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

1. This week, the Dow Jones and S&P500 posted their first weekly losses in three weeks, while the Nasdaq recorded gains for the third consecutive week. The U.S. Congress continued negotiations to pass a new relief bill before the end of the year. Despite last week’s bipartisan progress, disagreements over unemployment assistance, stimulus checks, and local and state governments’ funding remain. Jefferies chief economist Aneta Markowska opined that “If a deal is to be reached this year, Democrats will likely have to accept a package without state and local aid, which would be worth roughly $750 billion.” Markowska added that “The economy needs right now […] a short-term bridge to the other side of the pandemic, which is probably just months away. Only fiscal policy can provide such a quick injection.”

2. For the week ending on December 5, the seasonally adjusted number of Americans filing for unemployment increased by more than 100,000 vis-à-vis the previous week’s revised level. Noticeably offsetting last week’s drop, the number of initial claims totaled 853,000, an increase of 137,000 from 716,000. The revised figure for the week ending on November 28 added 4,000 claims, for a total of 716,000. The four-week moving average for the week of December 5 was 776,000, an increase of 35,500 claims from the preceding week’s revised average. The revision of this figure for the week ending November 28 added 1,000 more jobless claims than estimated for a new total of 740,500 claims. These numbers reflect the jump in COVID-19 infections of the week after Thanksgiving celebrations and its consequences: more layoffs and consumer-spending cuts. The data seems to confirm the recovery’s slowdown that economists have been warning about; the question now is whether the coronavirus’s third wave will undo the progress made since May. Many economists have also underlined the importance of more aid to households and businesses to avoid the end of recovery. Although negotiations around a new coronavirus aid package have progressed, political parties remained divided on critical issues.

3. On Thursday, Congress held an oversight hearing to inquire into Treasury Secretary Steven Mnuchin’s handling of the economic relief efforts. Members of the oversight commission rebuked Mnuchin for his decision to end five aid programs and request the Federal Reserve to return the remaining unused funds to the Treasury, thus affecting the incoming administration’s chances to support the economy from the get-go. Although Mnuchin continued to assert that he was just following congressional intent and that law obliges him to make such determinations, the Fed and outside lawyers have expressed disagreement. Bharat Ramamurti, an appointed member of the congressional oversight commission, criticized Mnuchin for his decision to end the programs and deemed his motivations to be “political.” Ramamurti highlighted that the Treasury had asserted in the past that the programs could be extended depending on market conditions and that Mnuchin made his call public after the election. To reinforce that Mnuchin’s motivations were political, Ramamurti questioned if anyone thought that “the Treasury would have ended these programs if Donald Trump were re-elected?” Ramamurti also called into question Mnuchin’s decision to extend a loan to a trucking company that was in financial difficulties before the pandemic hit. While talks of a new relief package continue, President Trump signed on Friday a one-week extension of the programs expiring on Saturday.

4. In Canada, the Ontario province declared lockdowns for two more regions—York and Windsor-Essex county. On Friday, Ontario Premier Doug Ford announced the decision, which was met with a great deal of resistance, particularly from retailers and small businesses. Lobbyists for these two groups were hoping to convince the government to issue softer measures that would allow non-essential businesses to remain open and salvage the shopping season. The current set of restrictions only let essential businesses to operate at a 50%-capacity limit. Curbside pickup and delivery are the only options available for those retailers that can offer it and restaurants. Hair salons and gyms, as well as small businesses, are carrying the heaviest burden, while big stores with online operations get to be the sole sellers for the season. Gila Martow, a Conservative Member of the Provincial Parliament, touched on this subject in a tweet: “Big-box retailers like Walmart should not be allowed to enrich themselves on the backs of small businesses simply because they can afford to hire well-connected lobbyists […]” The mayor of Markham, the largest city in the York region, said that although he supported the measure, he would continue calling for help for small businesses in difficulties. On a different note, Canadian and U.S. officials said on Friday that land borders would remain closed for non-essential travel, at least, until January 21, 2021.

5. On Friday night, the Supreme Court rejected the attempt led by Texas Attorney General Ken Paxton to overthrow the election results of four battleground states—Pennsylvania, Georgia, Michigan, and Wisconsin. Seventeen other attorneys general joined Paxton in a lawsuit filed directly in the Supreme Court that sought to invalidate the votes of about 20 million Americans and keep the mentioned four states from issuing votes in the Electoral College. President Trump filed a motion to take part in the case “in his personal capacity” as a contender in the elections; the initiative received the support of more than a hundred Republican House Representatives. The Court’s order dismissed the lawsuit saying that “Texas has not demonstrated a judicially cognizable interest in the manner in which another State conducts its elections.” The Attorneys General of Pennsylvania, Georgia, Michigan, and Wisconsin rebuked the lawsuit underlining the lack of evidence, Texas’ seditiousness, and meddling in other state’s affairs. Pennsylvania Attorney General Josh Shapiro said that the suit rested on a “surreal alternate reality” and highlighted the seditious nature of this type of “abuse of the judicial process.” While Michigan Attorney General Dana Nessel underscored that “Texas comes as a stranger to this matter and should not be heard here,” Attorneys General of Georgia and Wisconsin, Chris Carr and Josh Kaul respectively, emphasized that the elections are a jurisdiction of each state. In an interview with the network Newsmax, Trump’s personal lawyer Rudolph Giuliani responded to the Supreme Court’s ruling by saying, “We’re not finished, believe me,” and added that the legal efforts would continue. The Electoral College is scheduled to cast votes on Monday, December 14.

