The Precious Metals Week in Review – August 7th, 2020

1. Market volatility remains extreme as the U.S. Congress appears to have truly reached a stalemate in its negotiations on another rescue package to combat the growing economic impact of the spread of the coronavirus which emerged out of China to trigger a full-blown pandemic late last year. The U.S. is still struggling to reopen its various state economies, combatting a renewed surge in virus cases in recent weeks that is leading some states to walk back their reopening plans.

2. For the week ending August 1, the seasonally adjusted number of Americans filing initial claims for state unemployment plunged by 249,000 claims from the previous week’s revised level to reach 1,186,000 claims. The previous week’s claims level was revised higher by 1,000 claims. The four-week moving average of claims also dropped, plunging by 31,000 from the previous week’s revised average to reach a new level of 1,337,750. The previous week’s moving average was revised higher by just 250 claims. As long as the U.S. Congress continues to be gridlocked over a new COVID-19 rescue package, unemployment numbers can be expected to remain volatile.

3. The July Non-Farm Payrolls Report was released on Friday and the data was much better than expected. Economists had been expecting 1.48 million jobs to be added and the U.S. economy and the official data surpassed that figure by a large margin, showing that the economy gained back 1.8 million jobs in July. Leisure and hospitality, and the retail sector saw most of the gains as the economy continued to slowly reopen. Concern is growing that those same areas could see an immediate reversal if Congress cannot come up with additional fiscal stimulus to help those hardest-hit businesses keep their doors open. The report also showed that the unemployment rate dropped to 10.2% from 11.1%, which was also better than expected.

4. Republicans and Democrats remain gridlocked over the details of a new coronavirus relief package and President Trump has threatened to use executive action to address unemployment insurance, evictions, student loans, and implement a payroll tax cut if the two sides cannot come closer to a deal by Friday. The enhanced unemployment insurance expired on July 31 and the national moratorium on evictions from federally backed housing also expired at the end of July. Democrats have already indicated that they will litigate any executive action attempted by President Trump, which would obviously delay any further aid to those who have been the most affected by the virus.

5. The Trump administration took multiple actions on China this week including imposing new sanctions on 11 individuals. Hong Kong leader Carrie Lam was among those targeted for sanctions for her role in “overseeing and implementing Beijing’s policies of suppression of freedom and democratic processes.” In a release announcing the sanctions, Treasury Secretary Steven Mnuchin said, “The United States stands with the people of Hong Kong and we will use our tools and authorities to target those undermining their autonomy.” In a statement on Friday, Secretary of State Mike Pompeo said: “The Chinese Communist Party has made clear that Hong Kong will never again enjoy the high degree of autonomy that Beijing itself promised to the Hong Kong people and the United Kingdom for 50 years. President Trump has made clear that the United States will therefore treat Hong Kong as ‘one country, one system,’ and take action against individuals who have crushed the Hong Kong people’s freedoms.”

6. A secondary action taken against China this week by the Trump administration are two executive orders that would ban U.S. transactions with WeChat and TikTok within 45 days. The parent companies of the two popular apps, Tencent and ByteDance, are based in China. The scope of the bans is currently unclear, but Secretary of Commerce Wilbur Ross promised clarity and said that he “shall identify the transactions” that will be subject to the ban. The order was announced on Thursday and China’s foreign ministry responded on Friday, saying that it is “firmly opposed” to the executive orders and that “Beijing will defend the legitimate rights and interests of Chinese businesses.”

7. Crude oil moved higher in the early part of the week but dipped lower on Friday as worries that the resurgence in virus cases could impact future demand escalated. OPEC member Iraq pledged that it would be further cutting its output in August in order to lend support to prices, keeping them from drifting even lower. Brent crude traded at $44.56 per barrel while West Texas Intermediate maintained its grip on the $40 handle, trading at $41.42 per barrel.

8. The euro moved briefly higher against the U.S. dollar at the start of the trading week but quickly bounced down into negative territory, touching its lows for the week around mid-day on Monday. The euro reversed course after touching its lows and began a relatively steep move to the upside that lasted through mid-day on Tuesday and took it into positive territory. The euro shot back into negative territory on Tuesday but quickly recovered and surged higher again, approaching its highs for the week by late Wednesday. The euro moved mostly sideways through the rest of Wednesday and then touched its highs for the week Thursday morning before shifting back to the downside once more. The euro had retreated to its opening levels for the week by Friday morning and appears set to close out the week basically flat against the U.S. dollar. The Japanese yen again traded in a narrow band this week but the swings between positive and negative were wide, on a relative basis. The yen struggled to stay positive against the U.S. dollar at the start of the week and had swung back negative, touching its lows for the week late on Monday. The yen began trending higher after bouncing off its lows and had returned to positive territory by Tuesday. The yen continued to struggle its way higher through most of the rest of the week but on Friday, just before the close, dropped back down to its opening levels for the week. The yen also appears set to close out the week mostly flat against the U.S. dollar.

