The Precious Metals Week in Review – September 25th, 2020

1. The levels of high volatility do not seem to subside. After completing four weeks of losses, the longest losing streak since August of last year, the Dow Jones, S&P 500, and Nasdaq Composite closed the week to the upside. Major technology firms also had a good day on Friday; the shares of Amazon, Facebook, Apple, and Microsoft had gains. Paraphrasing Mark Newton, managing member at Newton Advisors, the increases seem to signal that the sell-off of technology shares has lost momentum. Still, it does not mean economic recovery or stability. The uncertainty remains as Democrats continue pushing for the approval of a $2.4 trillion aid package that includes enhanced unemployment benefits and relief funds for airlines. This clearly surpasses the price tag that Republican leaders are willing to approve. Political and social events continued to feed the uncertainty as President Trump affirmed that he would not transfer power if he lost the elections, and the exoneration of police officers for the death of Breonna Taylor sparked outrage and led to protests across the country.

2. For the week ending on September 19, the seasonally adjusted number of Americans filing for unemployment increased vis-à-vis the previous week’s revised level. The number of initial claims totaled 870,000, an increase of 4,000 from 866,000. The revision of the adjusted initial claims for the week ending on September 12 added 6,000 claims more than estimated, for a total of 866,000. The four-week moving average for the week of September 19 was 878,250, a decrease of 35,250 claims from the previous week’s revised average. The revision of this average for the week ending September 12 added 1,500 more jobless claims than estimated for a new total of 913,500 initial claims.

3. When asked if he would peacefully leave the White House in case of defeat, President Trump answered ‘no’ on Wednesday night during a press conference. “Well, we’re gonna have to see what happens,” said Trump, “you know that I’ve been complaining very strongly about the ballots, and the ballots are a disaster… We wanna have– get rid of the ballots, and you’re gonna have a very transparent transfer– peaceful– There won’t be a transfer; frankly, there will be a continuation. The ballots are out of control, you know it, I know it.” On the same day, President Trump also predicted that the Supreme Court will determine the presidential election’s outcome: “I think this will end up in the Supreme Court. And I think it is very important we have nine justices.” Trump’s comments sparked reactions from both political parties, with Democrats denouncing the President’s undermining of democratic and political institutions and Republicans affirming that there will be a peaceful transfer of power.

4. Friday ended with the culmination of three days of remembrance to honor Ruth Bader Ginsburg at the Supreme Court and Capitol. Right after, reports emerged revealing the name of the President’s candidate to replace the late Supreme Court justice. Trump’s rush to confirm Amy Coney Barrett before Election Day has sparked criticism and outrage after he said that the Supreme Court will decide the outcome of the presidential elections on Wednesday. Trump is clearly ensuring he will have a fifth justice on his side when the case reaches the high court; Lindsey Graham, a Republican senator, confirmed it in an interview with “Fox and Friends.” Although Democrats have asked to postpone the nomination and confirmation of the ninth justice until after the elections, just as it happened in 2016 when Republicans asked the same, it has fallen on deaf ears. Democrats have unsuccessfully tried to make Lindsey Graham honor the commitment he made in 2016 of observing the same precedent in the event a justice died in the last year of Trump’s term. So far, Democrats have only received support from two Republican senators who have argued that the rule should also apply this time.

5. The Canadian dollar could increase vis-a-vis the US dollar. Canada’s superior handling of the crisis could be giving the northern country an edge over the US. According to an analysis by the Deutsche Bank, three additional factors could weigh in the currency’s upward movement. First, Canadian consumers seem more confident and willing to spend, as reflected in the higher figures for Canadian retail sales, both for July and August. Second, average prices for houses and volume growth increased compared to August last year, positively impacting the construction sector and the GDP. Lastly, Michael Hsueh, Deutsche Bank analyst, argues that the “better foreign appetite for debt securities”—mostly of the Bank of Canada—has considerably improved the “flow equation for … [the Canadian dollar] … mainly in foreign debt for Canadian fixed income,” which would put the Canadian currency in a stronger position.

