The Precious Metals Week in Review – August 28th, 2020

1. As the U.S. presidential election in November draws closer, vigorous partisan bickering and arguing can be expected to escalate between the two main parties in Congress. The politicization of the pandemic should also be expected to increase as Democrats pull out all the stops to try to win the highest office. Many fear that if the Democrats win the coming election that the radical left faction that has gained such prominence in the Democratic Party may attempt to take the United States in a largely socialist direction.

2. For the week ending August 22, the seasonally adjusted number of Americans filing initial claims for state unemployment dropped by 98,000 claims from the previous week’s revised level to reach 1,006,000 claims. The previous week’s claims level was revised lower by 2,000 claims. The four-week moving average of claims dropped again this week, falling by 107,250 from the previous week’s revised average to reach a new level of 1,068,000. The previous week’s moving average was revised lower by 500 claims. The Bureau of Labor Statistics announced with this week’s unemployment report that the methodology for seasonal adjustment calculation was being revised and the new calculations would go into effect with the September 3rd, 2020 report. This likely means that wide variations and volatility in the unemployment data can be expected to occur in the near term. Massive layoffs at MGM Resorts and other large-scale companies that were announced this week could also significantly impact unemployment numbers next week.

3. A second reading of the 2nd Quarter U.S. economy reflected the largest drop in quarterly economic activity ever. The plunge, triggered by the economic lockdowns that went into place to attempt to slow the spread of the pandemic, was not nearly as bad as experts had previously expected the reading to show. U.S. gross domestic product from April to June dropped by 31.7% on an annualized basis, according to data released by the U.S. Commerce Department on Thursday. The new reading was revised lower from an initial estimate of 32.9%.

4. The annual Economic Policy Symposium that normally takes place in Jackson Hole, Wyoming this time of year has been shifted to a virtual conference in the wake of the ongoing global pandemic. U.S. Fed Chairman Jerome Powell spoke at the virtual event and confirmed that the Fed will be moving to a policy of “average inflation targeting” in the future, which means that the central bank will allow inflation to run “moderately” above the Fed’s stated 2% target level “for some time”. The Federal Open Market Committee, which is the policy-making arm of the Fed, approved the decision unanimously. Fed Chair Powell did not announce how much higher over 2% that the central bank would allow inflation to run, but Dallas Fed President Robert Kaplan told CNBC after the announcement that he would be satisfied with an inflation range of 2.25 to 2.5% and that the Fed would maintain rates near zero even if inflation exceeds the 2% target.

5. U.S. consumer spending increased again in July, rising by 1.9% as consumers continued online shopping and outfitting themselves with “work from home” tech. Consumer incomes also rose by 0.4% in July, moving higher after two full months of declines. The data in the U.S. Commerce Department’s July report marked the third straight monthly gain in consumer spending, which has long been the primary component of U.S. GDP. The move is slightly surprising, given that unemployment remains at staggering levels in the U.S., state and local economies continue to struggle to open back up fully, and the unemployed in the U.S. are no closer to certainty on whether additional stimulus checks will be arriving to assist them.

6. Prime Minister Shinzo Abe, Japan’s longest-serving prime minister announced this week that he would be resigning over health issues that have plagued him for years. Abe told reporters during a televised press conference that his health had worsened over the last month and that he did not want his continuing battle with ulcerative colitis to result in any policy mistakes. Abe went on to say that he would continue to fulfill his duties as acting prime minister until the next leader is appointed. Abe took office in 2012 and his “Abenomics” economic plan was aimed at creating a prolonged economic expansion for Japan in the wake of the 2008 “Great Recession.” Much of the progress his monetary policy created in Japan’s economy was utterly undone, as has occurred in nearly every other country on the planet, by the spread of the coronavirus around the globe.

7. NATO’s Secretary-General met with German Chancellor Angela Merkel in Berlin this week to address growing unrest in Belarus and an expanding rift between Greece and Turkey. In Belarus, protestors continue to demand the resignation of President Alexander Lukashenko after a hotly contested election results in August. Belarus has cracked down harshly on the protestors and NATO has been accused of ramping up troop deployments at the country’s border with Poland and Lithuania in response. UN Secretary-General Jens Stoltenberg flatly denied those reports, saying “NATO has no military build-up in the region so any excuse to use that as an excuse to crack down on peaceful protestors is absolutely unjustified.” Greece and Turkey have been conducting rival military exercises near Crete in tit-for-tat shows of force over competing for oil and gas exploration rights claims in the Eastern Mediterranean. The U.S. reportedly joined with Turkey in its naval exercises while France joined with Greece to participate in their exercises, adding to the tension in the area. Ahead of an informal meeting with EU defense ministers on Wednesday, Stoltenberg said “Turkey and Greece have both been important NATO allies for many years. We need to find a way to resolve the situation in the Eastern Mediterranean based on the spirit of allied solidarity.”

8. Hurricane Laura pushed ashore right behind Hurricane Marco in the Gulf of Mexico this week. The back-to-back storms were expected to unleash complete devastation in the region. Laura had reached a strong category 4 status before blasting ashore to make landfall near the border of Texas and Louisiana. The storm triggered extensive mandatory evacuations and shutdowns of the drilling platforms and refining equipment in the oil-rich Gulf region went into effect as experts predicted “catastrophic” storm surges. It is unlikely that the storms and their aftermath will trigger widespread oil and gasoline shortages in the U.S. however. Demand for these products has dramatically fallen during the pandemic, on a worldwide basis, due to a prolonged cut-back of travel by businesses and consumers alike. Brent crude settled at $45.04 per barrel for the week while West Texas Intermediate settled at $42.97 per barrel.

