The Precious Metals Week in Review – June 26th, 2020

1. Virus cases continued to increase substantially this week, particularly in those U.S. states that have mostly reopened for business. Texas announced on Friday that it would be shutting bars down again, in addition to closing some outdoor activity venues such as rafting and tubing, due to the sudden surge in cases. Beijing, China is still seeing increasing numbers of cases, but the pace of new infections seems to be slowing and the government claims that the situation there is largely under control.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment continued to decline for the week ending June 20, falling by 60,000 claims from the previous week’s revised level to reach 1,480,000 claims. The previous week’s claims level was revised higher by 32,000 claims. The four-week moving average of claims continued to fall substantially this week, dropping by 160,750 from the previous week’s revised average to reach a new level of 1,540,000. The previous week’s moving average was revised higher by 8,000 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 the potential for additional economic shutdowns. Despite the drop in the rate of claims, the fact that the number of people applying for unemployment every week continues to exceed 1 million could mean the U.S. Congress may face mounting pressure to take steps to extend the current emergency unemployment program that adds an additional $600 per week to any State and Local payments that the unemployed receive.

3. New coronavirus cases have continued to climb in the U.S. and some of the states that had previously progressed a significant way into their reopening plans have decided to pause, or even partially roll back those plans. The state of Texas announced on Friday that it would be shutting down all bars that do not earn 51% or higher of their revenue through food sales as a result of the surge in infections the state has seen in recent weeks. Florida cases have also been surging and New York Governor Mario Cuomo, who has presided over New York’s attempts to slow the spread of the virus, announced this week that New York would force any travelers from known hotspots, Florida in particular, to endure a two-week quarantine upon arrival. Many view the governor’s step as retaliation for a similar ruling that Florida’s governor made when New York was itself a “hot spot”.

4. The surge in virus cases, combined with state leaders effectively shutting down their tourism industries, has caused travel-related stocks and the companies involved in the industry to plummet again. Hertz Rental Cars are continuing to try to find its way through bankruptcy after car rentals declined across the board due to a near-complete shutdown of the airline industry. Airline flights were just showing signs of regaining momentum, but stocks plunged this week as New York announced restrictions on any travelers entering the state. The more southern states in the U.S. such as Texas, Florida, and Arizona continued to see an increase in both the number of cases of COVID-19 and the number of hospitalizations so many of them will likely see an immediate impact to their air traffic as visitors change plans to avoid exposure. Airline executives returned to the White House this week to ask for more aid, looking for a lifeline to keep their industry operating until the pandemic has run its course. The Hotel industry has been similarly affected by the increase in new virus cases and is also heavily lobbying Washington, D.C. for more aid.

5. Beijing, in contradiction to the U.S., has declared its latest outbreak of COVID-19 to be under control. China has reportedly tested over 3 million people that are deemed to have some link or association with the market in which the latest outbreak in Beijing began. Many questions remain over whether the data regarding infection rates that are coming from China is truly “transparent and reliable”.

6. The U.S. is not the only country seeing a surge in coronavirus cases as mandatory lockdown restrictions have been eased. The total number of confirmed cases of COVID-19 globally is now approaching 10 million, according to data from Johns Hopkins University, and over 480,000 people have died of the virus. Germany, which was widely praised for acting early and implementing widespread testing in its efforts to combat the pandemic, has seen its a resurgence of infections. Brazil has seen its number of cases increase substantially and now has the second-highest number of confirmed coronavirus cases in the world.

7. The International Monetary Fund slashed its forecasts for the global economy in 2021 as new virus cases flared anew. The IMF warned that public finances are expected to drastically deteriorate as governments continue their spending sprees to fight the impact of the pandemic. The projections for the global gross domestic product (GDP) are now for a contraction of at least 4.9% in 2020, lower from the IMF’s original forecast for a 3% fall back when virus cases were spiking in April. In its World Economic Outlook update, the IMF said: “The Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast.” The group also downgraded its recovery forecast for 2021, projecting economic growth would be 5.4%, also down from the 5.8% growth forecast that it previously made in April. Keep in mind, the positive growth figures for 2021 are basis the lowered expectations for 2020, not a resumption of pre-pandemic levels.

