The Precious Metals Week in Review – July 31st, 2020

1. As we pass the halfway mark of what has been a record-setting year, volatility and uncertainty continue across all markets. Much is still unknown about the virus that triggered the ongoing pandemic, but most medical professionals agree that the “first wave” of infections is still underway. The financial effects of the pandemic on the world’s massively interconnected set of economies cannot yet begin to be assessed while so much remains unknown.

2. For the week ending July 25, the seasonally adjusted number of Americans filing initial claims for state unemployment rose by 12,000 claims from the previous week’s revised level to reach 1,434,000 claims. The previous week’s claims level was revised higher by 6,000 claims. The four-week moving average of claims also rose, climbing by 6,500 from the previous week’s revised average to reach a new level of 1,368,500. The previous week’s moving average was revised higher by 1,750 claims. Volatility in the unemployment data should be expected to continue as research into treatments and vaccines for the coronavirus has yet to come up with a solution that would definitively slow the spread of the pandemic.

3. Republicans and Democrats in the U.S. Congress hit a stalemate in their talks over an additional relief package to alleviate the ongoing economic damage brought on by the spread of the coronavirus that originated in Wuhan, China in late December of 2019. An enhanced federal unemployment benefit that added $600 more in additional benefits to those who are already receiving state unemployment benefits is set to expire at midnight on July 31 and the two sides have failed to negotiate another rescue package in time to avert that deadline. Democrats completely shut down the Republican idea of attempting to pass a short-term extension while the negotiations continue, so millions of Americans who remain unemployed will suddenly find their incomes cut yet again.

4. The nationwide moratorium on evictions is also set to expire in the U.S. at the end of the week and the many families and homeowners who have been faced with a drastically reduced income as a result of the economic shutdown brought about by the coronavirus could now be faced with being forced out of their homes too. Many landlords have offered leniency to their tenants, particularly in the commercial space, but now that we are a full 6 months into the pandemic, those same landlords are facing bills which they too may be unable to pay since their own revenue streams have dried up.

5. Data released on Thursday this week showed that the U.S. Gross Domestic Product (GDP) fell by a record of 32.9% during the second quarter. Not even the Great Depression, nor any other recession or economic slump over the last 200 years, has ever caused such a drastic drop in the economy. The Commerce Department released its first analysis of the economic data on Thursday and while the data is historically bad, it was not as bad as economists that were surveyed by the Dow Jones had feared. Economists had projected a fall of nearly 35%. Mark Zandi, chief economist at Moody’s Analytics had this to say about the report: “[it] just highlights how deep and dark the hole is that the economy cratered into in Q2. It’s a very deep and dark hole and we’re coming out of it, but it’s going to take a long time to get out.”

6. A growing secondary effect of the spreading pandemic has been the large-scale abandonment of cash in favor of credit cards or other forms of contactless payments. In the U.S., most businesses are asking for customers to pay with exact change or via credit card due to a nationwide shortage of coins. The shortage has become so prevalent that the U.S. Mint is asking citizens to help get coins back into circulation. In a statement, the Mint said “There is an adequate amount of coins in the economy, but the slowed pace of circulation has meant that sufficient quantities of coins are sometimes not readily available where needed. We ask that the American public start spending their coins, depositing them, or exchanging them for currency at financial institutions or taking them to a coin redemption kiosk.”

7. Tensions between China and major Western powers continue to escalate. Beijing’s new national security law for Hong Kong has sent relationships with both the U.S. and the U.K. to levels not seen since the “Cold War”. China’s ambassador to London, Liu Xiaoming, warned the UK that it would “pay the price” if it shunned Beijing. The UK recently announced that it had decided not to use 5G equipment from Huawei, likely at the US’ urging. Xiaoming also appeared to reference the U.S. in his commentary and cautioned the UK against allowing “Cold War warriors” to further damage relations between the two.

