The Precious Metals Week in Review – June 19th, 2020

1. Virus cases continued to rise this week in U.S. states that have reopened for business, with surges seen in Florida, Texas, and Arizona in particular. Beijing, China also saw a new batch of virus cases emerge from a local market and has supposedly traced the outbreak back to imported salmon that was being sold there, sparking concerns that the food supply could be a heretofore unproven vector that may allow the coronavirus to travel long distances and still remain viable for infecting people.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment continued to decline for the week ending June 13, falling by 58,000 claims from the previous week’s revised level to reach 1,508,000 claims. The previous week’s claims level was revised higher by 24,000 claims. The four-week moving average of claims also fell substantially this week, dropping by 234,500 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 6,000 claims. Volatility in the unemployment data can be expected to remain for the near term as a seemingly growing resurgence in virus cases triggers talk of a potential requirement of additional economic shutdowns.

3. Portland, Oregon became the second U.S. city to see protestors try to set up an “autonomous zone” by seizing control of city streets. Protestors tried to set up a camp outside of what they believed to be Mayor Ted Wheeler’s residence but quickly dispersed when police arrived, declared the gathering a civil disturbance and unlawful assembly, and threatened to begin making arrests. In Seattle, Washington, protestors have maintained control of several city blocks that they seized last week and have chosen to rename the area from the Capitol Hill Autonomous Zone (CHAZ) to the Capital Hill Occupied Protest (CHOP). The group now claims that they do not want autonomy from the government or to secede from the U.S. and that the previous name did not reflect that fact.

4. New coronavirus cases have continued to climb in the U.S. in the wake of massive protests and the reopening of some of the more southern states. Experts, who previously said that we could see a cessation in the number of cases as the U.S. enters its warmest months are now reversing that call, saying that when it gets too hot, people are more likely to head indoors and sit in the air conditioning, where the virus is more likely to remain viable. Former FDA Commissioner Scott Gottlieb said on MSNBC Thursday “It’s 100 degrees in Phoenix right now, 95 degrees in Houston, people are being driven indoors more, so you’re having more congregate settings inside, and that could also be contributing to the spread.”

5. China’s legislature passed a draft copy of its new Hong Kong national security bill this week which critics say is nothing more than a play to gain further control over Hong Kong. The new law has raised fears that Hong Kong could soon see its semi-autonomous freedoms revoked by an increasingly intolerant Beijing, in direct violation of the “One Country Two Systems” model. The “One Country Two Systems” approach was to be a hallmark of the former British colony’s handover back to mainland China and is what allowed the territory to maintain its special trading relationship with the U.S.

6. Tensions between Australia and China continued to escalate this week when Australia accused China of conducting a spate of recent cyber-attacks that have lasted for months. Prime Minister Scott Morrison was vague when making his statement, saying only that a “state-based actor” was responsible, but one Australian government source, speaking on condition of anonymity, said, “There is a high degree of confidence that China is behind the attacks.” China has denied any involvement in the attacks, calling Australia’s accusations “baseless” and “nonsense.”

7. A cross-border clash between India and China resulted in the deaths of 20 Indian soldiers this week. Troops from each side have been facing off for over a month along a 2,100-mile region called the Line of Actual Control. The region was established after a 1962 war between India and China and where the border is and who owns the territory has been hotly contested ever since. According to Indian governmental sources, the fighting erupted during a meeting that was supposed to be about de-escalating tensions and a colonel that oversaw the Indian troops was one of the first to be attacked and killed. Beijing claims that the Indian contingent “crossed the line, acted illegally, provoked and attacked the Chinese, resulting in both sides engaging in serious physical conflict and injury and death.” China said that none of its troops were harmed during the engagement, which seems to suggest that it was the Indians who were caught by surprise, not the Chinese. The United Nations has urged both sides of the dispute “to exercise maximum restraint” in the matter.

8. The Central Bank of Russia (CBR) opted to cut interest rates by 100 basis points this week, taking rates to a post-Soviet era low of 4.5%. The bank is attempting to boost Russia’s economy as it faces its own economic damage from the spread of the pandemic. The CBR said in a statement that disinflationary factors have been “more profound than expected due to a longer duration of restrictive measures in Russia and across the world.” The bank also said that “Household and business inflation expectations have abated. In these circumstances, there is a risk that in 2021 inflation might significantly deviate downwards from the 4% target.” The bank wrapped up with “If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings.”