8. Crude oil moved inversely to the number of new coronaviruses this week. As new case numbers rose, oil prices dipped on expectations that additional economic shutdowns or other steps to attempt to slow the further spread of the virus could mean another drop in demand for oil. Brent crude settled at $40.90 while West Texas Intermediate crude fell to $38.49 per barrel. Crude had been rising early in the week on a projected increase in fuel demand as people were expected to take to the roads for the coming holiday next week, but the jump in U.S. virus cases and restrictions placed on travelers by New York and New Jersey if they are coming back from areas deemed to be “hot spots” have now dampened those projections. Some employers have asked their employees to delay resuming their daily office commutes and continue working from home, which could also lead to less demand for fuel than previously estimated.

9. The euro seemed to experience an anomaly as it opened for trading this week, spiking vertically higher against the U.S. dollar and then immediately dropping back to touch its lows for the week as trading switched from Asia to Europe early Monday. The euro then moved steeply higher, with only a few brief dips to the downside and touched its highs for the week around mid-day on Tuesday. The euro then embarked on a steady downward drift into late Thursday afternoon but did not accelerate its drop back into negative territory. The euro ended the week moving basically sideways, hanging just above its opening levels for the week, and will finish slightly higher against the U.S. dollar. The Japanese yen moved sideways as trading opened for the week. The yen dipped briefly into negative territory on Tuesday morning, then quickly surged to touch its highs for the week. Late evening on Tuesday the yen began a relatively steep decline and had moved into negative territory again, touching its lows by mid-afternoon on Thursday. The yen attempted a slight recovery into Friday’s trading but dipped back to the downside and will close out the week to the downside against the U.S. dollar.

The rising number of confirmed coronavirus cases, and the rising number of hospitalizations, have led to mainstream media outlets returning to calls for more economic “doom and gloom”. Health officials continue to be cautious about calling the renewed spread a “second wave”, preferring to consider the latest resurgence just a continuation of the original outbreak. As U.S. states put their reopening plans on hold or even begin to reverse course and shut down some areas of their economies again, the pressure will increase on Congress and the Federal Reserve to take additional steps to rescue the businesses and their employees that are hardest hit by the closures.

The travel industry currently appears to be doing the most lobbying of Congress for additional bailouts, with the cruise industry, airlines, the hotel industry, rental car companies, and similar travel and tourism-related businesses all getting in line with their hands out, trying to salvage their business models.

A renewed rise in the spread of the virus around the world could have a severely negative impact on global unemployment numbers once more. Numbers of new unemployment claims have been on the decline as optimism grew that the world was reopening once more and many companies began the process of bringing their workforces back. Troubling signs that a full economic reopening across the globe could be delayed further have corporate boards and officers rethinking their decisions to return to full employment.

Tensions between the U.S. and China continue to escalate and Alan Dupont, chief executive of Cognoscenti Group – a risk consultancy firm – said that the dispute “is becoming more systemic and it’s really becoming a winner-takes-all kind of contest so that’s the worst potential outcome.” Dupont compared the growing dispute to the Cold War between the U.S. and the Soviet Union, saying “Unlike the first Cold War where the primary contest between the United States and Soviet Union was a geopolitical one…both systems, both constellation of countries, didn’t have much to do [with each other] from a trade and financial point of view. That is not the case today. That is why I think the ramifications of this conflict – this worsening rivalry between the U.S. and China – is going to be potentially very serious.” The United Arab Emirates apparently agrees with Dupont’s assessment.

The UAE’s Minister of State for Foreign Affairs, Anwar Gargash, told CNBC this week that “I would say that the UAE’s concern over this hostile confrontation is a global concern. And we’re not alone here.” Speaking to CNBC in Abu Dhabi, Gargash said “Every time we see confrontation between Washington and Beijing, the markets actually tremble and clearly I would say that competition between these two giants will continue, and to a certain extent, it will be natural. But I think we have an interest that this competition is more nuanced, and that it, at the same time, does not shake what is already a very weak international system.”

On Monday, White House trade advisor Peter Navarro was reported by Fox News as saying that the U.S.-China trade deal is “over”. Navarro later denied having said that exact word, claiming that Fox News took his words out of context, and said that the so-called Phase One deal remains intact. President Trump repeated Navarro’s walk-back late on Monday, tweeting:

The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!

— Donald J. Trump (@realDonaldTrump) June 23, 2020

Precious metals, particularly gold and silver, have seen renewed demand as investors seek further diversification for their portfolios amid the increasing global uncertainty. Many investors began acquiring physical gold and silver for their portfolios as price suppression over the last several years gave them buying opportunities to do so. Many investors have continued to increase their holdings even as prices began to rise along with global uncertainty levels.

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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