The Precious Metals Week in Review – September 11th, 2020

1. Market volatility continued this week as the technology sector accelerated the selloff that began last week. The NASDAQ suffered its worst week since March amid the selling frenzy.

2. For the week ending September 5, the seasonally adjusted number of Americans filing initial claims for state unemployment was unchanged from the previous week’s revised level, remaining below 1 million at last week’s revised level of 884,000 claims. The previous week’s claims level was revised higher by 3,000 claims. The four-week moving average of claims also remained below 1 million this week, falling by 21,750 from the previous week’s revised average to reach a new level of 970,750. The previous week’s moving average was revised higher by 750 claims.

3. Senate Republicans failed to gain the 60 votes required to advance their new “skinny” coronavirus relief bill as the gridlock continued in Washington, D.C. this week. Every Democrat in the Senate and one Republican opposed the bill. The legislation would have formalized the $300 per week enhanced unemployment insurance that President Trump mandated via executive order, while the Senate was on Recess, just before Labor Day. The package would also have authorized new loans to small businesses. Democrats shut down the bill because it did not contain any measures for assisting state and local governments or provide food assistance, both of which are sticking points for Democratic support of any new aid.

4. The Organization for Economic Cooperation and Development (OECD) warned this week that the interruption of children’s schooling as a result of the ongoing pandemic could lower global economic growth by as much as 1.5% for the rest of the century. The organization said that this projected loss of GDP would be equivalent to an economic loss of roughly $15.3 trillion in the U.S. alone. The group came to its conclusions by estimating that students who missed out on just one-third of a school year would lead to a loss of skills which, in turn, would lead to a loss of productivity. The group also said that potential losses to economic growth could be “proportionately higher” if schools were slow in returning to their “previous levels of performance.”

5. The European Central Bank announced this week that it was keeping interest rates unchanged and leaving its coronavirus stimulus package in place. The central bank also announced that its baseline scenario for the euro zone GDP was for a contraction of 8% this year. The bank had projected an 8.7% contraction in June, so the new reading was at least marginally better than the previous, but the recovery from the effects of the pandemic is likely to take much longer than initially forecast. Although inflation is likely to undershoot the ECB’s target for years to come, the group stopped short of making adjustments to its interest rate policy to match those that the U.S. Federal Reserve announced last week. The Fed announced an intention to shift its interest rate policy moves to allow inflation to run in a range, both above and below the 2% target until it deems that the global economy has stabilized.

6. The World Health Organization gave its weekly briefing on the state of the pandemic this week and noted that the virus is spreading fastest in Southeast Asia, but also stated that Europe and the Eastern Mediterranean are reporting increases in new cases as well. Despite the surge in case numbers, Covid-19 deaths actually dropped slightly. The report noted that the Americas continue “to carry the highest burden of the disease globally.” The U.S. and Brazil make up nearly 75% of the total Covid-19 cases on the continent.

7. On Thursday, The European Union urged the United Kingdom to drop its plan which it announced this week to break international law by breaching parts of the Withdrawal Agreement treaty that it signed in January upon exiting the EU. The EU has threatened legal action, but Britain says that its move is aimed at “clarifying ambiguities” and that its parliament is sovereign above international law. The EU’s chief Brexit negotiator, Michel Barnier, said on Thursday that “The UK has not engaged in a reciprocal way on fundamental EU principles and interests. Nobody should underestimate the practical, economic, and social consequences of a ‘no deal’ scenario.” A source inside the British team said “We don’t recognize the suggestion that we’ve not engaged, we’ve been engaged in talks pretty consistently for many months now. The problem is the EU seems to define engagement as accepting large elements of their position rather than being engaged in discussions.” Parliament is set to debate the new and contentious legislation on Monday and many in government feel that it is not likely to pass the House of Lords because it does, in fact, violate international law.

8. Israel was reported to be considering a secondary nationwide lockdown beginning next week due to a surge in coronavirus cases following its efforts to reopen. Indonesia’s capital of Jakarta was also reported to be considering a reinstatement of a partial lockdown to try to slow the continued spread of the coronavirus among its streets.

9. Crude oil continued its losses this week, driven lower primarily by a surprise increase in U.S. stockpiles as the ongoing pandemic continues to lower demand for fuels. Brent crude dropped below $40 to settle at $39.96 on Friday while West Texas Intermediate dropped to $37.32 per barrel. Both benchmarks were down over 6% for the week as signs began to suggest that there could be a substantial secondary wave of new coronavirus infections over the second half of the year.

10. The euro spent the first part of the trading week in a downward slide against the U.S. dollar that lasted all the way through mid-day on Wednesday. The euro surged back near its opening levels for the week Wednesday afternoon and then began a slow climb higher through mid-day on Thursday. Thursday evening the euro surged higher again, touching its highs for the week before suddenly dropping back into negative territory in the late hours. The euro clawed its way back into positive territory on Friday but could not keep its upward momentum and will close out the week relatively flat overall against the U.S. dollar. The Japanese yen spent the first part of the week moving mostly sideways against the U.S. dollar before dipping slightly to the downside on Tuesday. The yen did not stay in negative territory for long, surging higher late Tuesday and continuing the general upward trend through Wednesday afternoon. Late Wednesday, the yen plunged back near its opening levels for the week, and then drifted relatively sideways for the rest of the week. The yen appears set to close the week out slightly to the upside against the U.S. dollar.

As a second wave of coronavirus infections shows signs of sweeping across the world, volatility should be expected to continue. The rest of the world’s central banks appear ready to follow the U.S. Federal Reserve’s lead and may allow inflation to “run hot” while they, and the governments that back them, flood the financial system with new money. Food prices have already begun to spike in countries around the world as supply lines have been disrupted due to travel and movement restrictions that were put in place to attempt to halt the spread of the coronavirus. In the U.S., political chaos can be expected to continue as we enter the final lead-up to the presidential election in November.

In the Western part of the United States, a rash of wildfires has added further economic devastation to the region and is fast draining the Federal Emergency Management Agency funds which have been tapped to support President Trump’s executive order for states to resume paying an additional $300 per week in enhanced unemployment insurance. Many states have already begun making the payments as Congress has continued to remain gridlocked over the details of a new coronavirus rescue package, but if the devastation from wildfires and hurricanes drains the funds early, these states will likely halt the payments again if Congress has not acted to fund them.

Many economists are projecting a prolonged and global recessionary period, likely driven by renewed economic lockdowns as governments continue their efforts to combat the pandemic.

In Europe, in addition to the ongoing pandemic, the European Union and the United Kingdom remain at an impasse over their negotiations for the post-Brexit relationship between the two. The EU has reportedly shifted their tactics in preparation for a “no deal” situation as negotiations with the U.K. have collapsed in recent weeks. A “no deal” scenario would leave the relationship between the EU and the U.K. in a state of chaos and uncertainty in what could be the world’s messiest break up ever. Next week, the U.K. has stated that it will take up legislation that would alter the Withdrawal Agreement that the two struck when the U.K. formally left the EU in January.

The EU views the changes to the treaty as a violation of international law and has threatened legal action and demanded that the UK drop the legislation and return to the negotiating table. Prime Minister Boris Johnson has declared that the sovereignty of Britain’s parliament supersedes international law and has vowed to attempt to push the legislation forward.

In the face of the ongoing crises around the world, wise investors have continued to attempt to ensure that their portfolios remain well-diversified against overexposure to any single asset class. Many of these investors continue to add physical precious metals to their portfolios when the temporary price dips grant them the buying opportunity to do so. These investors view precious metals’ historic role as safe havens in times of strife and economic turmoil as remaining valid in today’s society.

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)

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.