The Precious Metals Week in Review – August 21st, 2020

1. Market volatility should be expected to remain at elevated levels as US politics shift into full madness mode ahead of the upcoming Presidential elections in November. Coronavirus cases also remain elevated, particularly in the U.S., and this should be expected to continue to affect markets for the foreseeable future as well.

2. For the week ending August 15, the seasonally adjusted number of Americans filing initial claims for state unemployment surged, climbing by 135,000 claims from the previous week’s revised level to 1,106,000 claims. The previous week’s claims level was revised higher by 8,000 claims. The four-week moving average of claims dropped, however, falling by 79,000 from the previous week’s revised average to reach a new level of 1,175,750. The previous week’s moving average was revised higher by 2,000 claims. Volatility can be expected to continue in the unemployment data if virus cases climb further in the U.S. The advance seasonally adjusted insured unemployment rate remained over 10 percent for the week ending August 8.

3. Retail bankruptcies remain a massive concern in the U.S. as the coronavirus pandemic continues. Industry executives and analysts alike are now fearful that a second wave of bankruptcies could follow a predicted second wave of COVID-19 infections coming over the winter months. Bradley Snyder, an executive managing director at liquidation firm Tiger Capital Group, said “The [bankruptcy] pipeline is as full as it has been all year. The challenge is making sure we can actually close stores in a window that is open.” Liquidation firms are finding it difficult to hold the usual massive inventory sales amid ongoing shutdowns mandated by many state and local governments. S&P Global Market Intelligence says in addition to the 44 retailers that have already gone into bankruptcy court in 2020, many more are at further risk of defaulting on their debt and being forced to file. Among the noted names are meal kit delivery service Blue Apron, online retailer Wayfair, and clothing makers J. Jill, Christopher & Banks, and Destination XL Group.

4. Walmart and Amazon have been the primary beneficiaries thus far in the wave of brick and mortar bankruptcies. Walmart, in particular, saw a significant jump in sales in the fiscal second quarter, which is when many of its customers received their stimulus checks from the government. CFO Brett Biggs said “Stimulus was definitely impactful to the consumer in the second quarter, and we’re watching what’s going on in Washington, and how we’re going to progress with a new stimulus package. I think certainly it would be helpful for consumers.” The company did not provide a further financial outlook for the rest of the year, noting continued uncertainty over whether Congress can successfully pass another stimulus package.

5. Even with the ongoing economic uncertainty, U.S. homebuilding logged a third straight month of gains in July. U.S. housing starts jumped by 22.6% to a new seasonally-adjusted yearly rate of 1.496 million units in July according to Commerce Department data that was released on Tuesday. Data for June was revised higher, moving to 1.22 million units from the initially reported figure of 1.186 million. Housing has been one of the few bright spots in the economy as the pandemic has progressed. Many analysts have begun to speculate that the large outbreak of disease among densely populated areas, combined with the looting, riots, and general unrest that has also broken out in many larger cities after the death of George Floyd are driving a growing exodus out of large cities and into the suburbs. The instant “work from home” momentum that the pandemic and its ensuing economic shutdowns triggered has also shown many tech companies that their workforces can be just as productive, if not more so, from anywhere in the world in the digital age and many workers are taking advantage of that ability to relocate to quieter, less populated areas.

6. The Federal Reserve released the meeting minutes from its July 28-29 meeting this week and they showed continued concern over the ongoing impact of the pandemic on the U.S. and world economies. The minutes also noted the need for additional financial help from Congress in the form of further economic stimulus – a point which Chairman Jerome Powell has made over and over again, especially as the previous stimulus package was nearing the end of its life. The Fed minutes also showed that the central bank expects to hold the overnight borrowing rate near zero until they’re “confident that the economy had weathered recent events and was on track to achieve the Committee’s maximum employment and price stability goals.” The lack of commitment to a hard timeline on moving rates was widely viewed as a negative for markets.

7. California is now facing a double hit to its economy. The pandemic has already crushed the state’s businesses as its government has largely continued with mandated shutdowns of most of them. Restaurants were only recently allowed to reopen, with orders to keep their indoor dining areas closed. As wildfire season approaches, a record number of fires is generating massive amounts of smoke that are now preventing many of the businesses that were able to remain open under these orders to shut their doors once more. Those restaurants that were able to take advantage of outdoor spaces to reopen and serve customers are now facing the fact that the smoke has now made dining in such environments unpleasant, at best, and impossible in some locations, forcing many to shut their doors again.

8. According to the Chinese commerce ministry, the U.S. and China have agreed to resume negotiations in the coming days to review the progress on the so-called “phase one” trade deal that was signed in January, just prior to the global outbreak of the coronavirus. The ministry said that discussions will be held “over the phone” and claimed that the suspension of the talks, which was reported by Reuters last week, was due to nothing more than “scheduling conflicts.” China has largely fallen short on its commitment in the “phase one” deal to buy more U.S. goods and services. In the first six months of the year, China’s purchases of such products have come up to roughly one-quarter of the target amount that was agreed to for all of 2020.

9. Crude oil managed to eke out a fifth week of gains despite a slide on Friday that was apparently driven by the growing number of renewed economic lockdowns due to the pandemic. Brent crude settled at $44.06 per barrel while West Texas Intermediate, the U.S. benchmark, settled at $42.34 per barrel. News that Libya may restart oil exports and a significant drop in miles driven by U.S. motorists are continuing to put pressure on the oil market. OPEC+ now expects oil demand in 2020 to fall by as much as 11.2 million barrels per day if coronavirus infections continue to climb and Libya bringing its wells back online amid decreasing demand will only add to the supply glut.

