The Precious Metals Week in Review – June 12th, 2020

1. Protests continued in the U.S. this week, triggered by the death of George Floyd at the hands of the Minneapolis police force earlier this month. The protests appear to have evolved into a disorganized and chaotic mix, with most groups demonstrating for truly equal rights among all Americans while others appear to be simply taking advantage of the situation to foment general anarchy and lawlessness among society. Volatility continued in equity markets this week as new uncertainties over the progress in controlling the spread of COVID-19 arose amid a spike in new cases of infection.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment was lower again for the week ending June 6, falling by 355,000 claims from the previous week’s revised level to reach 1,542,000 claims. The previous week’s claims level was revised higher by 20,000 claims. The four-week moving average of claims also fell again this week, dropping by 286,250 from the previous week’s revised average to reach a new level of 2,002,000. The previous week’s moving average was revised higher by 4,250 claims. Volatility in the unemployment data can be expected to remain for the near term as protests and further increases in COVID-19 cases begin to impact the U.S. worker’s ability to report for their jobs.

3. In the city of Seattle in Washington State, the protests that were triggered by the death of George Floyd and ostensibly begun in order to demand that the U.S. address systemic social injustices and make reforms to the police forces within its society, have taken a hard-left turn into chaos and overall lawlessness. Protestors have seized several city blocks and have declared the area a police-free “autonomous zone”. The protestors took over after the Seattle police vacated its East Precinct building following a series of violent clashes with the growing mobs. President Trump has been highly critical of both the Governor of Washington State and the Mayor of Seattle, categorizing the seizure of 4 city blocks by the protestors as anarchy. In a tweet directed at the officials, Trump said “Domestic Terrorists have taken over Seattle, run by Radical Left Democrats, of course. LAW & ORDER!” In a later tweet directed at Seattle’s mayor Jenny Durkan and Washington governor Jay Inslee, Trump said “take back your city NOW… If you don’t do it, I will. This is not a game. These ugly Anarchists must be stopped IMMEDIATELY. MOVE FAST!” Governor Inslee tweeted back “A man who is totally incapable of governing should stay out of Washington state’s business.”

4. New coronavirus cases have spiked in many of the first states that reopened their economies and analysts fear that the increase in infections could inflict further damage on the already battered U.S. economy as a whole. Both Treasury Secretary Steven Mnuchin and economic advisor Larry Kudlow have said that the U.S. economy will not be completely shut down again as it was earlier this year during the initial outbreak of the virus, saying that local hospitals and state governments now have the capability to handle any surge in cases. The Center for Disease Control (CDC) disagreed with Kudlow and Mnuchin however, warning that “If cases begin to go up again, particularly if they go up dramatically, it’s important to recognize that more mitigation efforts such as what were implemented back in March may be needed again.”

5. U.S. import price data saw its largest gain in more than a year as states continue the slow process of reopening and getting back to work. Producer prices are on the rise as well, primarily driven by the increasing costs of food. In May, wholesale food costs in the U.S. rose by 6%, the largest increase since 2009. The cost of meat alone surged by 40% as many packing plants were forced to shut down for multiple days over worker safety concerns and to conduct sanitization amid coronavirus outbreaks at their facilities.

6. The Federal Reserve conducted its most recent Federal Open Market Committee meeting this week, which ended on Wednesday. The Fed opted to leave interest rates unchanged and sees them staying at current levels for significantly longer. At his virtual press conference after the meeting, Chairman Jerome Powell said that the Fed sees interest rates staying near zero through 2022 despite a projected increase in Gross Domestic Product (GDP) next year, taking it near 5%.

