The Precious Metals Week in Review – May 8th, 2020

1. As countries around the world continue to take steps to try to restart their economies, governments attempt to begin the long recovery from the complete economic destruction brought about by the spread of COVID-19.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment was down again for the week ending May 2, falling by 677,000 claims from the previous week’s revised level to reach 3,169,000 claims. The previous week’s claims level was revised higher by 7,000. The four-week moving average of claims also dropped again this week, plunging by 861,500 from the previous week’s revised average to reach a new level of 4,173,500. The previous week’s moving average was revised higher by 1,750 claims. Issues with antiquated unemployment systems at the state level continue to cause delays in reporting, so data revisions to the weekly numbers should be expected to occur well into the foreseeable future.

3. The April Non-Farm Payrolls Report was released Friday and the numbers were staggering but not as bad as economists had feared. Non-farm payrolls plunged by 20.5 million in April and the unemployment rate in the U.S. shot to 14.7%. Both numbers are records for the post-World War II era. Economists had expected job losses of 21.5 million and for the unemployment rate to jump to 16% so many were celebrating small victories that the numbers were not worse. A different measure of unemployment that includes discouraged and underemployed workers placed unemployment as high as 22.8%. The U.S. has not seen such job destruction since the Great Depression and this most recent report is the worst showing since the ADP report was created.

4. U.S. consumer debt surged to record levels through the first three months of 2020. The $14.3 trillion figure broke the previous record set back at the height of the 2008 financial crisis by roughly $1.6 trillion. In an odd twist, credit card balances actually declined as consumers were forced to examine their spending patterns amid job losses and forced economic shutdowns. The drop in credit card spending however, was offset by student loans, auto loans, and increasing mortgage balances. In tandem with the declining credit card balances, retail sales numbers have plunged amid the shutdowns and sector analysts fear that U.S. consumer spending habits will be drastically changed once they emerge from the crisis.

5. Neiman Marcus joined the ranks of retailers to file for bankruptcy this week after weeks of rumors and questions regarding their viability as a continuing business. The storied brick and mortar store filed for bankruptcy on the heels of clothing retailer J. Crew, who was the first retailer to file last week. Both have largely blamed the pandemic crisis for hammering the final nail in their coffins, but massive debt loads they had accumulated prior to the crisis have led them to be unable to service their massive debt as revenue streams disappeared.

6. The House of Representatives hopes to vote on yet another coronavirus relief bill perhaps as early as next week. Republicans are less inclined to drop another pile of money into the system, particularly when so many reports have surfaced of mismanagement and misuse of the previous rounds of relief funding that Congress already passed, but Democrats are pushing for more. The White House seems inclined to side with the Republicans on holding off on further stimulus bills, saying this week that talks may not resume on further funding until later in the month. Democrats are near desperate to pass another bill which would include funding for state and local governments and additional money for further testing and contact tracing for the virus and the grand total they are looking for may mean another $2 trillion out of taxpayer pockets.

7. Crude oil saw a second straight week of gains as U.S. producers continued to shut down production and more states revealed their plans to relax the lockdowns that have been in place to attempt to halt the spread of Covid-19. U.S. West Texas Intermediate crude jumped to $24.74 per barrel by Friday while Brent crude settled at $30.97. Some analysts suspect the jump in crude prices may be short-lived. Jim Ritterbusch, president of Ritterbusch and Associates, said in a report “This advance of the past couple of weeks has been a bit suspect given the fact that coronavirus cases continue to increase and the U.S. crude surplus is maintaining a steep up trend where a record U.S. stock level is likely to be achieved in next week’s EIA report.” This week’s Energy Information Administration’s report showed a 15th consecutive week of rises in crude oil stocks.

8. The euro bounced higher against the U.S. dollar at the start of trading as Asia opened, drifted sideways through Sunday evening and then began a fairly steady decline that lasted nearly the entire week. The euro turned higher late Thursday, but the recovery was mostly week and did not have enough momentum to carry the euro back into positive territory for the week. The euro closed out the week to the downside against the U.S. dollar. The Japanese yen drifted mostly sideways as Asia opened on Sunday, then began to trend higher against the U.S. dollar, bouncing to touch its high for the week by late Wednesday evening. The yen reversed course as it entered Thursday trading, moving in a steepening decline until mid-day when the drop was abruptly halted. The yen bounced higher, then moved sideways through the rest of Thursday, and despite a drop just before the close on Friday will still close out the week to the upside against the U.S. dollar.

As the world continues towards a path of reopening its various economies, volatility can be expected to increase as investors and markets try to determine the potential success of those efforts to turn the economic wheels. Political turmoil can be expected in multiple countries as well, particularly in the United States where restlessness is growing as some governors choose to allow their states to begin reopening while others announce extended shutdowns.

The general populace is largely over being confined to their homes and want to get back to work so they can pay their bills and feed their families.

The sheer size of the various rescue packages that governments and central banks have concocted to try to stave off the complete economic destruction brought about by the rapid spread of COVID-19 continues to stagger the mind. The world is in uncharted waters, economically speaking, and it may take years before anyone understands what the “new normal” really means to markets.

Analysts urge caution in reentering markets, particularly the equity markets as investors watch them bounce higher on assumptions that the worst is behind, with regards to the impact of COVID-19. These analysts warn that investors could suffer from the proverbial “fear of missing out” and follow the herd into dangerous trades that they could end up on the wrong side of if headlines send the market plunging lower once more. As the world takes its tentative steps towards reopening, health officials will be closely watching for a spike in the number of confirmed cases, and the potential for governments forcing their citizens to revert back to a state of a complete shutdown could persist well into the Fall when many health officials project a possible resurgence of the virus.

In the UK, the focus will likely shift back to negotiations with the EU over the terms of its upcoming Exit, and Prime Minister Boris Johnson so far still refuses to ask for a deadline extension. This could lead to growing tensions between the EU, the UK, and their respective citizenry.

Savvy investors continue to take diversification steps to ensure that their portfolios remain protected from sudden market downturns brought about by renewed levels of uncertainty if the progress in fighting the virus suddenly reverses course. Many of these investors continue adding physical precious metals to their portfolios whenever they recognize a buying opportunity to acquire additional products at a discount.

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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