The Precious Metals Week in Review – August 14th, 2020

1. Market volatility remains extreme with seemingly every news headline causing wild market fluctuations. Stocks continue to make new highs despite repeatedly facing abysmal economic data that should, if anything, be sending equity markets in the opposite direction.

2. For the week ending August 8, the seasonally adjusted number of Americans filing initial claims for state unemployment plunged again, falling by 228,000 claims from the previous week’s revised level to 963,000 claims. The previous week’s claims level was revised higher by 5,000 claims. The four-week moving average of claims also dropped, falling by 86,250 from the previous week’s revised average to reach a new level of 1,252,750. The previous week’s moving average was revised higher by just 1,250 claims. Continued gridlock in the U.S. Congress over a new coronavirus rescue package, in tandem with the escalating number of coronavirus cases, will likely continue to lead to volatility in the unemployment data.

3. Retail bankruptcies are on track to hit their highest number in a decade as surges in virus cases show that the pandemic is far from over. The pandemic is largely being blamed for the demise of many retailers, especially those that were not already struggling prior to the outbreak. Le Tote is the latest retailer to file, which is the owner of Lord & Taylor and Men’s Wearhouse. 43 retailers have filed for bankruptcy so far, with five months left to go in the year. Brick and mortar apparel retailers are carefully watching attempts by local states to reopen their schools. The back-to-school season is typically one of the most profitable times of the year for retail clothing outlets and if students are forced to remain in their homes and attend school virtually due to quarantine efforts, these retailers could see significant damage to their bottom lines. Noted retail consultant Jan Kniffen said more bankruptcies are likely in the works in the coming months. Kniffen said, “If you’re heavily indebted, if you’re mall-based, if you’re selling something people aren’t buying now because of Covid and if you’re not an essential retailer, you’re at risk.”

4. Even as bankruptcies skyrocket, the American consumer appears to be on a buying spree. Retail sales rose for the third consecutive month in July though spending did come in less than expected. Citigroup economist Andrew Hollenhorst said in a note that “Similar to the jobs report, retail sales stand in stark contrast to the idea that growth in July ‘stalled’ – when in fact it continued at a robust, if somewhat slower, pace.”

5. Republicans and Democrats in Congress could not set their differences aside long enough to reach a compromise deal for a new coronavirus relief package this week. President Trump, as he promised, took executive action over the weekend and signed four executive orders intended to extend some of the existing relief packages. The executive orders targeted such relief efforts as enhanced unemployment benefits, deferred student loan payments, protections from evictions, and a payroll tax holiday. Democrats have promised to take to the courts to try to stop Trump’s executive orders from being implemented. The Senate has adjourned through Labor Day, meaning any new negotiations on the deal could be weeks away. Senate Majority Leader Mitch McConnell said that if any further negotiations that may take place remotely while the Senate is on break result in a breakthrough, that members will return to Washington, D.C. for a vote.

6. Hong Kong’s government downgraded its full-year economic forecast on Friday, saying it expects the city’s economy to shrink by between 6 and 8 percent in 2020. Previous estimates of the amount of economic contraction that could take place were between 4 and 7 percent. Hong Kong’s economy was already in a recession prior to the outbreak of the pandemic. The contraction is largely being blamed on large-scale pro-democracy protests that took place through much of 2019. The ongoing trade dispute between China and the U.S. also took a toll on the Hong Kong economy and as tensions flare anew between those two countries, Hong Kong could see further economic distress.

7. Reuters reported on Friday that trade talks between the U.S. and China that were supposed to take place over this coming weekend had been postponed indefinitely. China is far behind in making the purchases that it agreed to in part of the “Phase One” deal that was inked in January as the pandemic was just beginning to spread throughout the world. Many of the purchases that China agreed to were agricultural in nature and are thus time-sensitive in its ability to be fulfilled, given the approaching Fall season.

8. The U.S. seized four oil tankers full of Iranian oil that were allegedly bound for Venezuela in violation of sanctions this week. The ships were carrying 1.116 million barrels of petroleum and were seized with help from “foreign partners” according to a statement from the Department of Justice. The statement said, “These actions represent the [U.S.] government’s largest-ever seizure of fuel shipments from Iran” and further said that the shipment was made by order of the Islamic Revolutionary Guard Corps. All four ships are reportedly being directed towards Houston, Texas in the coming days. Iran has not yet responded to the news.

