The Precious Metals Week in Review – September 18th, 2020

1. High volatility levels are to blame for this week’s losses on Wall Street. Michael Farr, President of Farr, Miller & Washington, pointed at the November elections, U.S.-China relations and trade, and the US Congress stalemate over the coronavirus relief bill as possible threats to the economic rebound the stock market has seen. As technology shares continued to foster a sell-off that ended an over a month-long winning streak on Wall Street, three major US indexes posted important losses this week. Dow Jones dropped 2.3%, S&P 500 2.8%, and Nasdaq bore the biggest loss of the three with 4.1%. Big technology firms also had their share of losses, Amazon shed 4.4%, Facebook 3.6%, while Tesla stomached a plunge in its shares of 21.1%.

2. For the week ending on September 12, the seasonally adjusted number of Americans filing for unemployment decreased vis-à-vis the previous week’s revised level. The number of initial claims totaled 860,000, a decrease of 33,000 from 893,000. The revision of the adjusted initial claims for the week ending on September 5 added 9,000 claims more than estimated, for a total of 893,000. The four-week moving average for the week of September 12 was 912,000, a decrease of 61,000 claims from the revised average of the previous week. The revision of this average for the week ending September 5 added 2,250 more than estimated for a new total of 973,000 initial claims. With respect to pre-pandemic levels of unemployment, this is the 26th-consecutive week of record numbers since the 1960s.

3. On Wednesday, President Trump called upon Republican congressmen and women to support a more generous relief package and stimulus payments for Americans. Trump’s request is in clear opposition to the USD$300 billion plan Senate Republicans sought to advance last week. “I like the larger amount,” said Trump, “some of the Republicans disagree, but I think I can convince them to go along with that because I like the larger number. I want to see people get money.” In fact, his comments put pressure on both political parties who have failed to overcome their differences on the price tag of the relief bill; while the Republicans have to deal with Trump’s disagreement, Nancy Pelosi has to reckon with the pressure from some Democrat lawmakers facing tough reelection competitions. Trump’s request to support a bigger aid package seemed to allude to the bill the bipartisan Problem Solvers Caucus announced on Tuesday, costing a total of USD$1.5 trillion and covering the second round of stimulus checks of USD$1,200 for Americans.

4. On Wednesday, the Federal Open Market Committee convened for its last meeting until after the November elections. The committee’s announcement echoed last week’s statement of supporting the economy with low-interest rates until necessary; accordingly, the meeting participants agreed to keep the rates close to zero until 2023. This strategy is part of a new approach devised to support employment. In practical terms, this means that when faced with decreases in the unemployment rate, the Fed will wait before increasing the interest rates, as long as inflation doesn’t increase well above its 2% goal. This dovetailed tactic seeks, on the one hand, to incentivize investment and consumption, and on the other, to avoid what central banks have long believed: that low unemployment results in higher levels of inflation, which in its turn would curtail consumption and affect new employment opportunities for those seeking jobs.

5. The Trump administration announced on Friday it is banning Chinese applications TikTok and WeChat from mobile app stores. The measure, effective as of Sunday for WeChat and November 12 for TikTok, is an unprecedented move that will undoubtedly increase tensions between the two countries. In practical terms, this means that anyone trying to download the apps won’t be able to do so after Sunday and those who already have the app will not receive updates or security patches. Money transfer and mobile payment features will also be disabled beginning Sunday, thus affecting the banks and financial institutions that facilitate the money exchange. Although it is quite likely that people will find ways to use it, the measure aims to discourage the use of the apps over time. Both companies have expressed their disagreement with the decision and have highlighted that they already use high standards of user privacy and data security—stricter than what other apps are willing to do. They also said they plan to continue working with the U.S. government to continue serving their users.

6. Canadian Public Safety Minister Bill Blair and his American counterpart, Acting Homeland Security Secretary Chad Wolf, have agreed to extend the partial border closure until October 21 by common agreement. Since March, only returning citizens, goods, and essential workers have been allowed to cross the border. The measure responds to the surge in coronavirus cases in the United States during the spring and summer, and the recent rise in cases in Canada. Border communities in Canada have asked federal authorities to allow people in these regions to live more normally. On Friday, Conservatives in Canada asked Bill Blair to consider making exemptions on compassionate grounds for people to cross the border to care for seriously ill relatives or engaged couples to marry. Critics call on the government to both resolves the situations of families that remain apart and ensure the safety and health of Canadians.

7. In Ottawa, the Canadian capital, more than a thousand restaurateurs coalesced to ask the provincial government for a stronger relief program to help them weather the crisis and avert definitive closures. The group is petitioning for a more comprehensive program that includes wage subsidies and rent relief. A coalition of restaurateurs and the Canadian Chamber of Commerce sounded the alarm on Friday to alert the federal government that current aids will be insufficient, as patio season will come to an end amid new threats of lockdown due to the recent rise in coronavirus cases. Perrin Beatty, the Chamber’s president highlighted the imminency of the problem; as the fall and winter approach, restaurants will have a hard time surviving with social distancing guidelines and caps on the number of clients for indoor dining. This request comes a day after tourism-hospitality and live-event groups made a similar petition.

