The Precious Metals Week in Review – February 5th, 2021

1. Stocks ended the week on a high as the Dow Jones, Nasdaq, and S&P had their best weeks since November and Asian shares followed suit. The three benchmarks managed to snub—once again—unemployment reports with dire news: lower than expected job gains and an alarming picture of job December’s job losses. Investors seem to continue counting on the stimulus package and vaccines, which are not that reliable as Democrats still need to draft a bill, and science still ignores whether the vaccines available offer protection from the new and more aggressive virus strains.

2. For the week ending on January 30, the seasonally adjusted number of Americans filing for unemployment decreased vis-à-vis the previous week’s revised level. The number of estimated initial claims totaled 779,000, a drop of 33,000 from 812,000. The revised figure for the week ending on January 23 fell by 35,000 claims for a total of 812,000. The four-week moving average for the week ending January 30 was 848,250, a decrease of 1,250 claims from the preceding week’s revised average. Meanwhile, this figure’s revision for the week ending January 23 subtracted 18,500 jobless claims for a new total of 849,500 claims.

3. In the first nonfarm payroll report of the year and the Biden administration, the unemployment rate fell by 0.4% in January. As expected, figures continue to reflect the coronavirus pandemic’s impact, and the nonfarm payroll employment changed little in the first month of the year with a job gain of 49,000 jobs. While some economists expected an increase of 50,000 positions, others were severely disappointed after projecting a gain of 250,000 posts. Although the jobs accretion seems small, it is important to bear in mind that the U.S. economy lost an estimated 140,000 nonfarm jobs in December and that January’s report revised that number up to 227,000. Most of the job gains occurred in the professional and business services (97,000) and private and public education (49,000) sectors. However, the gains were offset by losses in retail (38,000), health care (30,000), and transportation and warehousing (28,000), as well as in leisure and hospitality (61,000). The latter sector deserves special mention as January’s losses added to the massive loss of 536,000 jobs back in December. On the bright side, consumer spending picked up in January after Americans received the last stimulus package checks. According to Bank of America, which has been tracking debit and credit card spending, the last set of checks is being spent faster than the first. Even though Americans are saving most of the economic aid, those savings could fuel spending when the virus is under wraps, said Michelle Meyer, an economist at Bank of America, in a research note.

4. The unemployment situation seems direr in Canada. On Friday, Statistics Canada released its latest Labour Force Survey for January and reported a net loss of 212,800 jobs. The losses concentrated in the retail trade sectors of Ontario and Québec and only affected part-time jobs. The level of employment is the lowest since August 2020 and followed December’s loss of 52,700 jobs. With that, the unemployment rate increased by 0.6% to 9.4%, and the number of long-term unemployed still is at record high levels. The report crushed expectations as economists predicted a loss of 40,000 positions. Ontario and Québec bore the brunt; the two provinces lost 251,400 posts combined due to the restrictions both provincial governments issued to control the spread of COVID-19, which clearly affected non-essential retail businesses. Excepting these two provinces and Newfoundland and Labrador, employment increased in Alberta, Manitoba, Nova Scotia, and Prince Edward Island, while it remained steady in British Columbia, Saskatchewan, and New Brunswick. At a national level, the accommodation and food services industry was the second most affected after the wholesale and retail sectors. In contrast, the construction industry, along with health care and social assistance, experienced job gains. Despite this slump, the Canadian economy has managed to recoup 70% of the jobs lost to the pandemic.

5. According to economists, the slow start of the vaccination campaign in Canada could set back economic growth. Ottawa’s initial plan was to vaccinate 3 million Canadians by March, 23 million by June, and the remainder of the population by late September. However, deliveries of the authorized vaccines—Moderna’s and Pfizer’s—have been curtailed, and the federal government has not adjusted its vaccination roster to reflect the delays. Thus far, the jab has reached the arms of only 2.7% of the Canadian population, and the holdup could translate into more aid from Ottawa, which implies bigger debt and higher interest costs for the government. Although Moderna and Pfizer are the only vaccines with clearance from Health Canada, the government has pre-purchased five vaccine candidates: Johnson & Johnson-Janssen, AstraZeneca-Oxford, Novavax, Sanofi-GlaxoSmithKline, Medicago-GlaxoSmithKline. Despite the slow start, economists remain optimistic and think that economic recovery is only a matter of “when,” not “if.” The consensus among economic analysts suggests that 2021 will be the year when the vaccine will bring profound economic recovery for Canada.

6. On Thursday, Johnson & Johnson submitted to the U.S. Food and Drugs Administration (FDA) a clearance application for emergency use of its COVID-19 vaccine. Johnson & Johnson’s single-shot jab proved to be 66% effective at preventing infections in its large global trial. After the application submission, the FDA will have to analyze the data and have its advisory committee convene to decide whether to authorize the immunization for emergency use or not. According to Johnson & Johnson’s chief scientific officer, the firm is on course to deliver its vaccine doses in March. On the other side of the Atlantic, AstraZeneca’s vaccine was subject to a small trial to gauge its efficacy against the coronavirus’s British variant. Researchers concluded that the immunization is 84% effective against old variants and 75% effective against the British variant, which is significantly above the 50% threshold the World Health Organization set. Nonetheless, researchers acknowledged that work remains to be done as it remains unknown whether the vaccines available provide immunity against the South African and Brazilian variants.