9. Fitch Solutions noted this week that Russia may accelerate its gold production over 2020 and 2021 on the growing risk of further sanctions against it by the U.S. The consultancy firm said that if the U.S. does pursue additional sanctions, that Russia’s central bank can be expected to resume purchases to boost its gold reserves. The firm also said that Russia has the potential to overtake China and Australia to become the world’s largest gold producer by 2029. Russia’s central bank halted gold purchases in April on the premise that doing so would allow it to make additional exports of the precious metal ahead of a stronger outlook for prices.

10. The euro bounced around in a relatively narrow range against the U.S. dollar for most of the week, dipping between positive and negative territory. Despite the peaks and valleys, the euro moved generally in a sideways pattern until early Friday morning. The euro shot higher as trading opened on Friday, touching its highs for the week and bouncing slightly up and down around that level throughout the rest of the day to close out the week higher against the U.S. dollar. The Japanese yen drifted sideways as trading opened this week but began trending lower by mid-week. The yen reversed its decline as Wednesday’s trading opened but could not maintain upward momentum and had plunged to its lows for the week by early Friday morning. The yen shot immediately higher after briefly touching its lows for the week on Friday, immediately surging to its highs for the week. The yen bounced around its highs for the week, much as the euro did, and will also close out the week to the upside against the U.S. dollar.

The U.S. Congress remains at an impasse over a new stimulus plan to combat the economic effects of the ongoing global pandemic. House Speaker Nancy Pelosi said that Democrats and the White House are at “a tragic impasse” on a new relief package after she spoke via phone with White House chief of staff Mark Meadows this week. The two negotiators have not spoken for weeks, since discussions over the next aid package collapsed earlier in August just before Congress went on recess. The two sides, Republicans and Democrats, are now reported to be back at the drawing board: Republicans are apparently considering a narrower $500 billion proposal aimed at addressing primary concerns such as unemployment insurance and small business loans while Democrats have steadfastly maintained that they will not pass any stimulus package with less than $2 trillion in aid.

As Congress continues its stalemate, U.S. small business owners are rapidly running out of time to keep their doors open. According to the National Federation of Independent Business, one in five American businesses says that they will have to permanently shut down if economic conditions do not get better within six months. Small businesses are out of time to apply for the Payroll Protection Program that was part of the previous aid package Congress passed and according to the survey from the NFIB, 84% of those surveyed have already used every dime of the loans that they were able to acquire under the program. According to the House Small Business Committee, over 100,000 small businesses in America have already permanently closed their doors and a growing flood of pending bankruptcies is waiting in the wings.

The coming U.S. election is likely to hinge largely on whether U.S. businesses and citizens are regaining confidence in their ability to weather the economic storm that was wrought by the spread of the coronavirus outside of China. Europe and Asia also both remain on the knife’s edge because of the pandemic, with their own citizenry experiencing financial hardship in the wake of the virus.

In Europe, in addition to the pandemic, the United Kingdom has just over 4 months to go until its transition period with the European Union expires and it is apparently no closer to reaching a deal on its post-Brexit relationship with the EU than it was in January, according to reports. The EU’s chief negotiator, Michael Barnier, said this week that he is “disappointed” by the lack of any real progress and warned that having an agreement ready to go before the end of the year “seems unlikely.” Barnier said “Today at this stage, an agreement between the UK and the EU seems unlikely. I simply do not understand why we are wasting valuable time.” He went on to say “Those that were hoping for negotiations to accelerate this week will be disappointed. I am disappointed.” The latest round of Brexit talks begin on August 17 and Barnier told reporters that “too often this week it felt as if we were going backwards more than forward.”

In Asia, India saw a record surge in virus cases this week and has now overtaken every other country on the planet to become the world’s fastest-growing outbreak of new virus cases. India now has more than 2 million confirmed cases of the novel coronavirus amid its overcrowded cities. Dense population centers, lockdown fatigue, and lack of contact tracing are all being blamed for the rapid acceleration in cases.

The pandemic remains the primary factor that is affecting all markets. As multiple pharmaceutical companies race to get their vaccine candidates to trial first, equity markets seem to keep swinging higher and higher. These markets seem to have switched to an “any news is good news” mode. This mentality seems to be primarily driven by a surge in the tech sector as Apple, Tesla, Microsoft, and any company that has a video streaming or virtual meeting software package, all reap the benefits of the new “stay at home” economy.

Equity markets seem to be blindly ignoring the staggering amounts of money being created out of thin air by the world’s central banks. Amid all the blind exuberance taking place in equities, cautious investors have continued to take steps to ensure that their portfolios remain well-diversified against the inevitable moment when the bubble pops. Many of these investors continue to acquire additional physical precious metals for the purposes of portfolio diversification, acquiring new products for their portfolios whenever temporary price dips provide them with an opportunity to do so.

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.

Friday to Friday Close (New York Closing Prices)

Month End to Month End Close

Previous year Comparisons

Here are your Short Term Support and Resistance Levels for the upcoming week.

This is not a solicitation to purchase or sell.
© 2020, Precious Metals International, Ltd.