The Precious Metals Week in Review — August 31st, 2018

1. Ongoing trade disputes between the U.S. and the majority of its trading partners continue to be the primary issue triggering volatility in all markets. Next week will see the release of the August Non-Farm Payrolls report and economists will be closely watching that report for indications on the Federal Reserve’s future pace of interest rate hikes. Monday marks the Labor Day holiday in Canada and the United States so the trading week will be shortened.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment increased by 3,000 claims to a new level of 213,000 for the week ending August 25. The previous week’s level was unrevised. The four-week moving average of claims decreased by 1,500 to a new level of 212,250 from the previous week’s unrevised average. This marks the lowest level for the four-week moving average since December of 1969.
3. Trade talks between the U.S., Canada and Mexico were the highlight of news programs this week. On Monday, the U.S. and Mexico reportedly struck a trade deal that could pave the way for replacing the original NAFTA agreement. The agreement, reportedly to be called the United States-Mexico Trade Agreement, is a “side deal” that did not include Canada in any of its terms. Talks with Canada to bring them into a new trade agreement continued through Friday and were apparently even more tense due to Monday’s announcement of the deal with Mexico. Treasury Secretary Steven Mnuchin said on Tuesday that he is hopeful that the U.S. will be able to renegotiate the terms of NAFTA with Canada but that the U.S. is prepared to move ahead with Mexico under the new agreement if they cannot come to terms with Canada.
4. Argentina’s central bank was forced to hike interest rates to 60% as its currency, the peso, collapsed further on Thursday. The government asked for the early release of a $50 billion loan from the International Monetary Fund (IMF) on Wednesday, which accelerated the currency crash as investors apparently increasingly fear that a default is in the making. The Argentinian peso is down over 45% against the U.S. dollar for the year, pressured by the U.S. Federal Reserve’s moves to tighten monetary policy. Inflation in Argentina stands at nearly 30 percent, one of the highest rates in the world. Some analysts view the request for the early release of the IMF funds as an act of desperation as Argentina now appears headed for yet another financial crisis. In a televised address on Wednesday, Argentine President Mauricio Macri said “This decision aims to eliminate any uncertainty…Over the last week we have seen new expressions of lack of confidence in the markets, specifically over our financing capacity in 2019.” Macri closed with “I know that these tumultuous situations generate anxiety among many of you…I understand this, and I want you to know I am making all decisions necessary to protect you.”
5. Turkey’s economic confidence has plunged to its lowest level in nearly a decade, adding further downward pressure to that country’s currency crisis. The International Monetary Fund estimates that the total amount of Turkish debt that is payable in other currencies is now more than 50 percent of the country’s Gross Domestic Product (GDP). The news led to further sell-offs in the Turkish lira. Turkey’s central bank is apparently being restrained from raising interest rates as Argentina did this week by direct intervention from President Erdogan. The obvious interference with the central bank’s supposed independence has spooked would-be investors in further Turkish debt away from the market, compounding the problem. In July, a report issued by ABP Invest projected that if Turkey continued down its current economic policy path that it would “most likely [trigger] a full-blown financial and currency crisis later this year, requiring the IMF to intervene over the next 12 months.”
6. President Trump, whose administration is currently heavily involved in trade negotiations with Canada and Mexico, rejected an offer from the European Union this week to eliminate tariffs on automobiles if the U.S. would do the same. Trump said in a Bloomberg interview that aired on Thursday that the offer from the EU was “not good enough” and added that the EU’s “consumer habits are to buy their cars, not to buy our cars.”
7. On Thursday, Bloomberg also reported that the Trump administration was prepared to impose more tariffs on $200 billion worth of Chinese goods as early as next week. In the same interview that aired on Thursday, Trump also criticized the World Trade Organization and said “if they don’t shape up, I would withdraw from the WTO.” George Yeo, a former foreign and trade minister for Singapore, told CNBC on Friday that the escalating friction between the U.S. and China might lead to “a global economic crisis.”
8. Oil prices managed to end the month higher despite slipping on Friday. Falling output in Venezuela, as their economy continues to collapse, combined with expected shortages due to renewed U.S. sanctions on Iran both acted to lend support to prices. Despite the fear of shortages driven by Venezuela and Iran lending price support, analysts still project some downward pressure on prices in the near term due to a potential weakening in global demand resulting from President Trump’s ongoing trade disputes with China, Canada, Mexico and the EU.
9. The euro took a bump higher at the start of trading for the week, but had turned lower by mid-morning on Monday. Immediately following the announcement that the U.S. and Mexico had reached an agreement on their trade differences, the euro surged higher. The euro continued its move to the upside through Tuesday when it reached its highs for the week. The euro began to trend downward for the rest of the week and by Friday’s close it had plunged back into negative territory as the U.S. and Canada continued to drag out their own independent trade talks. The euro appears set to close to the downside against the U.S. dollar for the week. The Japanese yen moved slightly higher against the U.S. dollar at the start of the week and then traded essentially sideways through Wednesday. The yen saw a steep decline late on Wednesday but soon began a steady move back to the upside and was at its high point against the dollar for the week by Friday morning. A brief drop late on Friday sent the yen lower again, but it still appears set to close out the week slightly to the upside against the U.S. dollar.