8. Crude oil prices continued to remain stable this week, ending the month out slightly higher. Brent crude settled at $43.18 per barrel while West Texas Intermediate crude settled at $40.27 per barrel. News that U.S. oil output cuts for the month of May were the largest on record lent buoyancy to prices as analysts began to project that the sharp cut in output could lead to a more rapid tightening of supply as OPEC+ continue with their own output cuts.

9. The euro drifted higher at the start of trading this week but soon began moving sideways against the U.S. dollar. On Wednesday, the euro began attempting another move to the upside but saw a brief dip lower around mid-day on Wednesday. The euro bounced higher again, then drifted slightly lower before making a steeper climb to the upside that saw the euro touch its highs for the week in Friday morning trading. The euro immediately moved sharply lower just after it touched its highs for the week on Friday but the plunge was halted by the close of trading and the euro will finish out the week to the upside against the U.S. dollar. The Japanese yen followed an almost identical pattern to that of the euro. The yen too touched its highs against the U.S. dollar in early trading on Friday and then sharply reversed, plummeting back near its opening levels for the week. Despite the drop, the yen will also finish out the week slightly to the upside against the U.S. dollar.

Geopolitical tensions and the continued outbreaks of the virus that threaten to trigger additional economic shutdowns remain the primary drivers for market volatility and movements. China’s relationship with Western powers remains tense, to say the least. China’s Ambassador to London was free with his criticism towards the UK this week, urging the UK to respect China’s governance of Hong Kong. Liu Xiaoming said “China respects UK sovereignty and has never interfered in the UK’s internal affairs. It is important that the UK will do the same – namely, respect China’s sovereignty and stop interfering in Hong Kong’s affairs, which are China’s internal affairs, so as to avoid further damage to the China-UK relationship.”

Xiaoming said that his comments were not intended as threats, but that “We just let you know the consequences.” He also said that “If you do not want to be our partners and our friends, you want to treat China as a hostile country, you will pay the price. That means you will lose the benefits of treating China as a friend.” Mr. Xiaoming also cautioned “It’s our hope that the UK would resist the pressure and coercion from a certain country and provide an open, fair, transparent and non-discriminatory environment for Chinese investment so as to bring back the confidence of Chinese business in the UK. It’s hard to imagine a global Britain that bypasses or excludes China. Decoupling from China means decoupling from opportunities, decoupling from growth, and decoupling from the future.”

Last week, US Secretary of State Mike Pompeo gave a highly critical speech regarding China while in Europe and China retaliated this week, accusing the US of being the one that is escalating tensions in the South China Sea. China’s Foreign Ministry representative, Wang Wenbin, said “Pompeo claimed to act in accordance with international law but everyone knows the US is used to seeking its own interests in the name of what it calls safeguarding international law. In fact, it is not China but the US which is escalating militarization of the South China Sea and ratcheting of tensions. Public reports show that in the first half of the year, US military aircraft have been sighted more than 2,000 times over the South China Sea. The US has also encouraged its allies to send warships to these waters as well. We want to tell Pompeo the South China Sea is not America’s Hawaii.”

Wenbin commented on Australia as well, saying “The US and Australia keep talking about the so-called China threat. They are also defaming and smearing China over a range of issues. We express our strong dissatisfaction and strong opposition to this. We urge the US and Australia to change their behavior towards China, stop interfering in China’s internal affairs, and harming China’s interests and create favorable conditions for the creation of bilateral relations. We also urge the US and Australia to play a constructive role in ensuring regional peace, stability, and development.” Australia, the UK, and the US have all been some of the most vocal critics of China over its inability to prevent the coronavirus from leaving its borders.

As these events unfold, and the coronavirus continues to spread around the world, savvy investors continue seeking safe harbors for their hard-won capital, looking to diversify their portfolios away from over-exposure to equity markets. Many of these investors have continued to acquire physical precious metals for the purpose of diversifying their portfolios, even as prices have begun to set new records.

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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