6. On Friday, The Food and Drug Administration authorized distributing the Pfizer-Bio-N-Tech’s COVID-19 vaccine to highly vulnerable sectors of the population. The authorization came after President Trump ordered F.D.A. commissioner, Doctor Stephen Hahn, through a tweet to “Get the dam (sic) vaccines out NOW […] Stop playing games and start saving lives!!!” Although the acceleration of the clearing process was not meant to speed up the delivery, it did. The green light set off a series of coordinated efforts between the producer, shipping companies, the military, hospitals, local officials, and pharmacies in order to deliver the vaccine without compromising the ultra-cold chain. Major medical supplies companies are also part of the process and will be providing syringes, alcohol pads, and face shields. Each state has communicated to the federal government a list of facilities where the vaccines and other supplies will be delivered. The first batch of vaccines is estimated at 3 million doses, which will reach nursing home residents and healthcare workers. It is expected that by March next year, 100 million more doses will be delivered in accordance with the deal signed between the U.S. government and the vaccine developer. The United States is the sixth country to authorize the distribution of the Pfizer-Bio-N-Tech vaccine after Britain, Bahrain, Canada, Saudi Arabia, and Mexico; the European Union is expected to issue its approval in the next few weeks.

7. After Brexit negotiators stepped down to let U.K.’s Prime Minister Boris Johnson and European Commission President Ursula von der Leyen take the helm of negotiations, little to no progress has been made. On Wednesday, the two parties agreed that a deal—or no deal outcome—had to be reached by Sunday. While Downing Street communicated that the meeting had been “frank,” Von der Leyen tweeted that “We had a lively and interesting discussion on the state of play on outstanding issues. We understand each other’s positions. They remain far apart. The teams should immediately reconvene to try to resolve these issues. We will come to a decision by the end of the weekend.” By then, sources close to the European Union claimed that both sides believed a deal was still possible. Nevertheless, after both parties admitted the unlikeliness of a trade agreement on Friday, Johnson made arrangements to ready four—which later on became eight—navy gunboats to protect fishing waters after January 1st, if reaching a deal proves impossible. Tories in the U.K. criticized Johnson for his nationalist dealing of Brexit negotiations; at the same time, Von der Leyen declared, after a European council meeting, that “We understand that the U.K. aspires to control its waters. The U.K. must, on the other hand, understand the legitimate expectations of E.U. fishing fleets built on decades and sometimes centuries of access.”

8. Despite closing this week to the downside, both Brent and West Texas Intermediate crude oils posted gains this week. The fall came after both benchmark oils reached their highest in nine months on Thursday. Expectations around the distribution of Pfizer’s COVID-19 vaccine and its positive effects on the economy and oil demand fueled this week’s gains. While Brent oil breached the $50 threshold on Thursday and managed to close above it at $50.07, W.T.I. crude remained all week above $45 and settled at $46.56.

9. This was an erratic week for the euro and Japanese yen against the U.S. dollar. The euro spent most of the week in negative territory; despite its continuous efforts to remain in positive territory, the European currency closed the week below last week’s closing level. At the trading week’s opening, the euro briefly dipped into negative turf but was out of it by Monday’s wee hours. However, the currency revisited negative territory that morning, left it to reach the week’s high by the early afternoon, and returned in the evening. Three recovery attempts marked Tuesday—a day that began and ended in negative ground. Wednesday started with an ascent that took the euro out of negative ground by the morning; however, twelve hours later, the currency dipped to the week’s low, in an almost vertical descent. The day ended with the currency’s strongest recovery attempt, which carried on Thursday and Friday. On Friday, the European currency bordered the week’s high before a vertical drop sent it back to negative territory where it closed the week to the downside against the greenback. The Japanese yen had a less eventful week than the euro and spent most of the week on positive territory. The week started with a small dip followed by two peaks and two visits to negative turf that extended until Monday. However, the currency was up again in the afternoon and engaged in a descending trend that accelerated on Wednesday’s early afternoon. The descent concluded after the yen touched the week’s low in negative turf on Thursday morning; a steady climb ensued and, although a drop interrupted it briefly, the ascension concluded with the currency touching the week’s high a few hours before closure. Despite dropping nearing the end of Friday’s session, the yen ended the week to the upside against the greenback.

The U.S. reached a new COVID-19 record on Wednesday with more than 3,000 deaths nation-wide. As conditions worsen while the third wave continues to ravage the country, disruptions to life in the times of the pandemic drag on. Unfortunately, experts think that the worst is yet to come in the next couple of weeks as current numbers are only beginning to reflect infections related to Thanksgiving gatherings. What is causing alarm among health experts is that cases are also increasing rapidly in areas severely hit by the first and second waves. Reports of infections for Friday alone rose to more than 237,000 cases—the highest daily number since the beginning of the pandemic. Almost 300,000 people have died of COVID-19 since February in the United States. On the positive side, the COVID-19 vaccination campaign should begin Monday with the first rounds of immunization for the elderly and frontline workers.

On a different note, analysts of U.S.-China relations have expressed that hopes of improvements are rapidly dimming. Despite expectations of amelioration under President-elect Joe Biden, optimism is waning as experts note that “The first words we’ve heard from Biden aren’t very appealing,” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis. To complicate things further, the Trump administration continues to assert publicly that China is a threat. On Tuesday, Commerce Secretary Wilbur Ross said at the Milken Institute Asia Summit that China remains the “principal military and economic threat in Asia.” U.S. Trade Representative Robert Lightnizer echoed those ideas on Thursday and stated that Chinese industrial policies have been harmful to the U.S. and other economies. To substantiate his argument, Lightnizer repeated ordinary complaints, such as forced transfer of technological know-how to Chinese firms and subsidies to state-owned companies. These comments come after the U.S. issued new visa restrictions to Chinese Communist Party members and their families last week.

The start of the vaccination program in the United States could entice many to ditch safe-haven investments and welcome risk again. However, as experts have warned, the pandemic is far from over, and the harmful effects of new relief packages on the value of money still loom large. 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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