The Precious Metals Week in Review – July 3rd, 2020

1. Virus cases continued to increase substantially this week, particularly in the U.S., which has seen multiple states that had been steadily reopening their economies not only pause their reopening phases but actually begin to shut some things down once more.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment continued to decline for the week ending June 27, falling by 55,000 claims from the previous week’s revised level to reach 1,427,000 claims. The previous week’s claims level was revised higher by just 2,000 claims. The four-week moving average of claims continued to fall substantially this week as well, dropping by 117,500 from the previous week’s revised average to reach a new level of 1,503,750. The previous week’s moving average was revised higher by only 500 claims. Volatility in the unemployment data can be expected to remain in the near term. Renewed shutdowns of substantial areas of the U.S. economy, as virus cases continue to spike, will likely mean additional layoffs. This could be devastating to U.S. workers as the emergency “Payroll Protection Program” and emergency unemployment supplements passed by Congress to try to save American jobs during the pandemic all begin to expire.

3. The June Non-Farm Payrolls Report was released early this week due to the holiday-shortened trading week. Thursday’s report blew past economists’ expectations by almost double. Economists had projected non-farm payrolls to increase by 2.9 million for the month of June as the country began reopening its economy, but the report showed a staggering 4.8 million jobs were regained. The unemployment rate fell to 11.1%, which also beat economists’ expectations and marked a low in unemployment since the economic crisis was triggered in early 2020 by the spread of the virus. Renewed closures due to surging coronavirus cases could mean further volatility in the payrolls data for the month of July.

4. New coronavirus cases have continued to climb significantly in the U.S. On Wednesday, the country reported over 50,600 additional cases of COVID-19, the largest single-day increase in new infections since the pandemic began. The figure painted a stark picture of how far the U.S. has yet to progress in its fight against the new virus. Many had thought that the U.S. had seen its peak in infections earlier this year, a fact that led to the easing of restrictions and reopening of some states’ economies. The European Union announced this week that it would ban U.S. citizens from entry from when travel restrictions for the EU were lifted on July 1 due to the renewed surge in infections. Texas, Arizona, California, and Michigan have all taken steps to shut down certain “hot spot” businesses that are being blamed for the renewed spread, such as bars, indoor dining areas, and even some outdoor recreational venues such as water parks. Many states that are seeing the worst outbreaks are beginning to mandate that masks and facial coverings be worn by all citizens when in public.

5. As cases of COVID-19 continue to surge around the world, scientists are closely watching a new strain of flu that has recently emerged, once again originating in China, that could pose yet another threat of a pandemic. Scientists have identified a new strain of flu, carried by pigs in China, that apparently is descended from the same type of flu that caused the 2009 swine flu pandemic which first emerged in Mexico. Scientists say the new strain has “all the essential hallmarks of a candidate pandemic virus” and also shows some characteristics of the 1918 flue which devastated the world population during World War I.

6. The World Health Organization warned this week that “Although many countries have made some progress, globally, the pandemic is actually speeding up.” Tedros Adhanom Ghebreyesus, director-general of the WHO continued, saying “We all want this to be over. We all want to get on with our lives, but the hard reality is that this is not even close to being over.” New cases in the U.S. as of Sunday’s reporting made up over 23% of the new global cases of COVID-19, with Brazil being the only other country in the world reporting more cases than the U.S. It is important to note that while the number of coronavirus cases continues to climb, the number of deaths attributed to COVID-19 has begun to substantially drop. This fact seems to reinforce the view that the world truly is more prepared to deal with and treat new virus infections than it was at the outset of the pandemic.

7. The International Monetary Fund said this week that Asia‘s economy is expected to contract by up to 1.6% this year. The IMF originally forecast “no growth” in April but stopped short of calling for a contraction. The IMF posted in its blog on Tuesday that it is now projecting for Asia’s economy is to shrink this year “for the first time in living memory” and warned that it could take years before a full recovery can be made. Changyong Rhee, director of the Asia and Pacific department at the IMF, told CNBC’s “Squawk Box Asia” program on Wednesday that “Even if we develop new medical solutions, the recovery of…contact-intensive sectors will be slow, tourism for example. So, because of that, I think Asia’s recovery will be protracted.”

8. Beijing unanimously passed its new national security law for Hong Kong this week and immediately took direct action based on the expanded powers it gives them to act within Hong Kong. Thousands took to the streets in protest of the new law and Hong Kong police used their new enforcement powers to make hundreds of arrests. The Trump administration began the necessary steps to remove Hong Kong’s special designation, Congress passed a new sanctions bill targeting China, and Secretary of State Mike Pompeo announced on Friday that new visa restrictions on Chinese officials. All these steps were made in response to what is widely viewed as Beijing’s move to place massive restrictions on freedoms in Hong Kong.

9. Crude oil got a reprieve this week as the better-than-expected Non-Farm Payrolls Report and a drop in U.S. crude stockpiles painted a rosier picture of oil demand. U.S. crude inventories fell by 7.2 million barrels, but a rise in gasoline stocks could mean a new cessation in demand may be on the horizon as U.S. citizens begin to rethink their summer travel plans amid surging virus cases. Brent crude settled at $42.53 per barrel while West Texas Intermediate crude settled at $40.17 per barrel.