6. Cases of coronavirus are on the rise and leaders in Europe and Canada are sounding the alarm. As the northern hemisphere heads into colder months, politicians and health experts highlight the seriousness of the disease and the increased risks as activities move indoors. On Tuesday, the British government issued new restrictions after scientific advisers warned that cases were doubling every seven days. Under the new set of regulations, pubs and restaurants will have to close by 10:00 p.m., and the use of masks will be mandatory for retail workers, taxi drivers, and restaurant and bar staff, among others.

On Wednesday, the French Health Ministry introduced new measures to control this new wave of infections. The government is doing everything in its power to avoid a second nationwide lockdown; for now, it is limiting group sizes in some urban regions, and bars will not be able to serve after 10:00 p.m. After seeing cases increase over the past two weeks, Canadian Prime Minister Justin Trudeau warned in a televised speech that “The second wave isn’t just starting… It’s already underway.” He added, “we’re on the brink of a fall that could be much worse than the spring” and urged Canadians to change their behavior to avoid a winter lockdown. In stark contrast, Florida Governor Ron De Santis announced the state is moving to the next reopening stage. As of Friday afternoon, restaurants will be allowed to operate at full capacity; however, he allowed county governments to limit it by no more than 50%. According to a recent count by John Hopkins University, the United States alone now accounts for 7 million confirmed cases of COVID-19 and 203,000 deaths.

7. In Canada, Liberals are putting forward a proposal to increase the benefits for jobless workers with weeks in advance before the current relief funds are finished. The new bill seeks to increase the weekly aid to CAD$500 from CAD$400 and includes a fund of CAD$1.5 billion to help Canadians better or acquire new skills so they can find their way in this new reality. In addition to assigning funds, the proposal also requests the Parliament to grant the government powers to use emergency funds to fight the pandemic. Conservatives have expressed disagreement and argued that the measure does not solve the real problem; in the words of Peter Kent, Conservative Member of the Parliament, the government is disappointing Canadians again as “millions of Canadians are still unemployed and eager to return to work …. [and b]usinesses want to reopen and welcome back staff and customers.”

8. According to a report published by BP earlier this month, the oil demand may never return to pre-pandemic levels. The report estimates that oil consumption will increase again after the pandemic to later stagnate and decrease again. Consequently, the company seems to be taking steps to adapt to a new market by committing to solar energy. It plans to spend $5 billion a year on energy sources with low-carbon emissions and become a zero-emissions company by 2050. Other major oil companies, like Total and Shell, have announced similar plans, but so far, BP is the only to have released a detailed strategy. On a different note, the West Texas intermediate started the week over the $40 threshold, spent most of the week over $39, and settled at $40.04. In contrast, the Brent crude oil started the week at $43.01, then dipped and spent the week over $41, reached $42.33, and closed the week at $41.79

9. The euro and Japanese yen followed a similar pattern—high at the beginning of the week, quickly followed by a downward trend that lasted until Friday. The euro remained steady against the US dollar until Monday evening. In the wee hours of Tuesday, the currency seemed to start an upward trend that led it to the week’s highs early in the morning. However, it was a matter of a few hours until the euro started a downward trend that took it to negative territory that extended until the end of the week. On Tuesday evening and Wednesday morning, the euro tried to reverse course; nevertheless, it could not keep the momentum and resumed the downward movement. Similarly, the currency tried to move upward unsuccessfully from Thursday evening until Friday morning. The euro reached the week’s lows on Friday afternoon and is readying to close down against the US dollar. The Japanese yen opened with a small uptick that started an upward trend that led it to the week’s highs on Monday morning. Yet, the ascent was short-lived, and the yen took a deep dive into negative territory in the afternoon; early that evening, the Japanese currency reversed course and returned to positive territory in the early hours of Tuesday. Later in the morning, the Japanese currency went on a roller coaster from negative, to positive, to negative territory again close to noon, where it spent the rest of the week. On Tuesday afternoon, the yen initiated a downward trend that took it to the week’s lows on early Friday afternoon. Despite staging recoveries for the rest of the week, the currency will close the week to the downside against the US dollar.