7. In the early hours of Friday, Vice-President Kamala Harris cast a tie-breaking vote in the U.S. Senate to decide on the future of the latest coronavirus stimulus package. At a $1.9 trillion price tag, the bill did not receive support from the Republican party. Democrats have known that their proposal was not among Republicans and have opted for using a figure called budget reconciliation, which allows them to pass the bill without any support from the GOP. With Friday’s Senate votes, Democrats can move now to drafting the bill using Biden’s plan as a framework. Biden’s proposal allocated funds to speed up the COVID-19 vaccination campaign, extend unemployment benefits due to expire in March, upgraded hospitals and schools, and $1,400 checks for most Americans. The package also contemplated increasing the minimum wage (which had not been done since 2009) from $7.25 to $15, but the measure was one of the most contested and quickly died on the floor. Although Democrats were able to pass the budget resolution, they do not have an easy road ahead. After Friday’s “vote-a-rama”—the marathon debate session that ensued from the more than 800 amendments made to the proposal—Democrats have to agree on every single item on the bill, which will undoubtedly lead to a lengthy negotiation.

8. Expectations around the OPEC and allies meeting on Wednesday kept prices climbing as the Joint Ministerial Monitoring Committee of the OPEC+ decided to continue with the current production policy. Additionally, Saudi Arabia remained committed to a voluntary cut of 1 million barrels per day this month and next. Brent and West Texas Intermediate crude oil climbed a steep ascent this week. Both oils posted daily gains, and each day’s high beat the previous day’s. On Tuesday, the two benchmarks registered gains over $1—the biggest of the week—and both oils are approaching the $60 threshold. Brent and WTI crude oils closed the week to the upside; Brent oil settled at $59.62 and WTI crude at $57.07, the highest levels since late February 2020.

9. The euro and the Japanese yen spent all week in negative territory against the greenback. The euro fell to negative turf and then plateaued right after opening. However, by the early morning of Monday, the currency resumed the fall, which continued throughout the week until Thursday evening. The euro touched the week’s low at the wee hours of Friday and managed to reverse course and climb. Despite the four-day long descent, the European currency is closing the week to the upside against the U.S. dollar. The Japanese yen had a similar week to the euro, except that it managed to spend a few hours on positive territory after opening and reach the week’s high in the early hours of Monday. Next, the yen had a steep dive but managed to slow down the descent’s pace and hold until Wednesday midnight. The Japanese currency sped up the drop until Thursday midnight and attempted to reverse course on Friday morning. However, the yen resumed the fall and touched the week’s low in the afternoon. Despite changing course, the yen closed the week to the downside against the U.S. dollar.

The increase in demand brought about the pandemic has led to a home-sale market marked by a record low supply and record-high prices. Although the National Association of Realtors’ (NAR) pending home sales index declined by 0.3% in December 2020, pending sales exceeded those of December 2019 by 21.4%. NAR’s chief economist Lawrence Yun thinks the dip is the result of low supply: “Pending home sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale […] There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings.” At the end of December, home-sales inventory was 23% lower than the previous year with 1.07 million homes for sale, or the equivalent of a 1.9-month supply—the lowest this index has been since Realtors created it in 1982. Prices of houses sold in December were about 13% higher year over year—the highest December price the NAR has ever recorded. The prices of newly built homes sold in December also rose 8% when compared to the same month the previous year. The chief economist of the National Association of Home Builders, Robert Dietz, thinks that higher material costs, mainly softwood lumber, and the desire for larger homes account for the rise. Even though mortgage rates registered a record low in December, the rates did not offset the high prices. Actually, low mortgage rates could be to blame for the price increase earlier last year as home buyers took advantage of the low rates.

Although the Bank of England has never faced negative rates since its inception in 1694, banks and building societies in the U.K. were given six months to prepare for the possibility of that event. Negative rates are a last-resort measure that would only be considered if the economy found itself in much worse shape by August. The Bank of England’s policy to cope with the coronavirus economic crisis is similar to that of the Federal Reserve: maintaining rates close to zero, government bond purchases exceeding the £800 billion, and meeting the 2% inflation target. Although the Bank of England has expressed a modest optimism about the future of the economy, the last three months of 2020 exceeded expectations. The Bank does not have great expectations for the first quarter of 2021, as a matter of fact, it expects a GDP fall of 4%. However, this contraction is considerably smaller than the 19% contraction the U.K. went through in the spring of 2020. The expectation is that vaccines will contribute to ending restrictions, and as a result, consumer spending will resume after 12 months of savings. As of Friday, the U.K. had vaccinated 16.4% of its population, and it expects to inoculate all its over-50 population by May.

Risk appetites remain high despite the fact that the economy is still in trouble and struggling at great lengths to generate employment. Holding a balanced portfolio that includes safe-haven investments is a key trait of experienced investors. 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.

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