The Precious Metals Week in Review – January 29th, 2021

1. Volatility made the headlines this week as frothy behavior in the stock market reached new heights. Although financial experts have been warning for a while now of overpriced equities, this week, GameStop’s stocks continued to rally for the third consecutive week after young investors decided to coordinate on Reddit to purchase this store’s shares that Wall Street traders were short selling. Thus far, the strategy has successfully made Wall Street traders pay dearly for stocks they committed to rebuy, expecting to pay a lower price. These young investors have also succeeded in making GameStop’s shares skyrocket; on Wednesday, while the main benchmarks dipped, GameStop soared. Despite analysts’ warnings about the disconnect between the stock market and the struggling economy, GameStop investors created another bubble, which has now extended to other firms like AMC Theaters, Macy’s, and BlackBerry. On Thursday, these young investors’ trading platforms restricted the buying and selling of GameStop shares, among others; however, backlash ensued, and the companies restored trading the next day. This battle between young small traders and professional short-sellers drew scrutiny from the Securities Exchange Commission and President Biden on Friday.

2. For the week ending on January 23, the seasonally adjusted number of Americans filing for unemployment decreased vis-à-vis the previous week’s revised level. The number of initial claims totaled 847,000, a drop of 67,000 from 914,000. The revised figure for the week ending on January 16 increased by 14,000 claims for a total of 914,000. The four-week moving average for the week ending January 23 was 868,000, an increase of 16,250 claims from the preceding week’s revised average. Meanwhile, this figure’s revision for the week of January 16 added 3,750 jobless claims for a new total of 851,750 claims. As published by the Department of Commerce’s Bureau of Economic Analysis, the U.S. economy shrank by 3.5% in 2020, the second-worst year after 1946 when the country demobilized from wartime operations. According to the advance estimate released on Thursday, the economy is recovering faster than it did after the Great Recession in 2008. Nevertheless, more than 18 million Americans depend on unemployment benefits, and many jobs in the services and entertainment sectors—such as hotels, restaurants, and cruise ships—will not return until the pandemic is under wraps.

3. On Tuesday and Wednesday, the Federal Open Market Committee convened for the first time this year to discuss the Federal Reserve’s monetary policies. On Wednesday, Federal Reserve chairman Jerome Powell announced in a press conference that the institution had committed to keeping interest rates near zero and strengthened its commitment to continue buying bonds; nevertheless, he did not specify for how long. Currently, the Fed buys $80 billion in Treasurys and $40 billion mortgage securities each month to keep the markets well supplied with cash and investors taking risks during these trying times. Journalists asked Powell if he thought the Fed’s policies could be causing instability in the equity market, to which he responded that he did not consider that monetary policy was behind speculative trading: “There are many things that go into, as you know, setting asset prices. If you look at what’s really been driving asset prices in the last couple of months, it isn’t monetary policy,” Powell said. “It’s been expectations about vaccines, and it’s also fiscal policy.”

4. On Monday, Merck announced it will end the development and research for its two COVID-19 vaccines. The pharmaceutical said it will focus instead on developing oral antivirals for COVID-19, for which the company expects to have initial experimental efficacity data by March. In contrast, biotech company Novavax and Johnson & Johnson have more encouraging news on this front. On Thursday, Novavax announced that its jab proved to be more than 89% effective against the COVID-19 in phase three trial conducted in the U.K. According to a study, the vaccine showed 85.6% efficacy against the coronavirus variant. However, the vaccine did not produce the same effectiveness against the South African variant; it only attained 49.4% efficacity. Nevertheless, the company is already working on a modified version to fight against this particular strain, and it hopes to have it ready for testing by the second quarter of this year. Johnson & Johnson also has announced promising results. On Friday, the company declared its vaccine had proven to protect against death and hospitalization in a single dose. Trials have been conducted in the U.S., South Africa, and Brazil. Although the tests showed 100% efficacity against hospitalization and death in the U.S. and Europe, and 85% efficacity against severe illness in South Africa, results are still mixed. In the U.S., the vaccine proved to be 72% effective in preventing mild to moderate cases, but only 66% effective when combining the large trials’ results in the three continents. Johnson & Johnson is currently conducting tests in the U.K. to assess whether a second dose would increase the immunization’s efficacity. Regardless of the U.K. findings, Johnson & Johnson’s vaccine has the edge over Pfizer’s and Modernas for being a one-shot inoculation and using regular fridge temperatures for storage (between 35.6F or 2C – 46.4F or 8C).

5. Canadian Prime Minister Justin Trudeau announced at a news conference on Friday a new set of rules for international travelers, probably the most stringent rules thus far. Following Australia and New Zealand’s footsteps, Canada stated it will introduce in the coming weeks mandatory pre-boarding COVID-19 testing, airport testing upon arrival, and mandatory stay at government-designated hotels for at least three days while they wait for the results. According to Trudeau, hotel stays would cost more than CAD$2,000 (about USD$1,600) to international travelers. If tests come back negative, travelers can complete the remainder of the 14-day quarantine at home “under significantly increased surveillance and enforcement;” if not, they will have to finish it in designated facilities to impede the spreading of concerning variants of the virus. Additionally, the Canadian government announced a deal with airlines to suspend flights to Mexico and the Caribbean until April 30. Experts have expressed their concerns about the logistics required for hotel quarantining for returning travelers and the impact of these measures on airlines as sunseekers represent the bulk of flights during winter for some airlines.