9. Crude oil maintained its grip on current levels despite growing fear that demand could suffer further in the wake of the ongoing surge in coronavirus cases. Brent crude settled at $44.86 per barrel while West Texas Intermediate settled at $43.01 per barrel. The fallout from the U.S.’ seizure of ships carrying Iranian oil bound for Venezuela may act to take prices lower next week, however.

10. The euro had a volatile week against the U.S. dollar. The euro bounced marginally higher at the start of trading and then began trending to the downside in a series of sharp spikes and dips. The euro bounced along between positive and negative territory, touching its lows early on Wednesday before reversing course and heading higher. The euro moved steadily higher, touching its highs for the week around mid-day on Thursday, after which it retreated slightly. The euro remained in positive territory as it entered Friday’s trading session and moved even higher just prior to the close. The euro will close out the week to the upside against the U.S. dollar. The Japanese yen had a mild start to the trading week, drifting mostly sideways against the U.S. dollar through late Monday before beginning to slide lower. The yen continued its downward trend through Thursday, touching its lows for the week late Thursday night and then sliding sideways into Friday’s trading. The yen took an upturn in early morning hours on Friday and continued climbing through the entire trading session. The yen recovered roughly half of the ground it had lost against the U.S. dollar through the earlier part of the week but will still close out the week slightly to the downside.

News headlines and geopolitical events can continue to be expected to trigger rampant volatility in all markets. Nearly completely overshadowed by the ongoing political turmoil in the U.S., the growing tensions between the U.S. and China, and the continued resurgence in coronavirus cases around the world, the United Arab Emirates agreed to a historic peace deal with Israel this week.

U.S. President Donald Trump announced on Thursday that the UAE and Israel had agreed to establish normal diplomatic relations in a deal that would also see Israel cease further annexation attempts in the West Bank. The deal will make the UAE the first state in the Persian Gulf region to normalize ties with Israel. Egypt and Jordan are the only other Arab nations to openly acknowledge diplomatic relations with Israel. Other Arab nations in the region, notably Palestine, Turkey, and Iran, all leveled heavy criticism at the UAE for agreeing to the deal. A spokesman for Palestinian President Mahmoud Abbas said that his leadership “rejects and denounces” the treaty. Turkey released a statement saying that history “will not forget and never forgive this hypocritical behavior of the UAE.” Iran, who has long been hostile to both Israel and the UAE, said that the decision was “a strategic act of idiocy” and called the treaty a “dangerous move.”

Geopolitical analysts are closely watching the region for an increase in hostilities in reaction to the announcement. In the U.S., the bitter dispute between Republicans and Democrats over the size of a new bailout package to alleviate the ongoing economic damage from the spread of the coronavirus could not be overcome. President Trump followed through on his promise to take executive action if Congress could not come up with a compromise solution before it went on its annual recess, which will last through Labor Day. The President signed four executive orders aimed at extending emergency aid programs to those who still depend on such programs for income, staving off foreclosures and evictions, and avoiding default on their student loans. Democrats have threatened to sue to block those orders from being implemented, even as Congress goes on recess until Labor Day. It seems that there can be no hope that Congress will be coming up with some sort of compromise package for at least another two weeks.

Coronavirus cases continue to surge around the country and those U.S. states who have attempted to reopen schools for the Fall session are now facing a massive spike in students and teachers who are now having to quarantine themselves for at least two weeks due to exposure to the virus.

Minneapolis Fed President Neil Kashkari is calling for a full lockdown for 6 weeks to make another attempt to halt the spread of the virus. The further economic damage that such a drastic measure would cause at this late stage of the epidemic is almost unimaginable.

Key trade talks between the U.S. and China that were slated to resume over the weekend have now been postponed indefinitely as relations between the two countries continue to simmer. As virus cases continue to escalate and health officials caution that another “wave” of infections could occur in the near future, global governments continue to pour money into their respective financial systems. The result of creating so much money, literally out of thin air, may be one of the largest global economic experiments ever embarked upon and no one can predict the result.

Investors appear to be leaping into precious metals, expecting inflation to eventually take hold and skyrocket due to such a drastic increase in the global money supply. Precious metals have long been viewed by investors as a hedge against inflation and have also historically been viewed as safe havens in times of turmoil and upheaval, such as we are witnessing now.

Savvy investors have continued to add precious metals to their investment portfolios when temporary price dips have presented them with opportunities to do so. Many of these investors view physical precious metals as one means of diversifying their portfolios away from overexposure to volatile equity markets, which appear to have only gone even higher into bubble territory as the pandemic has raged on.

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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