The Precious Metals Week in Review – July 24th, 2020

1. Escalating geopolitical tensions are now competing with the coronavirus for top media coverage. Market volatility can be expected to remain extreme as the pandemic continues unchecked and the U.S. and China begin yet another tit-for-tat exchange of bureaucratic hostilities.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment reversed course this week and surged by 109,000 claims from the previous week’s revised level to reach 1,416,000 claims. The previous week’s claims level was revised higher by 7,000 claims. The four-week moving average of claims continued to fall this week, however, dropping by 16,500 from the previous week’s revised average to reach a new level of 1,360,250. The previous week’s moving average was revised higher by 1,750 claims. Volatility in the unemployment data should be expected to continue into the Fall as new virus case counts rise and treatments and vaccine candidates remain elusive.

3. Optimism is beginning to fade that jobs that have been lost due to the pandemic will ever return. According to a new poll by Associated Press and the NORC Center for Public Affairs Research, nearly 50 percent of Americans who have had family members experience a layoff due to the pandemic believe that those jobs are now lost forever. Extrapolating the data, that would translate into nearly 10 million workers that must find a new company to work for, or an entirely new occupation altogether, a challenging task even if the economy was in full operating mode.

4. The wave of bankruptcies that began earlier this year as what were thought to be temporary closures became permanent shutdowns for many of the struggling brick and mortar stores in the U.S. More than 140 companies have declared bankruptcy this year in the U.S. alone and many blamed the pandemic, at least partially, for their failures. Ascena Retail Group, the owner of such iconic clothing stores as Ann Taylor and Lane Bryant was the latest to file and more are sure to follow. Landlords are increasingly nervous as their tenants remain unable to pay their rent and ask for leniency on their payments. The retail, service industry, and even the corporate real estate market will likely be forever changed by the effects that the pandemic has wrought in each of those sectors. The “new normal” is increasingly for workers to telecommute, or work from home, which means that corporate offices are already looking at downsizing their real estate footprints.

5. As the deadline for the end of the $600 per week enhanced unemployment benefit approaches in the U.S., Congress is scrambling to come up with another rescue package. The resurgence of the coronavirus in multiple states has led to renewed hardships for the unemployed as the businesses they were laid off from being forced to remain at limited capacity, or even undergo another shutdown. The payroll tax holiday that President Trump has been pushing for, saying he will refuse to sign any rescue package that does not include it, will reportedly not make the new bill. Treasury Secretary Steven Mnuchin said on Friday that the relief plan which Republicans are putting together will include an extension of the unemployment enhancements, but that it will be based on “approximately 70% wage replacement.” President Trump appeared to walk back his pledge not to sign any new legislation without the payroll tax holiday inclusion when he tweeted on Thursday:

The Democrats have stated strongly that they won’t approve a Payroll Tax Cut (too bad!). It would be great for workers. The Republicans, therefore, didn’t want to ask for it. Dems, as usual, are hurting the working men and women of our Country!

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

6. Tensions between the U.S. and China escalated this week when the U.S. ordered the Chinese Consulate in Houston, Texas to “cease all operations and events” on Wednesday. The U.S. claims that the closure was necessary to protect American intellectual property and the private information of U.S. citizens. The move came after emergency personnel responded to reports of smoke at the consulate on Tuesday night. Local media filmed what appeared to be officials from the compound burning documents in the courtyard as fire units were denied entry into the structure. Earlier in the week, the U.S. charged what it alleged are two Chinese hackers with a “sweeping global computer intrusion campaign” which targeted research on the new coronavirus which has been sweeping across the globe since December. The FBI also arrested a Chinese researcher for visa fraud for her failure to state that she had previously served in the Chinese military. China retaliated for the U.S.’ actions on Friday by ordering the closure of a U.S. consulate that is close to the autonomous region of Tibet. China’s Foreign Ministry said in a statement that “The current situation between China and the U.S. is something the Chinese side does not want to see. The responsibility lies entirely with the U.S. side. We again urge the U.S. side to immediately revoke its relevant wrong decisions, to create necessary conditions for the two countries’ relationship to return to normal.” U.S. officials have so far not said whether they will comply with the order to close the consulate in Changdu, China.