A grand jury decided not to press charges against two of the three police officers involved in the homicide of Breonna Taylor. The verdict sparked protests, first in Louisville (Kentucky) right after the ruling’s announcement, and across the country. Demonstrations have been for the most part peaceful, with apparent exceptions: in Louisville, a rally on Wednesday night turned violent and left two police officers with non-death threatening gun wounds; a protest in Portland ended in a rock-hurling confrontation with the police, who responded with pepper spray and high impact weapons; a subsequent demonstration in Seattle culminated with acts of vandalism and clashes with police. Right-wing groups are also organizing protests; in Portland, Oregon, a far-right group called Proud Boys plans to gather at a park on Saturday afternoon. Organizers expect about 10,000 activists, although it is unknown whether that figure includes members of similar organizations. Many have expressed their concerns about this meeting ending up in a collision with Antifa and far-left groups, who are also planning to protest on Saturday; Kate Brown, the governor of Oregon, declared a state of emergency on Friday. The governor condemned people going to Portland to pick a fight and stated that there will be zero tolerance for “any kind of violence this weekend. Left, right, or center, violence is never a path toward meaningful change. … Those stoking the flames of violence, those coming to Portland looking for a fight, will be held accountable.”

Right-wing politics have also reached Switzerland. On September 27, Swiss voters will participate in a referendum that seeks to end the freedom of movement with the European Union. This referendum, called by the Swiss People’s Party (SVP), a right-wing political party, is a continuation of this party’s efforts to make things harder for non-Swiss nationals. In 2014, the SVP tried to renegotiate the treaty that allows European Union citizens to live in and work freely in Switzerland; the SVP also attempted to expel foreigners who commit crimes, even misdemeanors. These party’s attempts have been met with resistance; Operation Libero started in 2014 in reaction to the Swiss People’s party, and so far, it has been quite successful. Since Operation Libero began in 2014, the SVP has lost all of its important initiatives. If the Swiss People’s Party initiative wins the referendum, it will give the government a year to reach a new treaty with the European Union; however, the treaty in question and six more are covered by a clause that ends all treaties if one of them is rescinded.

On a different front, as the second wave of COVID-19 cases takes off in Europe and Canada, the United States passed the 7-million-cases mark on Friday. Only three other countries in the world have crossed the 1-million threshold: India, with more than 5.8 million; Brazil, with more than 4.6 million; and Russia, with more than 1.1 million. European countries have announced new measures to control the current rise in cases and prepare to deal with the increased risks of infections that come with the return of low temperatures and indoor activities during the fall and winter. By contrast, the United States is still dealing with the first wave in a disjointed way. Of the 50 states, 11 are seeing a decline, 16 are at a plateau, and 23 have reported increasing numbers. Florida is in the last group and, despite the climb in coronavirus cases, just moved to the third phase of its reopening plan and gave restaurants and bars the green light to fully reopen.

Nevertheless, the southern hemisphere just showed how to avert the conflation of the flu season and COVID-19. As reported by the World Health Organization, the data from southern countries suggests that the measures meant to halt the spread of coronavirus effectively slowed the spread of influenza and decreased it to record-low levels. The United States experienced similar declines in flu cases of spring and summer influenza variants, which coincided with COVID-19 mitigation efforts. The data of the northern hemisphere undoubtedly echoes the findings of the southern hemisphere.

As politics around the world and ongoing worldwide health concerns continue to feed uncertainty, investors continue to regard precious metals, particularly gold and silver, as a means for protecting their capital and diversifying their portfolios. Nevertheless, precious metals should always be viewed as a long-term investment; 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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