The Precious Metals Week in Review – December 4th, 2020

1. The disconnect between the stock market and reality continues to grow. Major stock benchmarks reached new records this week, while evidence suggests that the U.S. economy is nearing the end of recovery, and coronavirus cases attain new highs. This week, the U.S. Congress resumed talks of a new coronavirus stimulus package; November’s job gains—the weakest since the beginning of the recovery—seemed to corroborate the urgency of the aid.

2. For the week ending on November 28, the seasonally adjusted number of Americans filing for unemployment decreased—to record levels since the beginning of the pandemic—vis-à-vis the previous week’s revised level. The number of initial claims totaled 712,000, a drop of 75,000 from 787,000. The revised figure for the week ending on November 21 added 9,000 claims, for a total of 787,000. The four-week moving average for the week of November 28 was 739,500, a decrease of 11,250 claims from the preceding week’s revised average. The revision of this average for the week ending November 21 added 2,250 more jobless claims than estimated for a new total of 750,750 claims.

3. Renewed talks of a stimulus bill have divided the Congress once again, although party lines have been blurred this time. A bipartisan group worked around the clock to draft the proposal: Republican Senators Mitt Romney (UT), Susan Collins (ME), and Lisa Murkowski (AK) joined efforts with Democratic Senators Mark Warner (VA), Jeanne Shaheen (NH), and 11 more lawmakers from the Senate and House. The new stimulus plan includes support for airlines, state and local governments, healthcare, small business loans, and unemployment insurance. On Wednesday, House Speaker Nancy Pelosi and Senate Minority Chuck Schumer backed the $908-billion plan as a starting point. The bipartisan proposal repurposes $560 billion from the CARES Act and adds $348 billion. Nevertheless, Senate majority leader Mitch McConnell is circulating a slimmed-down draft of $500 billion that excludes additional federal unemployment benefits and aid for state and local governments; however, it stipulates funding for education and small businesses. On Tuesday, McConnell highlighted that more important than bipartisanship was President Trump’s signature and suggested that only his plan would get it: “Obviously, it does require bipartisan support to get out of Congress, but it requires a presidential signature.”

4. The latest Employment Situation Summary seems to signal that recovery is nearing its end. Although the unemployment rate decreased by 8% from its April high, it remains 3.2% higher than in February, said the report. Unemployment remains at 10.7 million—that is, 4.9 million higher than in February. While September’s nonfarm job gains totaled 661,000 and October’s 610,000, November’s 245,000 is the slowest job growth since the recovery began in May and is well below economists’ expectations of 469,000. The largest job additions occurred in the transportation and warehousing industry (145,000 positions), professional and business services (60,000), and health care (46,000). The sectors with the most significant losses were government (99,000) resulting from losses in local government education and the termination of temporary contracts for the 2020 census—and retail trade (35,000), reflecting a decrease in seasonal hiring. Economists at Jefferies attributed the reduced pace in job gains to the current surge in COVID-19 cases and the containment policies being implemented. The investment bank experts added that “worker availability is a significant limiting factor as well, with many unable to go to work due to COVID concerns or family care obligations.”

5. On the northern side of the border, the unemployment picture does not look as grim. Although the latest Statistics Canada’ Labor Force Survey shows that November’s job gain was the slimmest since May, the number of new jobs greatly exceeded expectations. While economists anticipated 20,000 new positions—or less because of the new restrictions—employment rose by 62,100 jobs, and the unemployment rate decreased by 0.4% to 8.5%. However, Statscan warned that the job addition reflects the job market’s state between November 8 – 14, before the tightening in restrictions went into effect. Regardless of how this might show in December’s unemployment data, full-time jobs increased by 99,000, and the labor market has returned to pre-pandemic levels in the provinces of New Brunswick, Nova Scotia, and Newfoundland and Labrador. Employment in the finance, insurance, and real estate industry has been restored to pre-pandemic levels, and the construction sector had a first increase in employment since July. Despite the work rise, the survey also reported the loss of 26,000 positions in the culture and recreation industry, followed by a fall of 24,000 jobs in accommodation and food services.

6. U.S.-China tensions continue to rise. On Wednesday, the U.S. Congress passed a bill that seeks to enforce U.S. accounting rules on Chinese firms; refusal to comply would entail delisting from U.S. exchanges. The Chinese Securities Regulatory Commission condemned the measure as “clearly discriminatory” and unprofessional. The Commission firmly opposed “such acts of politicizing securities supervision,” and added that “These rules would force Chinese companies to delist from U.S. securities markets, and will seriously harm the interest of U.S., and even global investors.” The bill would require Chinese firms that trade in the U.S. exchange to name Chinese Communist Party officials on their boards and demonstrate that a foreign government does not control them, among others.

7. On the same day, the Trump administration issued new visa restrictions for Chinese Communist Party members and their immediate relatives. A spokesperson for the State Department explained that the new policy limits the visa validity to one month, meaning that visa holders will have a month to travel from the issuance date. Decisions regarding entrance to the U.S. and the duration of stay remain under U.S. border officials’ discretion at the port of entry. Estimates indicate that the new rules would affect about 270 million people; the calculation is based on the 92 million members of the Chinese Communist Party. On Thursday, a spokesperson for the Chinese Foreign Ministry reacted to the new measure in a news conference and said that “We hope people in the United States will adopt a common rational view toward China and give up their hatred and abnormal mindset toward the Communist Party.”