6. On Friday, Russian President Vladimir Putin signed a bill extending for five more years the New Strategic Arms Reduction Treaty (New START), which was set to expire on February 5. The treaty was first signed by Heads of State Barack Obama and Dmitry Medvedev back in 2010, and it limited the number of deployed warheads and missiles to no more than 1,550 for the former and 700 for the latter. The renewal comes at a crucial time as both countries withdrew in 2019 from the 1987 Intermediate-Range Nuclear Forces Treaty, and Russia announced it would follow the U.S. footsteps this month and pull out of the Open Skies Treaty—which allowed surveillance over military facilities for the sake of transparency. Thus, the New START treaty was the only remaining agreement controlling nuclear weapons’ proliferation between the U.S. and Russia. Moscow had been a long proponent of extending the deal without conditions for five more years; however, the Trump administration did not show the same determination as it sought to include China unsuccessfully. After the Chinese rejection, the Trump administration tried to expand the agreement to incorporate limits on battlefield nuclear weapons, which stalled negotiations between Moscow and Washington for months, until Wednesday when the two houses of the Russian legislature voted unanimously to extend the treaty. Russia’s Deputy Foreign Minister, Sergei Ryabkov, expressed his country’s will to negotiate prospective arms cuts that include non-nuclear weapons with strategic range.

7. The Brent and West Texas Intermediate crude oils inched higher this week. This is the first time in the past three weeks that both benchmarks close to the upside. On Thursday, both oils reached the week’s high as reports of Novovax’s efficacity broke and hopes of returning to normal grew. At its highest, Brent oil quoted for $56.36 and WTI crude for $53.58. On Friday, Johnson & Johnson’s jab kept the rally going and Brent oil bordered the $56-mark at $55.89, and the WTI oil settled at $52.14.

8. The euro and Japanese yen had similar performances against the U.S. dollar this week. Right after opening, the European currency briefly dipped and bounced above the opening level. Nevertheless, by Monday morning, the currency slid into negative territory, where it spent most of the week. The downward trend continued throughout Tuesday morning when the euro reversed course and peaked in the afternoon, touching the week’s high and positive turf for a few minutes. For the remainder of the day until the early morning of Wednesday, the currency unsuccessfully attempted to remain above negative territory; however, the euro quickly plummeted and touched the week’s low. From Wednesday afternoon on, the currency tried to regain ground with relative success, and it closed the week to the upside against the greenback. The Japanese yen spent the first half of the week above opening level and reached the week’s high on Tuesday afternoon. Although the yen worked hard to stay in positive territory, it could not keep the pace and gradually dived into negative turf in the second half of the week. The currency touched the week’s low on Friday morning, and despite regaining some ground in the afternoon, it closed the week to the downside against the greenback.

British-Chinese relations could be soon reaching a deadlock. On Friday, China announced it would not recognize certain British passports in Hong Kong residents’ hands. Last summer, after Beijing imposed a new security law on Hong Kong, the British government accused China of violating the 50-year semi-autonomy promise. In response, the British government decided to create a special visa for those that held a British National Overseas (BNO) passport before the transfer of power in 1997. The program would give Hong Kong BNO-passport holders a chance to work, study, or live in the U.K. for five years and grant them a path toward citizenship after the sixth year. On Friday, the British government gave this immigration program an official start date to which Beijing did not respond well as these visa rules were, in their perspective, a challenge to Chinese sovereignty. In retaliation, the Chinese Foreign Ministry spokesman Zhao Lijian stated in a press conference that China would stop recognizing BNO passports and that China “reserved the right to take further actions.”

On the same day, British Trade Minister Liz Truss used the World Economic Forum as a platform to announce the U.K.’s post-Brexit stance towards China in an online panel entitled “Fixing International Trade.” Truss imputed blame on China for its role in eroding the global trade system’s trust and summoned Japan, the United States, and the European Union to join efforts with the U.K. to put a stop to “forced technology transfer, subsidies by state-owned enterprises, and also IP [Intellectual Property] violations.” The British call to join forces comes at a time when the United States is presenting its new international agenda.

Jake Sullivan, Joe Biden’s national security adviser, echoed Truss’s opinions on China during an online program sponsored by the U.S. Institute of Peace on Friday. Sullivan said the United States and the international community must prepare “to act, as well to impose costs, for what China is doing in Xinjiang [with the Uighur Muslim community], what it is doing in Hong Kong, [and] for the bellicosity and threats it is projecting towards Taiwan.” Sullivan went further to suggest that the U.S.’s allies in Europe should respond jointly to Chinese technology abuses: “[Although] we don’t have entirely aligned perspectives on every one of these issues […] I think China is right at the top of the list of things that we’ve got to work together on and where there is work to do to get fully aligned.” Despite the administration change, the United States continues to hold a tough stance toward China. The new Secretary of State, Anthony Blinken, recently recognized the Chinese genocide of the Uighurs—in continuation with the previous administration. On Sunday, the Department of State stated that the United States “will continue to assist Taiwan in maintaining a sufficient self-defense capability” and that its commitment to Taiwan remains “rock solid.”

Risk appetites have grown in recent weeks, and the game of speculation has turned vicious, thus making a good case for holding balanced portfolios that include safe-haven investments. Savvy investors know well that gold and silver are instrumental in shielding capital and keeping their portfolios well diversified. 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.

Friday to Friday Close (New York Closing Prices)

Month End to Month End Close

Previous year Comparisons

Here are your Short Term Support and Resistance Levels for the upcoming week.

This is not a solicitation to purchase or sell.
© 2021, Precious Metals International, Ltd.