7. Crude oil prices remained fairly stable again this week. Brent crude settled slightly higher for the week on Friday, coming in at $43.34 per barrel, while West Texas Intermediate crude also settled higher for the week at $41.29 per barrel. Analysts remain cautious over demand outlooks, given that tensions between China and the U.S. – the world’s two largest oil consumers – escalated further this week and do not show signs of easing. Virus cases continue to climb around the world, which is also pressuring demand forecasts to the downside.

8. The euro dipped against the U.S. dollar at the start of trading for the week, but quickly recovered its ground and moved mostly sideways through Monday and Tuesday. Late Tuesday, the euro embarked on an upward move, stair-stepping higher through Thursday. The euro finished out the week continuing to drift higher and will close out the week to the upside against the U.S. dollar. The Japanese yen dipped slightly lower against the U.S. dollar at the start of trading this week but then drifted mostly sideways, hovering around its opening levels through most of the week. Late Thursday the yen began climbing and touched its highs for the week just prior to the close on Friday. The yen did dip slightly lower after touching its highs on Friday but will still close out the week to the upside against the U.S. dollar.

The ongoing pandemic and rising geopolitical tensions between the U.S. and China will likely continue to trigger increased volatility across all markets. The Trump administration ordered China’s Houston, Texas consular office to close on Wednesday, citing years of FBI intelligence-gathering that allegedly proves that the Houston location was a hotbed for Chinese spying in the U.S. Multiple U.S. officials say that the Houston consulate was used by the Chinese government to steal medical research and to attempt to infiltrate the oil and natural gas industries, which are highly prevalent in and around Texas.

On Tuesday, the day before the closure order, neighbors noticed people lighting fires in the consulate’s internal courtyard. When the Houston Fire Department responded to the calls regarding the smoke, they were refused entry into the structure. The fire department said, “Fire crews were denied access by building occupants…according to international agreement, access to the property can only be obtained with consent.” China retaliated for the U.S.’ moves by ordering a U.S. consulate near Tibet to shut down.

In other news regarding the China-U.S. relationship, the FBI arrested a fugitive Chinese researcher who apparently lied regarding her former service in the Chinese military on her visa application. The researcher had taken shelter in the San Francisco consulate but was eventually taken into custody.

The U.S. Congress is rapidly trying to draft another stimulus bill in its continued attempts to respond to the ongoing pandemic that has disrupted the economies of nearly every country on the planet. According to Senate Majority Leader Mitch McConnell, the new package will likely have a price tag of $1 trillion. The new plan, according to Treasury Secretary Steven Mnuchin, will contain an additional round of direct payments to U.S. workers in addition to an extension of emergency unemployment assistance from the Federal government.

The renewed surge in virus cases has forced many businesses to reduce capacity or even delay reopening, putting further pressure on the nation’s small businesses, many of whom have been without or at dramatically reduced income levels since early March.

Millions of Americans remain unemployed and the ongoing rise in virus cases is pushing the likelihood that they will soon be able to return to work further and further out.

The spread of the coronavirus remains a political hot-button in the U.S. as Joe Biden, the likely Democratic candidate for November’s presidential race tries to convince the public that President Trump’s response to the virus has been substantially lacking and that only he can turn the country back around. Biden faces heavy criticism for essentially pandering to extreme left-liberals that wish to defund the police in America and push the U.S. heavily towards embracing Socialism, if not outright Communism.

Accusations also continue to fly that not only Russia but China may now be attempting to “meddle” in America’s upcoming election.

As geopolitics and ongoing worldwide health concerns continue to result in hyper-elevated levels of uncertainty, investors have increasingly been turning to precious metals, particularly gold and silver, viewing them as safe havens for their hard-earned capital and a means to diversify their portfolios against another downturn in equity markets.

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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