10. The euro had a rollercoaster ride against the U.S. dollar this week. The euro saw meager gains as Asia opened on Sunday night, but began climbing as Monday’s trading got underway. The euro reversed course late afternoon on Monday but halted its drop before it could touch its opening levels again and attempted to stage a recovery. As Tuesday began, the euro saw several steep declines, moving to its lows for the week by mid-day. The euro reversed again late on Tuesday, shifting back into positive territory once more, but could not maintain its momentum and had slid back to its lows again by mid-day on Wednesday. The euro saw a steep surge to the upside late afternoon on Wednesday, regaining positive territory and moving to touch its highs for the week by Thursday. The euro reversed course again late on Thursday and plunged back near its opening levels for the week, but still appears set to close out the shortened trading week slightly to the upside against the U.S. dollar. The Japanese yen began the week trading in a narrow band back and forth between positive and negative against the U.S. dollar but had begun a relatively steep decline by late afternoon on Monday. The yen touched its lows for the week in early morning trading on Wednesday but quickly shot higher. The yen could not maintain its upward momentum and began moving sideways against the U.S. dollar for the rest of the week. The yen appears set to close out the shortened trading week slightly to the downside against the U.S. dollar.

The better-than-expected U.S. Non-Farm Payrolls report sent stocks surging on Thursday despite a new record in reported cases of COVID-19 in the U.S. Many U.S. states have begun reversing course on their decisions to reopen their economies, with many opting to place additional restrictions on their businesses and citizenry. Texas and Florida have decided to shut down their bars once again, closing any of those who do not earn at least 51% of their revenues from food sales. Many in the media are blaming younger crowds that have been congregating in bars and nightclubs for the renewed resurgence in virus cases, glossing over the fact that the large protest movements that began sweeping through the nation after the death of George Floyd occurred have also likely played a large part in the renewed transmission of the disease.

The surge has led to further negative outlooks for travel and tourism-related industries such as hotels, airlines, and cruise lines. Even Uber and Lyft remain under pressure as companies continue to encourage their employees to work from home and business travel remains a scarcity.

China has begun flexing its muscle in the Asian region following the unanimous passing of its new national security law for Hong Kong. Hong Kong police arrested hundreds of protestors this week after the new law went into effect, utilizing their new powers to curtail the pro-democracy protests that have plagued Hong Kong since China began exerting ever-growing pressure over the region. The United States has already begun taking steps to remove Hong Kong’s special designation that previously allowed it to trade with the U.S. outside of the onerous tariffs that have been placed on China. Other nations have also voiced concern over the growing anti-democratic measures that China is enforcing and many businesses have stated that they may move their operations out of Hong Kong, jeopardizing its role as one of the premier financial hubs in Asia.

On Wednesday, China also began five days of military drills off the Paracel Islands, where Vietnam has competing claims, forcing Vietnam to lodge a formal complaint with Beijing and calling the drills “detrimental” to China’s relationship with the Association of Southeast Asian Nations (ASEAN). Vietnam and the Philippines have both warned of growing insecurity in the Southeast Asian region, hinting that China may be using the coronavirus pandemic as a distraction that could allow it to extend its reach into the highly contested territory. The U.S. has also called China out for its “bullying behavior” in the South China Sea and similarly accused Beijing of using the pandemic as cover to reinforce its disputed territorial claims in the area through a recent surge in naval activity.

The Eurasia Group’s director for the U.S., Todd Mariano, said that issues surrounding the new law in Hong Kong and the South China Sea have added to the growing tensions between the U.S. and China. Mariano said “There’s a lot of room for escalation here. I think that it’s, by now, quite clear that we’re in for the darkest chapter yet of U.S.-China relations.” Mariano continued, saying “We’re seeing moves now more on the technology and export front. I think the troubling sign is simply the multiplicity of fronts at which the two countries are fighting or preparing to fight.”

Russians overwhelmingly appeared to vote to alter the country’s constitution this week and the new modifications could allow President Vladimir Putin to stay in power all the way up to 2036. Opponents to the changes have cited several irregularities with the vote, including ballot boxes that were apparently scattered around parks and streets, the ability to vote online or from abroad, and rumors of prizes being offered to citizens as incentives to vote.

With virus cases flaring and renewed geopolitical tensions between China and its neighbors, as well as continued escalation of tensions between China and the U.S., volatility can be expected to remain elevated in all markets.

Savvy investors continue to take steps to ensure that their portfolios are sufficiently diversified as we enter the second half of what has become a record-breaking year – for all the wrong reasons. The Fed and other central banks have all flooded the financial system with money that they’ve effectively printed out of thin air and the effects of all these efforts to combat the economic devastation wrought by the ongoing pandemic will not be known for years. The result of such a massive flood of liquidity into the markets would ordinarily be substantial inflation, but signs of any sort of inflation taking hold, other than in food prices, have stubbornly refused to appear.

Precious metals, particularly Gold and Silver have picked up renewed interest from investors who are seeking safe-haven assets for their capital as volatility and uncertainty remain elevated around the world.

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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