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

1. Volatility was at the order of the week as negotiations of a second relief package advanced. Indexes fell from record highs on Friday as U.S. Congress failed to pass a new stimulus package. The Dow fell 120 points, and Friday’s session put an end to three consecutive days of gains for the S&P 500. At the last minute, the House of Representatives was able to safe face and pass a temporary bill to the Senate that would extend the deadline to finalize an agreement until Sunday.

2. For the week ending on December 12, 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 885,000, an increase of 23,000 from 716,000. The revised figure for the week ending on December 5 added 9,000 claims, for a total of 862,000. The four-week moving average for the week of December 12 was 812,500, an increase of 34,250 claims from the preceding week’s revised average. The revision of this figure for the week ending December 5 added 2,250 more jobless claims than estimated for a new total of 778,250 claims. This week’s rise came as a surprise to economists polled by Dow Jones, who expected initial claims to drop to 808,000. In an interview with CNBC’s Squawk Box, Stifel’s chief economist Lindsey Piegza said that numbers “really highlight the fragility of the labor market, particularly now as the second resurgence of the coronavirus [is] leading to further business closures and additional job losses.”

3. The Federal Reserve held the last Federal Open Market Committee (FOMC) meeting of the year on Tuesday and Wednesday. This year concluded with interest rates above zero and without plans to raise them in the short term; interest rates could remain untouched until 2023 as Fed officials expect inflation to reach the 2% target that year. The Committee estimated next year’s economic growth at 4.2%. They also project next year’s unemployment rate at 5%, below current levels but above pre-pandemic levels. The economic recovery progress depends heavily on the successful vaccination campaign and its effectiveness at keeping the coronavirus under wraps. On the bond-buying front, the Fed said it would continue purchasing a minimum of $120 billion bonds per month month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” said the FOMC’s statement. The statement explained that “These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.” Nevertheless, the Committee did not say whether it would prolong the bonds’ terms, dashing analysts’ hopes who expected duration extensions to help lower borrowing costs and push investors into riskier assets.

4. On Monday, the Electoral College cast paper ballots confirming President-elect Joe Biden’s victory. A.P. reported that “there was little suspense and no change” as electors gave Biden 306 votes and Trump 232; in a strange twist of fate, these were the numbers that gave Trump a “landslide” victory four years ago. Ballots will be counted on January 6 in a joint session in Congress presided by Vice-President Mike Pence. On Monday evening, Biden gave a victory speech in which he called for unity and healing: “Now it is time to turn the page, to unite, to heal.” In his address, Biden took the opportunity to praise the work of local officials and electoral workers for keeping democracy alive and keeping intact “the integrity of our elections.” On Tuesday, Biden received long-due acknowledgments and congratulations for his success. Russian President Vladimir Putin congratulated Biden and, according to the Kremlin, he “wished every success to the president-elect and expressed confidence that Russia and the U.S., who bear special responsibility for global security and stability, can facilitate the resolution of many problems and challenges faced by the world now despite disagreements.” Senate majority leader Mitch McConnell congratulated Biden for his win in a speech while praising Trump simultaneously for his accomplishments. Sources informed that McConnell warned GOP senators not to object to the results on January 6 in a private caucus call. Nevertheless, Congress members have already declared they intend to dispute the electoral results.

5. On Wednesday, news of a cyberattack that compromised several U.S. government agencies broke. The full extent of the breach is still unknown, as well as the affected agencies; only one thing is certain: the attack has shaken the nation’s intelligence agencies and community. Thus far, investigations suggest a software update of the network management program produced by SolarWinds carried the hidden malicious code that allowed hackers to infiltrate the networks. Officials suspect Russia perpetrated the months-long attack; until now, authorities have established that the Departments of Agriculture, Commerce, Treasury, Energy, and Homeland security were compromised. National security agencies are working against the clock to assess if their networks were also affected. Trump, who terminated the White House cybersecurity adviser position, has received criticisms for his silence on the matter. President-elect Biden made strong declarations on Thursday and said that this breach will be a priority for him and Vice-President Kamala Harris from the moment they take office. Biden alluded to the importance of deterring adversaries from attacking the U.S. and added that “We will do that by, among other things, imposing substantial costs on those responsible for such malicious attacks, including in coordination with our allies and partners.”

6. On Friday, the Food and Drug Administration cleared Moderna’s COVID-19 vaccine for emergency distribution in the U.S. The emergency authorization gives the green light to the distribution of 5.9 million doses of the vaccine starting next week, that is, on top of the 2.9 million doses produced by Pfizer-BioNTech. The FDA cleared the use of Moderna’s vaccine on people 18 years old and older. However, the authorization the agency granted is not a full approval, which requires a fuller body of data that can take months to gather and up to six months for the FDA to process and authorize. The FDA can also revoke the emergency clearance if the vaccines fail or prove to be unsafe. The Pfizer-BioNTech vaccine was the object of controversy this week as state officials reported that the vaccine shipments for next week had been significantly reduced. The Washington Post reported that a senior administration official said, on condition of anonymity, that there were fewer doses available as states requested their allocations to be expedited, which meant that there were fewer vaccines available for shipping next week. However, Pfizer released a statement on Thursday saying that “We have millions more doses sitting in our warehouse but, as of now, we have not received any shipment instructions for additional doses.” The clashing between the government and the pharmaceutical seems to come as negotiations for doses, additional to the 100 million already agreed, advance.

