touching its highs for the week on Tuesday. The yen began trending lower against the dollar by Wednesday morning, reversing course and making a brief move higher on Thursday before dipping lower again. The yen never made it into negative territory against the dollar, despite the decline, and a surge higher on Friday just before the close will ensure that the yen closes out the week in positive territory against the U.S. dollar.

COVID-19 remains the primary headwind affecting the global economy as the virus continues to spread across the world. Those countries most heavily affected by the spread of the virus are beginning to ponder ways that they can attempt to restart their economies. It will remain to be seen, even if the governments of the world determine that is safe to open the shop doors again, if the consuming public will choose, or even be allowed, to engage in what was heretofore considered “normal” activities, such as going out to eat, going to the movies, or choosing to travel for leisure.

The emergency rescue packages that various countries are implementing have been flooding the financial system with money printed virtually out of thin air. It remains to be seen if those efforts to keep the consumer afloat will even bear fruit when the crisis is over.

The International Monetary Fund now believes that the global economy is entering the worst recession since the Great Depression struck in the 1930s.

Most reputable economists do not even see anything close to an attempt at economic recovery by the end of 2020, even if the pandemic begins to abate in the coming months. The IMF also noted that of all the European countries affected, Spain could be the hardest hit in terms of lasting damage to its workforce. The group said that Spain could see its unemployment rate spike to 20%, up from a forecast in October of 13.2%. In comparison, Italy, which was the de facto epicenter of the virus’ outbreak in Europe, is expected to see its unemployment go to 12.7% in 2020. Maartje Wijffelaars, a senior economist at RaboResearch in the Netherlands, told CNBC on Tuesday that the “issue in Spain is that they have a much larger share of workers on a temporary contract. In the previous crisis we also saw a very rapid rise in unemployment, with employees on a temporary contract bearing the largest brunt.” Wijffelaars noted that the economic shock to both countries may be staggered, saying “We expect the shock in the first quarter to be worse for Italy than in Spain, as the outbreak hit Italy earlier in the year and lockdown measures were implemented earlier.” She noted that economic shock in the second quarter will be felt more strongly in Spain “as most heavily hit sectors such as tourism and hospitality are more important for the Spanish economy than for the Italian economy.”

Turkey may be the next country to see its economy nosedive due to the spread of COVID-19. New daily cases in the country have more than doubled since April 8, a phenomenon that is of growing concern to health experts. Turkey is one of the few countries in Europe that has not implemented a nationwide lockdown and health officials are concerned that the nation is ill-prepared to deal with the growing number of cases within its borders.

As the virus continues to run unchecked through the world, market volatility can be expected to remain at extreme levels. Each hopeful headline regarding progress in finding a way to either reliably treat the virus, or a vaccine to prevent it seems to send markets higher, only to have those hopes dashed when news of continued increases in cases comes out the next day to send markets lower again.

Savvy investors continue taking steps to ensure that their portfolios are well-diversified against such extreme volatility. Many investors continue to turn to physical precious metals as a means to increase the diversification of their portfolios, acquiring additional product for their portfolios when temporary price dips present them with a buying opportunity to do so.

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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