8. Ruth Bader Ginsburg, Supreme Court justice passed away on Friday at age 87. As a lawyer, she helped fight gender discrimination and won multiple arguments against the Supreme Court. In 1993, Bill Clinton nominated her to the Supreme Court where she served until the day of her passing; she was the second female justice to be confirmed to the Court. The Senate majority leader, Mitch McConnell, did not miss a beat and within an hour of Ginsburg’s passing announced that the Senate will confirm any Trump nominee. A new Trump-appointed justice will further consolidate an already conservative majority in the Supreme Court.

9. On Thursday, OPEC+ held an online meeting to review its production quotas as the sector struggles to recover from its 35% loss since the beginning of the year. The OPEC+, a coalition of OPEC members and non-members, had agreed in July to cut oil production by 7.7 million barrels per day until December, in an attempt to increase oil prices by limiting the supply. As experts predicted, the members and non-members of the OPEC did not announce any further cuts to production, however, Russia and Saudi Arabia used the opportunity to reiterate the importance of complying with the quotas. The statements seemed to instill confidence in the market as both oil benchmarks closed this week to the upside and over the USD$40 threshold. Brent crude oil recovered faster from last week’s descent and settled at USD$43.30, while the WTI closed the week at USD$40.97.

10. At the opening of the trading week, the euro briefly increased against the US dollar, then dipped again and continued to describe a series of small peaks and valleys— remaining mostly in positive territory—leading to highs of the week in the early morning of Tuesday. The European currency could not keep the upward momentum and late on Tuesday morning, it engaged on a downward trend that lasted until the early hours of Wednesday. The euro tried to recover, moved close to the highs of the week at around noon, and a couple of hours later initiated a deep dive, this time well into negative territory. The currency touched the lows of the week early Thursday morning and remained in negative territory until Thursday evening. On Friday, the euro remained mostly on positive territory until just before the close, when it descended again into negative territory. The euro closed the week slightly to the downside against the US dollar. In clear contrast to the European currency, the Japanese yen had an upward-moving week from the getgo. It started by touching the lows for the week and reaching negative territory right after the opening, but quickly reversed course and started an upward trend, with minimal downward moves here and there, that lasted well into Friday. On Friday morning, the yen reached the highs for the week, and after a small dip, it closed the week to the upside against the US dollar.

China’s reaction to the U.S. ban on WeChat and TikTok came swiftly. The Commerce Ministry announced Saturday morning that firms added to the “Unreliable Entities List” would be banned from making businesses with China. Rumors suggest that China might consider adding Apple and Google to the Unreliable Entities list if tensions continue to escalate. Although Trump’s measures against TikTok and WeChat seem to be one more episode out of the U.S.-China saga, The Washington Post reports that other countries have had their own reservations about the apps. The June 2020 clash between Indian and Chinese troops in the Himalayas led to an escalation of tensions between the two states; in retaliation, India banned more than 50 Chinese apps, including WeChat and TikTok. It has been reported that the Australian government is investigating TikTok’s privacy policies and trying to decide whether the app represents a security threat. Similarly, the Japanese government will discuss this month a petition from lawmakers asking the government to examine TikTok’s handling of private information. Although the European Union has not issued formal bans, data protection watchdogs share Japan’s and Australia’s concerns regarding privacy policies and the utilization of user information.

Canada is also experiencing difficulties in its relations with China. Canada has put in cold storage the idea of a free-trade agreement with China. In an interview with The Globe and Mail, the Canadian Foreign Affairs Minister François-Phillipe Champagne expressed that “The China of 2020 is not the China of 2016.” Consequently, all proposals drafted back in 2016, when the agreements were first discussed, have to be revised and updated to fit the current conditions. Recent Chinese displays of coercion within its territory and with neighboring countries, along with the imprisonment of Canadian citizens Michael Kovrig and Michael Spavor, seem to have weighed heavily on the decision to halt the agreement. For Canadian investors and the Trudeau government, the message seems to be clear: China is not a trustworthy partner.

On Wednesday, after the two days of meetings of the Federal Open Market Committee, Federal Reserve Chair, Jerome H. Powell conveyed optimism about the recovery. The Fed foresees unemployment rates falling to 7.6% by the end of this year. The Fed is currently predicting further declines to 5.5% unemployment by the end of 2021, and 4% unemployment in 2023. Despite the positive outlook, Powell expressed caution: “The recovery has progressed more quickly than generally expected… Even so, overall activity remains well below its level before the pandemic, and the path ahead remains highly uncertain.” Last week was the 26th-consecutive week of unemployment claims above pre-pandemic levels since the 1960s. In addition to the 860,000 that filed for unemployment, 659,000 people applied for the “Pandemic Unemployment Assitance” program designed for self-employed and gig workers; as of August 29, 29.7 million Americans have filed claims for unemployment insurance. Many economists credit the first relief package with the stabilization of the economy earlier this year; this data seems to echo their fears of a worsening economy if Republicans and Democrats continue to bicker over the relief bill.

As market volatility continues to swing, many continue purchasing physical precious metals, given the promising opportunities of the present moment. These investors think of the ownership of physical precious metals as a means of portfolio diversification, and thus, as a shield from the uncertainty of equity markets. Nevertheless, precious metals should always be viewed as a long-term investment, and the key to profitability through the ownership of physical precious metals is to acquire the physical product and hold on to it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long run.

Trading Department
Precious Metals International, Ltd.

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