8. This week, OPEC+ convened on Monday and Tuesday to agree on the oil reduction quotas that would rule production for the first quarter of 2021. Despite expectations of a roll-over of the current oil slash of 7.7 million bpd, a sense of anticipation around the vaccines and the consequent oil-price rally divided the alliance members, extending talks until Friday. According to OPEC+ sources, Russia, Nigeria, Iraq, and the United Arab Emirates expressed interest in increasing their oil supply, thus opposing Saudi Arabia, who advocated for maintaining the tightening policy. By Thursday, sources informed of two possible agreements: easing cuts by 0.5 million barrels-per-day a month beginning January, or rolling over the cuts until January and increasing production by 1 million BPD between February and March, and another million BPD in April. The week concluded with an agreement to increase output by 500,000 BPD, thus cutting production by 7.2 million BPD from January 2021. This week both Brent and West Texas Intermediate crude oil continued to post gains, bordering for the first time $50 per barrel since the start of the pandemic. Both crude oils steadily climbed well above the $40-threshold and reached the week’s highs on Friday, Brent crude oil at $49.22 and WTI at $46.68. Brent oil settled at $49.25, while WTI is closing the week at $46.26.

9. The euro started the week with a short-lived climb against the U.S. dollar. Monday afternoon, the European currency dived into negative territory and touched the week’s low; however, it managed to climb out and return to positive terrain by Tuesday morning. The euro quickly rose in the afternoon, then slowed down the pace of the ascent and dipped in the wee hours of Wednesday. The currency maintained this pattern of fast climbs followed by small drops until Friday when it reached the week’s high in the late morning. In the afternoon, the euro initiated a descent that led it to close the week to the downside against the greenback. The Japanese yen had a rocky week against the U.S. dollar. The Japanese currency started the week with a brief and rapid climb that lasted until the early morning of Monday. Next, the yen plunged into negative territory for the first time, climbed out quickly, and then submerged again into negative terrain—all in the same day. On Tuesday and Wednesday, the currency described sharp peaks and valleys that concluded with a dive to the week’s low by Wednesday at noon. The yen reversed course, alternating between fast and slow-paced ascents until it reached the week’s high on Thursday afternoon. Next, the currency dropped again, but it was on the way to recovery by the evening. In the wee hours of Friday, the yen engaged in a descent that took it to negative territory for the last time this week, and it closed to the downside against the greenback.

This was a deadly week in the United States, and it closed with a seven-day average of almost 1,800 deaths—the highest since mid-May. Tuesday started the deadliest four-day streak yet. On Wednesday alone, COVID-19 claimed nearly 2,800 lives, and Thursday and Friday’s death tolls followed near. The infection rate has increased to unprecedented levels; on Wednesday, the number of cases surpassed 200,000, setting a new record. Unfortunately, it did not last long; Thursday and Friday also came with new highs; Friday alone counted nearly 230,000 new cases. Midwest states lead the list with the highest infection numbers: the Dakotas are at the top, followed by Iowa, Wisconsin, and Nebraska. In the absence of a federal plan, the burden of designing and implementing containment strategies falls on the shoulders of state and local governments.

On Thursday, Governor Gavin Newsom announced the strictest set of measures implemented in California since March to curb the coronavirus’s spread. Despite stating that the new restrictions would go into effect regionally when hospital occupation in a given sector reached 85%, Newsom declared on Friday that the San Francisco Bay Area would be subject to the stay-at-home orders before reaching the threshold. The California Governor has not been the only one to adopt restrictions. The third wave’s high levels of infection and mortality have blurred party lines and led Republican and Democrat officials to adopt mask mandates and (re)impose restrictions on gatherings.

Brexit talks will enter a new stage on Saturday as British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen start direct negotiations. On Friday, Michel Barnier and David Frost, the chief negotiators for the European Union and the U.K. respectively, issued a joint statement saying they had not been able to agree on the remaining issues: “After one week of intense negotiations in London, the two chief negotiators agreed today that the conditions for an agreement are not met, due to significant divergences on level playing field, governance and fisheries,” read the statement. “On this basis, they agreed to pause the talks in order to brief their principals on the state of play of the negotiations. President Von der Leyen and prime minister Johnson will discuss the state of play tomorrow afternoon.” Despite concerns raised in Paris, Rome, the Hague, and Copenhagen, German Chancellor Angela Merkel stepped in and expressed through her spokesperson that both sides “need to move towards each other,” if they want a deal. The statement added that “Everybody has their principles, there are red lines, that’s clear, but there’s always room for compromise.” Sources have expressed both Von der Leyen and Merkel’s resolution to come to an agreement will take the deal to the finish line.

Experts are well versed in the harmful impact that a new relief package could have on the value of money. Therefore, savvy investors continue to regard gold and silver as shields to protect their capital and diversify 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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