The Precious Metals Week in Review – May 22nd, 2020

1. As the world begins to reopen its economies in the wake of the COVID-19 pandemic, mainstream news outlets are beginning to get back to reporting on business news in addition to their reporting on the progress in the fight against the coronavirus. At the peak of the pandemic, most media outlets switched to near 100% dedicated coverage of the pandemic, and the world’s response to it, and business news seemed to take a back seat.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment was lower again for the week ending May 16, falling by 249,000 claims from the previous week’s revised level to reach 2,438,000 claims. The previous week’s claims level was revised lower by a staggering 294,000 claims. The four-week moving average of claims also fell again this week, dropping by 501,000 from the previous week’s revised average to reach a new level of 3,042,000. The previous week’s moving average was revised lower by 73,500 claims. State reporting systems continue to be plagued with problems, as evidenced by the massive revision to last week’s data, and it is highly likely that unemployment data will remain volatile for months.

3. The Trump administration said this week that it might be in favor of another round of economic stimulus money to continue battling the effects of the economic shutdowns brought about by the spread of COVID-19. Trump seems to favor sending more direct payments to Americans, but Congress is divided over the correct approach to another round of stimulus spending. Treasury Secretary Steven Mnuchin, who has been instrumental in negotiating and managing the funding programs that have been implemented so far, said on Thursday that he sees a “strong likelihood” that the U.S. will need another round of stimulus. Democrats are pushing for a broad, immediate, and massive stimulus plan while Republicans favor taking a narrower approach to generate additional aid. Last week the House of Representatives passed a massive $3 trillion relief package in line with Democrat wishes, while Senate Majority Leader Mitch McConnell is rumored to want to limit the scope of the next round of spending to $1 trillion.

4. China, already facing backlash for its initial handling of the outbreak of COVID-19 inside its borders in December, shocked the world this week when it announced on Friday that it would impose new laws clearly designed to tighten its grip on Hong Kong and further suppress democracy within the region. The new national security law was announced by the National People’s Congress (NPC) in China, which said it was “exercising the power [of] the constitution to establish and improve at the state level a legal framework and an enforcement mechanism for safeguarding national security in Hong Kong.” The draft law was announced as the NPC kicked off it’s gathering on Friday and it would reportedly ban “secession, foreign interference, terrorism and all seditious activities aimed at toppling the central government and any external interference” in Hong Kong. The move will very likely kick off another round of protests in Hong Kong, which was witness to prolonged and massive protests last year when Beijing attempted to pass another piece of legislation also seemingly aimed at curbing democracy in the former British colony.

5. Despite renewed tensions between China and the U.S. over its actions in the early days of the coronavirus pandemic and its treatment of Hong Kong, China has promised that it will continue working towards implementing “phase one” of the trade deal it inked with the U.S. in January. In a report on governmental work delivered to the National People’s Congress on Friday, Premier Li Keqiang said “We will work with the United States to implement the phase one China-U.S. economic and trade agreement.” Li continued, saying “China will continue to boost economic and trade cooperation with other countries to deliver mutual benefits.” Li also announced that China would “actively participate in reform of the World Trade Organization” as well as moving forward with free trade negotiations with Japan and the Republic of Korea.

6. Crude oil dropped on Friday, but still managed to eke out a fourth straight week of gains. Brent crude settled at $34.97 per barrel while West Texas Intermediate crude was at $32.94 per barrel. Oil was on track for larger gains prior to China’s announcement that it had drafted a new “national security” law for Hong Kong. Fears that the proposed legislation might trigger a new wave of pro-democracy protests in Hong Kong, thus resulting in crack-downs and heightened tensions between China and the rest of the world, caused analysts to reduce demand forecasts, which only a week ago had begun to be optimistic again.

7. The euro drifted sideways against the U.S. dollar at the start of trading for the week but soon surged higher and began a trend to the upside that lasted all the way through late Thursday. On Thursday, the euro dropped lower and began falling back towards the level where it opened for the week. The decline for the euro leveled off during mid-morning on Friday and it appears that the battered currency will still manage to close out the week to the upside against the U.S. dollar. The Japanese yen began the week drifting only marginally lower against the U.S. dollar, but plunged sharply lower right around mid-day on Tuesday. The yen touched its lows for the week immediately following the plunge and then attempted to stage several recoveries throughout the rest of the week. The yen could not maintain enough momentum to recover positive territory and will close out the week slightly to the downside against the U.S. dollar.

The world continues to take tentative steps towards restarting its economic engines in the wake of the global pandemic caused by the novel coronavirus which emerged from China late last year. Many media outlets continue to hypothesize that consumer behavior will be dramatically altered by the events they have suffered through over the last several months but anecdotal evidence, as state and local governments begin to ease restrictions on their populace, seems to suggest that the consumer is ready and willing to emerge once more.

In the U.S., as states have begun allowing residents to visit restaurants and businesses, many of these establishments have seen larger than expected numbers of customers show up that have easily surpassed their expectations. Even retail outlets have seen their customers return, albeit wearing masks and gloves in many cases.

Even as businesses see a resumption in customer traffic, many in the U.S. appear to be having trouble getting their employees to come back to work. The stimulus packages that Congress passed as shutdowns and shelter-in-place orders were being issued over the last several months have given many of the near 40 million Americans who have filed for unemployment larger incomes than they were making at their former places of employment. Many appear to be content to sit on the sidelines and continue drawing unemployment until the expanded program runs out later this year. This was clearly an unintended consequence of the rush to get financial aid to workers who watched their jobs disappear as the virus widened its spread.

As states reopen, health officials continue to anxiously watch the statistics to see if a second wave of virus infections could be in the making. Any hint of a massive resurgence in virus cases could mean a second round of shutdowns, toppling the world into a recession far deeper than the one that economists are already projecting will almost certainly arrive in the wake of the pandemic.

China’s moves towards Hong Kong in combination with the backlash that continues to be aimed their way over the exact origins of the virus could heighten tensions between China and the rest of the world. Beijing’s attempts to stifle the doctors in Wuhan that were trying to issue warnings about the growing threat posed by the virus, along with failed attempts at early containment are largely being called out as the primary events that allowed the virus to escape into the rest of the world. Many countries are already angry over the economic devastation that has been wrought by the spread of the virus and many have made noises about China compensating them in some fashion.

Beijing tightening its grip on Hong Kong may be the proverbial “straw that broke the camel’s back” with regards to countries and businesses deciding to rethink the cost of partnering with China.

As uncertainty over the continued spread of the virus seems to begin to fade into the background and geopolitical uncertainty returns to the forefront, savvy investors continue to take steps to ensure that their portfolios remain well-diversified in the event of another economic downturn.

Physical precious metals continue to be viewed by many investors as a means to diversify their portfolios away from the extreme volatility surrounding equity markets.

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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