10. U.S. Secretary of State Mike Pompeo said on Friday that Washington would enforce sanctions on Iran in defiance of a decision by the United Nations Security Council not to extend an arms embargo against that country. Pompeo said “We’re not going to let them have a nuclear weapon, we’re not going to let them have hundreds of billions of dollars in wealth from selling weapons systems. Every leader around the world knows it’s a bad idea.” Pompeo also called Iran “the world’s largest state sponsor of terror.” Pompeo told CNBC “I have not had a single world leader or one of my counterparts tell me that they think it makes any sense at all for the Iranians to be able to purchase and sell high-end weapons systems, which is what will happen on October 18th of this year, absent the actions that we took at the United Nations yesterday.” The “actions” that Pompeo was referring to were the notification that the U.S. gave to the U.N. on Thursday that it intends to implement a “snap back”, which would trigger the restoration of all U.N. sanctions on Iran within 30 days of the notice.

11. The euro spent the first part of the week climbing higher against the U.S. dollar with only minor reversals through Tuesday, when it touched its highs for the week. The euro essentially slid sideways into Wednesday when it reversed course and plunged back to its opening levels for the week. The euro tried to stage a recovery through most of Thursday and had worked its way back into positive territory by late Friday morning. The euro could not maintain its upward momentum and reversed course again, accelerating to the downside as it approached the close on Friday. The euro touched its lows for the week and bounced slightly higher but could not regain positive territory and will still close out the week to the downside against the U.S. dollar. The Japanese yen again traded in a narrow range against the U.S. dollar this week and opened the trading week with an immediate move higher. The yen bounced off its highs for the week late Tuesday, reversed and then attempted to touch its highs again Wednesday afternoon before pausing and giving up half of its gains. The yen reversed course again late on Wednesday and began a shallower move higher that lasted all the way through Friday. The yen moved slightly lower on Friday morning, but the dip was brief, and the yen reversed again before the close and will end the week slightly to the upside against the U.S. dollar.

Stock markets continued to set records this week. The disconnect between reality – abysmal underlying market fundamentals, a struggling economy as the pandemic grinds on, growing geopolitical unrest, etc. – and fantasy – a world of new highs that are made primarily on news headlines regarding potential coronavirus vaccines and investors’ own “irrational exuberance” – seems to be widening.

tocks have blindly marched higher even as main street “mom and pop” businesses and even larger retailers have been forced to shut their doors for good, unable to cope with the revenue losses that have been caused by the spread of the coronavirus across the globe.

The U.S. Congress has left Washington D.C. for a recess without coming to a compromise agreement on additional stimulus funding to aid struggling individuals and businesses who are still finding it hard to make ends meet as their revenues and incomes remain reduced, or have disappeared altogether. The two parties remain deadlocked over the total amount of aid that should be contained in the next bill. Democrats have proposed over $3 trillion in aid while the Republicans have proposed a more austere $1 trillion. President Trump signed executive orders that are aimed at addressing extending unemployment benefits, student loan deferrals, a moratorium on evictions, and a payroll tax holiday but many other areas that need desperate support remain unaddressed and the Democrats have promised to sue to halt the implementation of those executive orders. The uncertainty could mean a renewed slowdown in household spending as consumers become anxious again about making unnecessary purchases under reduced incomes.

The U.S. Federal Reserve meeting minutes for July were released this week and clearly show a Fed that is increasingly concerned that the U.S. economy is far from staging any kind of true comeback from the precipice it is perched upon.

In Europe, the release of flash Purchasing Managers’ Index (PMI) data also reflected a eurozone economy that continues to struggle to recover from the massive damage wrought by the spread of the pandemic.

China’s commerce ministry announced this week that the U.S. and China would be holding their previously postponed talks regarding progress in the “phase one” trade deal via teleconference in the coming weeks. Reuters had reported last week that trade talks between the two had been “indefinitely postponed” as tensions between the two sides continued to grow. China’s announcement this week was met by awkward silence from the Trump administration as officials failed to either confirm or deny the ministry’s report.

According to a report by Chainalysis, which monitors activity in cryptocurrency markets, over $50 billion of cryptocurrency moved from China-based digital wallets to other parts of the world over the last year. The move is startling given the strict capital controls Beijing has in place and may mean that Chinese investors have discovered a loophole allowing them to move their money outside of China in a nearly undetectable way. Chinese citizens can only buy up to $50,000 in foreign currency a year at any financial institution, which led to a rush in foreign investments in real estate and other assets. Beijing and foreign governments have all cracked down on these types of investments, so the increase in cryptocurrency traffic could indicate that savvy investors have found another way to get their money out. If China’s wealthy are moving large amounts of currency abroad, it could indicate that China’s economy may be struggling much more than official figures indicate.

As uncertainty continues to grow over the progress in the fight against the pandemic, the outcome of the U.S. elections in November, the state of relations between the U.S. and China, and the state of the relations between the U.K. and Europe, savvy investors continue to take steps to diversify their portfolios, especially as stocks continue their illogical run higher.

Many of these investors have continued to purchase physical precious metals as part of their diversification efforts, viewing their historic roles as safe havens in times of economic and geopolitical turmoil as remaining valid under today’s circumstances.

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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