The Precious Metals Week in Review – April 24th, 2020

1. The U.S. is beginning to take steps to slowly reopen its economy from the near-total lockdown imposed by the containment efforts surrounding the spread of COVID-19. The State of Georgia was the first to make efforts at reopening but was faced with heavy criticism for the types of businesses it chose to allow to reopen. Much of the nation is watching anxiously to see how this initial trial balloon on restarting the U.S. economy will float.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment surprisingly dropped yet again for the week ending April 18, falling by 810,000 claims from the previous week’s revised level to reach 4,427,000 claims. The previous week’s claims level was revised lower by 8,000. The four-week moving average of claims rose again this week, climbing by 280,000 from the previous week’s revised average to reach a new level of 5,786,500. The previous week’s moving average was revised lower by 2,000 claims. Unemployment data can be expected to remain extremely volatile as the nation begins reopening its economy. Many states continue having issues with their antiquated unemployment systems, so data revisions can continue to be expected well into the foreseeable future. The 5-week total of unemployed Americans has now reached a staggering 26.4 million, surpassing the number of jobs that had been added back to the economy since the Great Recession hit in 2008.

3. U.S. consumer sentiment fell for the third consecutive month in April as the economic shutdown brought on by the spread of COVID-19 continued. Richard Curtin, the chief economist for the Surveys of Consumers, said in a statement that “Consumers’ reactions to relaxing restrictions will be critical, either putting further pressure on states to reopen their economies, or exerting added pressure to extend the restrictions even if it has negative consequences for economic prospects. The risks associated with these decisions are not equally balanced, with an incorrect decision to reopen having serious repercussions.” Curtin continued, warning on possible repercussions of states opening their economies too soon, saying “The necessity to reimpose restrictions could cause a deeper and more lasting pessimism across all consumers, even those in states that did not relax their restrictions.”

4. President Donald Trump signed a new $484 billion COVID-19 relief package into law on Friday after Congress passed the bill in historic fashion on Thursday. Members of Congress wore masks and debated the bill using new “social distancing” guidelines that required them to take turns entering the chambers in severely limited numbers. The new relief package, the fourth one passed thus far in response to the novel coronavirus, puts an additional $370 billion in aid for small businesses into the system known as PPP – the Paycheck Protection Program. The remainder of the funds will be used to shore up hospitals struggling to cover costs and further increase testing for the disease in the U.S.

5. While Congress works to save small businesses, the first large-scale retail victim of the economic shutdown may file for bankruptcy as early as Sunday. Neiman Marcus is reportedly in talks with its current lenders about raising nearly $600 million in emergency financing to fund operations through a restructuring. The retailer would use its bankruptcy filing to flush out nearly $4 billion in debt that has been plaguing the luxury brand since its sale to Ares Management and the Canada Pension Plan Investment Board back in 2013. All of its stores have been shut down since March 17 and it has furloughed most of its 14,000 workers. The bankruptcy could be the first in a long line, as large-scale retailers are all faced with the fact that they are being called upon to make rent or lease payments on property that has not generated any revenue for them in months. Many were unprepared to make the switch from brick and mortar to 100% online business and have suffered devastating losses at the hands of Amazon, Walmart, and Target.

6. The backlash against China over its handling of the coronavirus that is at the heart of the ongoing pandemic has begun in earnest. Eric Schmitt, the attorney general for the U.S. state of Missouri, filed a lawsuit against the Chinese government this week accusing it of negligence in its initial handling of the virus outbreak. Schmitt said in a statement that “The Chinese government lied to the world about the danger and contagious nature of COVID-19, silenced whistleblowers, and did little to stop the spread of the disease. They must be held accountable for their actions.” Similar lawsuits have been filed in other U.S. courts on behalf of business owners. The U.S. is not the only country considering these actions and China is responding angrily not only to the U.S. but to Germany, Australia, and the United Kingdom as well. All of these nations have had think tanks and/or government officials comment publicly on the possibility of seeking compensation from China for the economic damage caused by the spread of COVID-19 out of its origin point in the city of Wuhan.

7. Russia has decided it will attempt to stay neutral as the U.S. investigates how the coronavirus that has brought the global economy to a near-complete standstill originated and escaped out of China. Dmitry Peskov, a spokesman for Vladimir Putin, commented on reports that U.S. intelligence organizations are investigating whether the virus was accidentally released from a Chinese lab. Peskov said “This issue was never discussed by our two presidents. We don’t think this issue of an investigation into the source of this virus is something that we can somehow support, so we don’t think this is a proper thing to try to investigate and to blame any nation in the world for this virus without having any evidence actually.”

8. On Friday, the Bank of Russia cut its key interest rate by 50 basis points and hinted that further reductions were on the table for future monetary policy meetings. The central bank also slashed its economic forecasts for 2020, projecting that Russia’s Gross Domestic Product (GDP) may drop by 4 to 6 percent in 2020. The bank went on to say that it expected growth to recover between 2.8 and 4.8 percent in 2021, and by a further 1.5 to 3.5 percent in 2022. In a statement released Friday, the bank said, “The dynamics of economic recovery will largely depend on the scale and effectiveness of measures taken by the Government and the Bank of Russia to mitigate the consequences of the coronavirus pandemic.”