7. Tensions between Australia and China flared further this week when China urged its international students to “be cautious” about choosing Australia as one of their overseas education choices due to alleged racism there. China’s Ministry of Education claimed that there are increasing incidents of discrimination against Asians following the coronavirus pandemic, particularly against the Chinese in general, since the virus originated in its city of Wuhan. In further action against Australia, Beijing has also suspended some beef imports, placed massive tariffs on Australian barley crops, and advised its general citizenry to avoid traveling to Australia, all under the guise of racial discrimination. China is Australia’s largest trading partner, purchasing up to one-third of everything that it exports and the disruption of trade between the two will be particularly hard on Australia.

8. Crude oil saw its worst weekly performance since April this week, ending a 6-week streak of gains that had been primarily driven by optimism over progress in the fight against the spread of the coronavirus. West Texas Intermediate, the U.S. benchmark for crude, settled at $36.26 per barrel while Brent crude, the international benchmark, settled at $38.73. The declines were brought about by renewed concerns that the pandemic could be far from over. Bob Yawger, director of energy futures at Mizuho, said “We definitely have an explosion of cases in areas that were not really affected before. That ultimately leads to less people driving, less demand for gasoline.” U.S. crude inventories also saw a massive build-up to a record 538.1 million barrels despite nearly every oil-producing nation in the country cutting their production levels.

9. The euro began the week moving in a fairly flat pattern, bouncing in a narrow channel between positive and negative through mid-morning on Tuesday. The euro looked set to plunge on Tuesday, but quickly reversed course, surging higher and then embarking on a trend to the upside that saw it touch its highs for the week late on Wednesday night. The euro moved sideways, again in a narrow channel, through late Thursday and then plunged back near opening levels as Friday opened. The euro attempted to make a recovery on Friday, but a steep plunge just prior to the market closing will see the euro finish the week out to the downside against the U.S. dollar. The Japanese yen spent nearly the entire week climbing against the U.S. dollar, taking a fairly smooth path to the upside that saw it touch its highs for the week late on Thursday night. The yen reversed course overnight on Thursday, but the decline was minimal, and the yen will close out the week higher against the U.S. dollar.

Civil unrest in the United States continues and appears to be evolving into multiple protest movements. The violence, property destruction and looting that marked the beginning stages of the protests seem to have abated some, but pockets of violence remain in most major cities in the U.S. The large crowds gathering at these protest events are also sparking concerns among health officials that such gatherings may very likely be another vector for the surge in coronavirus infections that the U.S. has seen in recent weeks.

Market volatility has increased amid fears that the U.S. consumer may be forced back into hiding as the virus shows signs of an increasing its spread again. Many have criticized the U.S. states that have begun reopening their economies as taking the step too soon, or not taking adequate measures to ensure that the spread of the virus would remain minimal. Arkansas and Texas both have seen their cases increase, contradicting the popular theory that in the heat of summer, the rate of infection might decrease.

The Federal Reserve’s economic forecasts for the coming years are wildly varied, with some Fed officials seeing a surge in consumer spending that could rival that of the “eighties excess” years, referring to the massive consumer spending spree that the U.S. witnessed in the 1980s, while others see a deepening recession brought about by the continued spread of the virus. Fed Chair Powell noted that there is a “high level of uncertainty” surrounding the impact of the pandemic on the U.S. economy, and the world economy as a whole, saying “Given the unusually high level of uncertainty about the outlook, many participants noted that they see a number of reasonably likely paths for the economy and that it’s not possible to identify with confidence a single path as the most likely one.”

Economists will be watching next week’s slew of economic data, particularly retail sales, for indication on the odds that the U.S. economy can essentially pick up where it left off just prior to the outbreak of the pandemic in early 2020. Many economists are expecting the largest jump in consumer spending ever as states relax restrictions and the populace can get out of their homes, spending and traveling freely. Consumer spending makes up the largest component of U.S. GDP and a surge in spending could help put the U.S. economy back on track to get out of its deepening recession.

Savvy investors continue to take steps to make sure that their portfolios remain diversified against further uncertainty in volatile equity markets. Many continue to acquire physical precious metals as part of their diversification plans, acquiring additional products for their portfolio whenever 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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