The Precious Metals Week in Review – July 10th, 2020

1. Virus cases continued to increase substantially, particularly in the U.S. which saw additional record-setting daily case counts of COVID-19 this week. Some experts now estimate that up to 1 in 150 Americans may now be infected with the coronavirus.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment continued to decline for the week ending July 4, falling by 99,000 claims from the previous week’s revised level to reach 1,314,000 claims. The previous week’s claims level was revised lower by 14,000 claims. The four-week moving average of claims continued to fall this week as well, dropping by 63,000 from the previous week’s revised average to reach a new level of 1,437,250. The previous week’s moving average was revised lower by 3,500 claims. Volatility in the unemployment data can be expected to remain for the near term as virus cases continue to surge across the U.S.

3. U.S. producer prices unexpectedly fell in June. Economists had predicted that the Producer Price Index (PPI) would climb by as much as 0.4% in June based on an expected surge in demand from consumers that had taken to online shopping during their shelter-in-place orders. The expected demand for goods apparently did not materialize in June and producer prices instead slid by 0.2%.

4. The World Health Organization warned again this week that the virus is “getting worse” in most of the world. According to Johns Hopkins University, the number of global cases has now surpassed 12.2 million. Australia, Hong Kong, and many U.S. States have all returned to some form of lockdowns as cases surge in those areas. The WHO’s Director-General Tedros Adhanom Ghebreyesus said in opening remarks to member states this week that “The pandemic is still accelerating” and cautioned that “The virus can be brought under control, but in most of the world, the virus is not under control; it’s getting worse.”

5. Italian and French industrial data substantially surprised economists to the upside this week, in contrast to the U.S.’ poor showing, Italian industrial production jumped by over 40% in May as the country began easing its lockdown restrictions. The number easily beats analysts’ forecasts for a production recovery in Italy of just over 20%. France also saw a surprising surge in industrial output, climbing by 19.6% in May, handily beating economists’ expectations for recovery there of just over 15%. France’s weaker numbers are likely due to that country waiting until May 11 before it began easing its own virus-related lockdown restrictions.

6. Contrary to Italian and French news, Germany reported weaker than expected numbers this week. Industrial production rose by just 7.8% in May, well under the 10% that analysts had been projecting and not nearly enough to offset April’s 17.5% contraction as virus mitigation orders went into effect. On Tuesday, the European Commission cut its economic forecast for the entirety of the European Union, saying they expect the region to contract by 8.3% overall in 2020, followed by a rebound of 5.8% in 2021. Previous forecasts issued in May had called for a shallower 7.4% contraction for total GDP across the EU, followed by a rebound of 6.1% in 2021.

7. White House health advisor Dr. Anthony Fauci said on Wednesday that those U.S. states that are experiencing a rapid surge in coronavirus cases should seriously consider closing their economies again. Fauci said “What we are seeing is exponential growth. It went from an average of about 20,000 to 40,000 and 50,000. That’s doubling. If you continue doubling, two times 50 is 100. Any state that is having a serious problem, that state should seriously look at shutting down.” Fauci did acknowledge however that “It’s not for me to say because each state is different.” Fauci further elaborated on his shutdown comments later in the week, saying “Rather than think in terms of reverting back down to a complete shutdown, I would think we need to get the states pausing in their opening process, looking at what did not work well and try to mitigate that. I don’t think we need to go back to an extreme of shutting down.”

8. U.S. Federal Reserve officials have continued to publicly state that monetary policy will remain “accommodative” for the foreseeable future due to the economic damage wrought by the continued spread of the coronavirus. Cleveland Fed President Loretta Mester said this Tuesday that in Ohio, “Over the past week or so, there’s been some leveling off [of the economy], and I think it’s probably due to the increase in cases, not only in Ohio but across the country.” She continued, saying “I think it’s going to be a long road back to where we were in February. That’s why the Fed has been saying we’re here with our tools and we anticipate having very accommodative monetary policy for quite some time in the future, because it’s just going to take a long time to work through this.”