The growing rift between China and the U.S. is now competing with the continued surge in coronavirus cases for news headlines. President Trump’s ban on popular social media apps TikTok and WeChat is just the latest salvo in the ongoing dispute between the two countries. The new executive orders would ban “U.S. transactions” on the two apps in 45 days. It was not immediately clear what was meant by the phrase “U.S. transactions”, but U.S. Secretary of Commerce Wilbur Ross has promised clarification on what the new bans will mean in the coming days. The two apps are owned by Chinese tech firms Tencent and ByteDance and pervasive rumors have circulated since their arrival on U.S. mobile app stores that both apps have the ability to send any and all data that is generated through their use back to servers in China, where it could easily be passed on to the Chinese government under the premise of a need to examine it for “national security” reasons.

In the executive order banning WeChat, President Trump specifically mentioned this fact, saying that the app “automatically captures vast swaths of information from its users. This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information.” The second executive order banning TikTok said that the app “may also be used for disinformation campaigns that benefit the Chinese Communist Party.” And that “The United States must take aggressive action against the owners of TikTok to protect our national security.”

The Chinese government is likely to retaliate for the moves, possibly putting some U.S. tech companies on its “unreliable entities” list and thus blocking their own access into Chinese markets, escalating tensions even further.

Market volatility can also be expected to remain elevated, and may, in fact, increase significantly, as the U.S. Congress continues to remain gridlocked over a new round of funding for an additional aid package that could help offset the economic impact of the ongoing pandemic. Congressional leaders have engaged in a highly partisan round of the blame game as to which side is obstructing the drafting of a new aid package and ended the day on Friday apparently nowhere even close to a compromise that would satisfy both sides.

President Trump has already threatened that he will take executive action to ensure that the $600 expanded unemployment benefits are extended and that the eviction moratorium is reinstated if Congress failed to resolve their differences by the end of the day. Democrats have also threatened that they will litigate any such executive actions, which would only delay the negotiations further.

Almost sneaking in under the radar, masked by the news over escalating tensions between China and the U.S. and the continued surge in coronavirus cases, Canada opted to impose new tariffs on $2.7 billion in U.S. goods in retaliation for President Trump’s decision to reimpose 10% tariffs on aluminum goods from Canada. Deputy Prime Minister Chrystia Freeland said this week that Canada will “impose dollar-for-dollar countermeasures in a balanced and perfectly reciprocal retaliation. We will not escalate and we will not back down.”

Earlier in the week, Trump confirmed that he had signed an order to reimpose 10% tariffs, saying at a speech at a manufacturing facility in Ohio that “Canada was taking advantage of us, as usual. The aluminum business was being decimated by Canada. Very unfair to our jobs and our great aluminum workers.” Politics in the U.S. can be expected to become increasingly ugly in the lead up to the November elections.

The coronavirus pandemic has been used as an excuse for some states to call for widespread “mail-in” ballots due to the potential risk posed by personally going to polling places to cast a vote. The “mail-in” approach has been widely criticized as ripe for fraudulent votes, which has apparently been proven out by multiple reports of color-coded ballots that have allowed for the easy identification and illegal removal of mainly Republican ballots from the mail system in local elections that have taken place since the pandemic began. If the push for mail-in ballots, in lieu of the tried and proven Absentee Balloting system continues, we can expect a legal battle over the outcome of the election in November, the likes of which this country has never seen.

As tensions flare further between the U.S. and China and the pandemic continues mostly unabated, savvy investors have continued to seek out assets that have been historically viewed as safe havens for their hard-earned capital in an effort to diversify their portfolios against another correction in the now heavily overextended equity markets.

The specter of inflation, brought on by the massive amounts of money being dumped into the global financial system as governments try to fend off another massive recession, if not an outright depression, have many investors returning to physical precious metals as their asset of choice for diversifying their investment portfolios. Equity markets appear to be fully under the control of the proverbial “irrational exuberance” as investors jump back in for fear of missing out on continued gains. The fact that precious metals prices are surging in tandem with the meager gains in stocks may show just how many investors do not believe that the recent stock rallies are genuine.

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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