Emerging markets, trade and geopolitical issues all remain top priorities to monitor over the coming week, especially given the shortened trading week in the U.S. and Canada. While the U.S. and Mexico came to terms on a trade agreement earlier in the week, the U.S. and Canada failed to finalize their own agreement by Friday’s self-imposed deadline. By law in the U.S., the President has to inform Congress 90 days ahead of the signing of any trade agreement. Mr. Trump issued a statement on Friday saying he intends to sign an agreement with Mexico — and Canada if it so chooses — within 90 days but it is unclear whether this statement counts as an official notification to Congress as required by law.
Since an agreement could not be reached between the U.S. and Canada, it could be argued that the trade agreement with Mexico will not be the final agreement that Canada would potentially sign within 90 days and therefore would not be in compliance with the statute. Canada’s finance minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer both stressed that negotiations would continue next week, with Lighthizer saying “The talks were constructive, and we made progress. Our officials are continuing to work toward agreement.” In a statement released later in the day, Lighthizer said “Today the President notified the Congress of his intent to sign a trade agreement with Mexico — and Canada, if it is willing — 90 days from now. The agreement is the most advanced and high-standard trade agreement in the world. Over the next few weeks, Congress and cleared advisors from civil society and the private sector will be able to examine the agreement. They will find it has huge benefits for our workers, farmers, ranchers, and businesses. We have also been negotiating with Canada throughout this year-long process. This week those meetings continued at all levels. The talks were constructive, and we made progress. Our officials are continuing to work toward agreement. The USTR team will meet with Minister Freeland and her colleagues Wednesday of next week.”
As the U.S. and Canada continue their negotiations, reports surfaced that the U.S. was still considering implementing a new round of tariffs on $200 billion worth of Chinese goods as early as next week. Ralph Hamers, the CEO of Dutch bank ING, warned this week that his customers are already beginning to feel the impact of the global tariff disputes as China and the U.S. keep stacking tariffs on each other’s goods. Talking on the sidelines of the Handelsblatt banking conference in Frankfurt, Germany, Mr. Hamers said “We see clients looking to reorganize their value chains. We are making sure that either they are not caught by higher tariffs or moving their production or basically rerouting value chains through which they make their products.” Mr. Hamers continued, saying “It is very clear that a trade war is not good for producer confidence to invest and for consumer confidence to consume. It already has had a negative impact on economic growth.”
Emerging markets are also feeling the pain, both from the trade disputes and the U.S. Federal Reserve’s efforts to tighten monetary policy. Argentina’s currency experienced a complete meltdown this week when the government asked the IMF to release funds early from what was supposed to be an emergency $50 billion credit line that it previously said it would likely not need. Argentina’s central bank was forced to spike interest rates to 60 percent on Thursday in an attempt to halt the peso’s freefall.
Turkey also continues to battle its own currency crisis, and Venezuela’s hyperinflation has become so bad that the Maduro administration simply removed some zeros from their highest denominated bill in order to “reset” its value.
As the U.S. Federal Reserve has continued its rate hikes, the value of the dollar has risen, making repayment of dollar-denominated debt — which many emerging markets are saddled with — much more expensive to repay. Rising commodity prices — a result of the ongoing trade war — have also hurt the economies of emerging market countries, many of whom depend on those commodities for their revenue streams. Analysts remain convinced that the contagion from emerging markets can be contained, but the unpredictability of the Trump administration and the continued uncertainty surrounding the ongoing global trade disputes clearly calls those projections into question.
Turkey, Argentina, Brazil and especially Venezuela are all showing signs of economic collapse and it seems clear that if they all default on their debts then their creditors will face their own economic challenges as they suddenly find themselves short on funds as well.
As these uncertainties continue to grow, savvy investors seek out ways to ensure that their investment portfolios are well-diversified against a sudden collapse in asset prices. Many of these investors continue to acquire additional physical precious metals for their investment portfolios as prices have presented them with the buying opportunity to do so at a discount for just that purpose.
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)
August 24th2018 August 31st2018 Net Change Gold $1207.10 $1200.90 (6.20) — 0.51% Silver $14.82 $14.52 (0.30) — 2.02% Platinum $790.40 $788.10 (2.30) — 0.29% Palladium $933.60 $977.90 44.30 + 4.75% Dow Jones 25790.35 25964.82 174.47 + 0.68%
Month End to Month End Close
July 31st2018 August 31st2018 Net Change Gold $1224.50 $1200.90 (23.60) — 1.93% Silver $15.55 $14.52 (1.03) — 6.62% Platinum $844.40 $788.10 (56.30) — 6.67% Palladium $937.30 $977.90 40.60 + 4.33% Dow Jones 25415.19 25964.82 549.63–2.16%
Previous Year Comparisons
August 31st2017 August 31st2018 Net Change Gold $1317.20 $1200.90 (116.30) — 8.83% Silver $17.51 $14.52 (2.99) — 17.08% Platinum $995.50 $788.10 (207.40) — 20.83% Palladium $935.75 $977.90 42.15 + 4.50% Dow Jones 21948.10 25964.82 4016.72 + 18.30%
Here are your Short Term Support and Resistance Levels for the upcoming week.
Gold Silver Support 1200/1180/1160 14.50/14.30/14.10 Resistance 1220/1240/1280 14.75/14.90/15.20 Platinum Palladium Support 760/740/710 950/925/900 Resistance 790/810/840 980/1000/1030
This is not a solicitation to purchase or sell.
© 2018, Precious Metals International, Ltd.