Mester also called on Congress to take additional action, saying “If we don’t get further fiscal support, things won’t come back as well as they could. This is a period where we need to be supporting both individuals and businesses who, but for the virus and pandemic, would have been healthy, to get them through this period so we can then have a more grounded recovery and try to get back to where we were in February.”

9. Crude oil continued to see some support this week after the International Energy Agency boosted its 2020 demand forecast based on further economic recovery. The pressure was still on oil however, as surging virus cases, particularly in the U.S., raised the specter of the need for another wave of economic shutdowns. Brent crude was little changed from the week before, on track to settle just under $43 per barrel while West Texas Intermediate was on track to fall by about 1% for the week, hovering just over $40 per barrel.

10. The euro once again traded in a fairly narrow band against the U.S. dollar for the week. It began the week shooting to the upside, drifting sideways through Monday night, then giving back about half of the ground it had gained. On Wednesday around mid-day, the euro moved near vertically higher, touching its highs for the week in early morning trading on Thursday. The euro spent much of Thursday and Friday morning sliding lower again before conducting another sudden reversal. The euro did not regain its highs for the week but will still manage to close out higher against the U.S. dollar. The Japanese yen drifted sideways against the U.S. dollar as trading opened for the week but dipped lower in the early hours of Monday morning. The yen quickly regained ground but took a couple of dips back into negative territory as it moved into Wednesday. Early on Wednesday, the yen began an upward move that took it to its highs for the week by late evening on Thursday. The yen saw a shallow reversal into Friday’s trading but still looks set to close out the week to the upside against the U.S. dollar.

COVID-19 continues to be the primary driver for volatility in all markets. Many countries have begun to put their economic reopening initiatives on hold or even reverse them entirely.

Hong Kong has shut down schools again in response to a surge in cases and many of the U.S. states in the so-called “Sun Belt”, such as Florida, Texas, California, and Arizona, have tightened restrictions in some cities again.

Despite the massive spike in virus cases, stocks continue to surge on every headline of possible progress in creating a viable treatment or a preventative vaccine to combat the further spread of the virus.

The U.S.’ relationship with China has continued down a path of deterioration. President Trump said on Friday that the relationship has been “severely damaged” by the outbreak of the virus. While traveling on Air Force One to Florida, Trump told a group of reporters that he was not even considering “phase two” of the trade deal that was struck prior to the emergence of the virus. Trump said earlier in May that he might even consider scrapping “phase one” of the deal but such talk was short-lived and has not yet resurfaced.

Tensions continue to grow between China and the U.S. over Hong Kong as well. The national security law that Beijing recently passed to tighten its grip over Hong Kong has led the U.S. Congress to propose several actions against China, including revocation of Hong Kong’s continued special economic relationship with the United States. The U.S. has also now leveled sanctions against some Chinese Communist Party officials with regards to alleged human rights abuses in China’s northwestern region of Xinjiang. China said it will “definitely fight back” against the U.S.’ interference in its internal affairs. Foreign ministry secretary spokesperson Zhao Lijian said such acts by the U.S. “threaten [China’s] sovereignty, security and development interests.” The U.S. is not the only country to experience heightened tensions with China.

Tensions between Australia and China also have continued to ratchet up since the outbreak of the virus. The pandemic has dealt with widespread economic damage to countries all over the world, with very few exceptions. The length of the outbreak has crushed the travel, leisure, and service industries and there is a growing fear that the pandemic could change consumer behavior for a generation.

Barclays director of credit strategy, Ryan Preclaw, said “The state of the outbreak clearly still has the ability to influence economic outcomes. Economic damage appears to be spreading widely, regardless of where cases are concentrated.”

In the U.S., where the outbreak appears to be resurging, consumers are fast canceling their summer travel plans and many are now expressing fear of leaving their homes to shop or enjoy entertainment.

As economic outlooks continue to diminish, savvy investors continue taking steps to ensure that their portfolios remain diversified against further geopolitical and economic uncertainty. Many analysts continue to recommend owning precious metals as part of a well-diversified portfolio, even as prices continue to rise.

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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