7. The United States is not the only country dealing with data security issues. A subsidiary of China Investment Corp., one of China’s largest state-owned investment funds, is a major contributing partner of VFS, the firm that the Canadian government uses to collect and process personal information of visa applicants in China. Chinese law requires that all organizations operating on Chinese territory cooperate with intelligence services. This means that personal information such as photos, biographical information, and fingerprints could end in the Chinese government’s hands. As immigration lawyer Richard Kurland explained, “Passing through their hands are the family trees of applicants … [this] organization may have more personal information on applicants for immigrant services than entire countries do.” Former Canadian foreign intelligence leaders have warned Ottawa against entrusting sensitive information to Chinese companies partly owned by the state. However, warnings are not recent; immigration consultants have been calling the Canadian government’s attention since 2008 when VFS started operations in China.

8. On Friday, oil prices hit a new high at $52 and are heading for a seventh consecutive week of gains. Market euphoria explains this uptick in oil prices as investors focus on the progress of vaccination programs and disregard the sustained increase in COVID-19 infections worldwide and the new lockdown measures in Europe, the U.S., and Canada. Pfizer applied for approval of its COVID-19 vaccine in Japan, while Moderna received the green light from the Food and Drugs Administration on Friday. Brent crude oil remained above the $50 threshold throughout the week; it reached the week’s high on Friday when it surpassed $52—its highest since March. Similarly, West Texas Intermediate oil rose from $46.73 at the start of the week and reached $49 on Friday—its highest since February. Brent oil settled at $52.37, and WTI closed the week at $49.08—the closest it has been to the $50 threshold since the beginning of the pandemic.

9. This week, the euro had a relatively steady climb against the U.S. dollar. The European currency started the trading week with an ascent that was interrupted in the early afternoon of Monday with a dip into the week’s low. Although the euro recovered, it significantly slowed down the climb’s pace until Wednesday morning when it suddenly moved upwards, almost vertically. The currency initiated a descent right after, first slow, then vertical, from which it quickly rebounded by the evening. Next, the euro retook the ascent faster until Thursday evening when it peaked and reached the week’s high. From there on, the European currency dipped until the early morning of Friday, unsuccessfully rebounded later that morning, and closed the week to the downside against the greenback. The Japanese yen had a rougher week, marked by sharper falls and longer comeback times against the U.S. dollar. On Sunday, the currency briefly touched negative territory at the opening and then quickly rose and fell. The next day, the yen initiated a fast ascent, however, it was short-lived. The yen quickly returned to opening levels on Monday afternoon and descended into negative territory touching the week’s low until Tuesday morning. Then, the currency initiated a long ascent that lasted until Wednesday’s early afternoon. Although a drop interrupted the yen’s upward trajectory, it reversed course by the evening and regained altitude until Thursday afternoon when it reached the week’s high. The Japanese currency climbed down until Friday morning, then tried to recover but closed the week to the downside against the greenback.

The U.S. Congress failed to pass a new coronavirus stimulus bill before the end of Friday’s session, which was meant to be the last of the year. However, the House avoided a shutdown by passing a temporary funding measure, which the Senate approved quickly and sent to President Trump almost immediately. The impromptu bill keeps federal funding from expiring on the wee hours of Saturday and extends negotiations until Sunday. Both sides have expressed their intentions of reaching a deal before adjourning for the end-of-year recess; however, Republican Senators attempted to restrain the Federal Reserve’s emergency lending powers under the argument that Democrats would politicize the Fed. According to Democrats, the GOP’s proposal would divest the coming administration of critical tools to prop up the economy. The new relief package includes more than $300 billion in aid for businesses, vaccine distribution funds, a weekly federal unemployment bonus, and money for people in need of food aid.

While lawmakers struggle to pass a new relief bill, hundreds of thousands of Americans struggle to survive the coronavirus. Wednesday was the deadliest day since the beginning of the pandemic, with 3,668 deaths; thus far, this week has counted the highest death toll with a seven-day average of 2,664. Regarding infections, Thursday marked another infamous record with 252,431 reported new cases, and Friday closed the week with a seven-day average of 219,302—the highest since the beginning of the pandemic. If infections and deaths continue to increase at this pace, December will be the deadliest month of the year, despite herculean efforts to authorize and distribute lifesaving vaccines; to this day, December holds the second-highest death count after April. Long gone are the days when the virus seemed to only thrive in densely populated urban areas, nursing homes, factories, and prisons. Gone are also the days when the notions of first, second, and third wave could be identified with specific geographic regions. Since November, most states report greater demand for hospital beds, high death tolls, and large increases in cases. Pfizer and Moderna’s record vaccine developments and the Food and Drug Administration’s emergency clearances are, without exaggeration, a beacon of hope in these bleak times.

Pessimism is gaining ground among European leaders regarding the possibility of reaching a trade agreement before Britain’s exit from the European Union on December 31, 2020. Striking a deal would likely exempt from tariffs the trade between the U.K. and the E.U.; however, fisheries remain as the sticking point. After a phone call on Thursday night, British Prime Minister Boris Johnson told reporters on Friday that talks were “in a serious situation” and that a deal would only be possible if the E.U. altered its position on fisheries. After saying earlier on Thursday that a “narrow path” had opened for reaching a deal, European Commission President Ursula von der Leyen changed the tone and admitted on Friday that coming to an agreement would be “very challenging” in the current circumstances. In an address to the European Parliament on Friday, E.U.’s top negotiator Michel Barnier echoed the sentiment of both leaders: “We have little time remaining, just a few hours, to work through these negotiations in a useful fashion if we want the agreement to enter into force on the 1st January … There is a chance of getting an agreement, but the path to such an agreement is very narrow.”

Market euphoria enticed investors to focus on the progress of vaccination programs while disregarding the sustained increases of COVID-19 cases worldwide. As a result, many ditched safe-haven investments and opted for high-risk investments. However, as experts have warned, the pandemic is far from over, and the harmful effects of new relief packages on the value of money continue to 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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