9. Crude oil got a boost this week, posting its seventh positive week out of the last 8 on optimism that OPEC+, as the group has come to be known, showed signs of willingness to comply with agreed-to production cuts. Iraq and Kazakhstan both pledged to adhere to their portion of the production cuts that the group previously agreed to, which could mean supplies could tighten further in July. Brent crude settled at $42.12 a barrel while West Texas Intermediate (WTI) crude settled at $39.75 per barrel. Prices remain under pressure, however, as U.S. crude stockpiles hit yet another record this week.

10. The euro began the week fairly flat as trading opened but soon began climbing against the U.S. dollar as it entered Monday’s trading session. The euro touched its highs for the week in early morning trading on Tuesday but had taken a steep dive into negative territory by late Tuesday. The euro attempted a recovery on Wednesday but could not gain momentum and began moving lower in a stepped pattern through the rest of the week. The euro attempted another run back towards positive territory late Friday morning, but the momentum was quickly lost again and the euro looks set to close out the week at its lows against the U.S. dollar. The Japanese yen traded in a very narrow channel against the U.S. dollar until mid-week and then began moving higher late on Wednesday. The yen saw a brief reversal period Thursday near mid-day but quickly recovered and touched its highs for the week late Thursday evening. The yen dipped lower again overnight on Thursday, but the move was brief, and the yen traded mostly sideways through Friday and will close out the week to the upside against the U.S. dollar.

Civil unrest in the United States continues and the backlash against America’s various police forces has resulted in some of those police officers conducting so-called “sickouts”, where mass numbers call in sick and do not show up for work. Many of these officers have been forced to put their own lives on the line in dealing with the frequently violent protests and many of them apparently feel that their superior officers are not stepping forward to highlight the good things that America’s police forces do on a daily basis. Their hope is that showing the populace that there is a good side to the police force will help combat the near-constant media coverage of the examples of “bad” cops among America’s police which have recently triggered so much unrest.

The mass protests have sparked fear in health officials that a resurgence of COVID-19 cases could occur due to the large crowds and inadequate protections taken by the attendees. Many of the earliest states to open in the southern United States are now seeing resurgences in the number of cases, with Florida, Texas, and Arizona all making the news this week for setting new records. California reported 4,000 new cases in a single day on Thursday, its highest daily number ever. Apple announced that it would be re-closing 8 of its physical stores in the areas that had seen a resurgence of cases, prompting concerns that a renewed wide-scale economic shutdown could still be a possibility if the spread of the virus continues to accelerate

Health officials are leery of calling the renewed spread a “second wave” of infections, stating that this is more of a continuation of the first wave since the U.S. never really saw a true end to its number of infections. Much is still unknown about the nature of the virus and there are still widely varying views in the medical field as to whether it will become the newest “seasonal” virus, mutating every year, and remaining a long-term risk to society at large like seasonal influenza. Cases of reinfection – where an individual who was previously known to have the virus catches it a second time – continue to appear as well, adding to the fear that without an effective vaccine, having antibodies to the virus does not necessarily offer protection against future infections.

Geopolitical tensions continue to rise elsewhere in the world, particularly in relation to China. China passed a draft copy of the contentious national security law it has proposed for Hong Kong this week and also upped the pressure it has been putting on Australia in recent months. The new national security law would grant police powers to Beijing, allowing it to freely operate its intelligence networks within Hong Kong. The law also makes many of the forms of protests that the pro-democratic populace has engaged in over the last few years of criminal acts.

With regards to Australia, Beijing was angered by that country’s pressure on the World Health Organization to open an investigation into China’s handling of the initial outbreak of the virus in the early days of the pandemic. China has maintained that it has been open and transparent about the origins of the virus, but many still question the accuracy of those statements.

In recent weeks, China has engaged in economic retaliation against Australia, placing exorbitant tariffs on many of its agricultural products and encouraging its citizens and students not to travel to, or study in, Australia. Trade relations between China and the U.S. are also facing renewed uncertainty, however, a report late on Friday that China intends to accelerate the agricultural purchases that are committed to making from the U.S. at the start of the year gave markets renewed hope that the two countries may still be in their respective seats at the negotiating table.

Tensions between China and India also flared this week as forces from both sides clashed in a long-disputed border region. The clash resulted in the deaths of a significant number of Indian troops and yet no deaths on the Chinese side of the conflict.

Savvy investors continue to seek alternative assets to equities to ensure that their portfolios remain diversified against another downturn, particularly given the increased volatility in equities as headlines mention a resurgence in virus cases in the U.S. and rising geopolitical tensions. Many investors have continued to acquire physical precious metals for the purposes of helping to diversify their portfolios, viewing their historical role as safe havens in times of turmoil as remaining valid in today’s uncertain times.

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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