9. After just a second week of talks between Brussels and London since the true onset of the pandemic, Michel Barnier, the chief Brexit negotiator for the European Union, leveled criticism at the U.K. on Friday, saying it “has imposed this very rigorous calendar, exceptional for such an important negotiation.” Barnier accused the U.K. of failing to move forward in the talks, saying “The United Kingdom cannot impose this very short calendar for negotiations and at the same time not move, not progress on certain subjects that are important for the European Union.” The U.K. has until June to decide whether to extend its transition period, after which it would presumably be locked into the original December 31, 2020 timeline.

10. Crude oil had a record-setting week as, in a historic move, prices turned negative for the first time ever. The shift into negative territory means that oil producers were essentially paying buyers to take oil off their hands as storage capacity continues to dwindle amid plunging demand. U.S. West Texas Intermediate (WTI) plunged to negative $37.63 a barrel at one point on Monday. The move was brought about by the approach of the expiry of futures contracts on Tuesday. The expiry would mean that traders would either be forced to take delivery of the oil they had bought earlier and find storage for it, or else sell it to someone else – apparently at any price. Even with the historic output cuts announced by OPEC+ last week, storage capacity across the world is dwindling as supply far outpaces demand.

11. The euro moved against the U.S. dollar in a series of peaks and valleys with an overall downward trend nearly the entire week. The euro moved only slightly lower through the first half of the week, but the downward trend accelerated during the latter half of the week. The euro touched its lows for the week on Friday and then bounced higher but lost momentum and leveled off prior to the close. The euro will close out the week lower against the U.S. dollar. The moves in the Japanese yen against the U.S. dollar were also volatile, albeit in a shallow range, this week. The yen plunged near-vertically lower shortly after the open, immediately regained ground, and then moved sharply lower again, touching its lows for the week early on Monday. The chart for the yen is full of sharp spikes and drops, moving between positive and negative territory throughout the week. Late Thursday the yen plunged vertically lower again, but just as quickly regained its ground. The yen drifted lower through Thursday evening, but an uptick on Friday will see the yen close out the week in positive territory against the U.S. dollar.

The world took tentative steps to reopen its various economies this week. Germany and Italy allowed certain shops to re-open on Monday as they eased restrictions. The U.S. state of Georgia also allowed stores to reopen on Thursday, though it faced much criticism for the nature of some of the businesses that it was allowed to open their doors. Spas, tattoo parlors, and salons all made the Georgia governor’s list as qualified to reopen. In Germany, retailers under 800 square meters could re-open as long as they and their customers abided by new social distancing and mandatory hygiene measures.

Larger businesses such as car dealerships and even Ikeas were also allowed to open, with Reuters reporting that at an Ikea on the outskirts of Cologne, the store manager said that there were “no lines, no crowds.” Retailers may find, now that some have been allowed to open their doors, that continued uncertainty over employment due to the ongoing pandemic has what were previously avid and loyal customers now remaining in their homes and holding tight to their wallets.

Even if customers begin returning in droves to retail shops, their shopping habits may be so severely impacted by new policies and procedures designed to limit the further transmission of the virus that retailers will be unable to move the same numbers of customers through their doors as they did in the pre-pandemic society.

Measures ingrained in consumers by months of social distancing and fear of contagions, such as severe limits on touching surfaces and objects, may have so significantly changed consumer behavior that manufacturers may need to engineer an entirely new way to successfully market their products to a new generation of touch-phobic consumers.

The U.K. appears to be powering forward with its quest to end the transition period for its exit from the European Union by its original December 31, 2020 target date. The EU is already doing its best to convince the rest of the world that the time frame is entirely too short and that there is no way that an agreement can be made by then. If the U.K. passes June without requesting an extension, we may yet see the “hard break” from the European Union that everyone was worried about before the world-wide spread of COVID-19.

In the U.S., the natives are getting restless over the continued shutdown of what was a fairly vibrant economy up until late January. The nation is carefully watching the state of Georgia to see how the governor’s decision to reopen the economy plays out. The spread of COVID-19 has also essentially derailed the presidential campaign trail, bringing it to an abrupt and jarring halt.

With Bernie Sanders having bowed out of his election run, Democrats have now consolidated behind Joe Biden as their de facto candidate to run against Donald Trump in the November elections. The spread of the virus has also thrown off analysts’ abilities to make anything close to a reliable prediction of the outcome of those elections.

Donald Trump faces constant media criticism over his handling of the outbreak, with media outlets picking apart every word he utters at his daily press conferences. If the reopening of America does not go well and its citizens are forced back into lockdowns for several more months, Trump could face backlash, even from his own supporters. The opposite side of that coin could be that voters may not want to “change captains in mid-stream” by voting in an entirely new government in the middle of a crisis.

It is highly unlikely that the crisis will be contained by November. Even if the virus is no longer spreading at current rates, nearly every analyst agrees with the International Monetary Fund’s assessment that a worldwide recession is in the making as a result of the damage it caused. The ensuing economic crisis now facing every nation on the planet will be one of the most difficult obstacles to overcome in living memory.

Wise investors continue to take steps to ensure diversification of their portfolios in an attempt to weather the coming economic storm. Many of these investors began accumulating physical precious metals for the purpose of adding alternative assets and reducing exposure to equities in their portfolios long before the crisis erupted.

Many of these same investors have continued adding physical products to their portfolios as the crisis has deepened, taking advantage of temporary price dips to acquire precious metals at a discount when they appear.

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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