The Precious Metals Week in Review – February 27th, 2021

1. This week, Federal Reserve Chair Jerome Powell’s bi-annual testimony before Congress kept investors in suspense, and the markets reacted with volatility. In particular, investors were hoping to get information on whether the Federal Reserve would change its current policy. However, Chairman Powell reiterated the Fed would continue to keep interest rates near zero until the market has reached maximum employment and inflation is on track to moderately exceed the 2%. The $1.9 trillion stimulus package figured prominently in Powell’s testimony and this week’s news. Democrats in the House convened today to vote on the package and hope to have it ready for the President’s signature by March 14. Nevertheless, the Democratic proposal faced a significant setback on Thursday as a nonpartisan lawmaker decided that budget reconciliation could not be used to increase the federal minimum wage to $15 an hour.

2. For the week ending on February 20, the seasonally adjusted number of Americans filing for unemployment fell sharply vis-à-vis the previous week’s revised level. The number of estimated initial claims totaled 730,000, a decrease of 111,000 from 841,000. The revised figure for the week ending on February 13 dropped by 20,000 claims, from 861,000 to 841,000. Meanwhile, the four-week moving average for the week ending February 20 was 807,750, a decrease of 20,500 claims from the preceding week’s revised average. This figure’s revision for the week ending February 13 fell by 5,000, totaling 828,250 claims. These drops came as a surprise after the severe winter storms in Texas, and other southern states badly hit the oil industry and caused blackouts that led to serious damages to the water infrastructure. Nevertheless, economists think that these numbers do not reflect yet the jobless claims resulting from the storms and have cautioned that this week’s fall does not provide a complete picture of the labor market’s state. The number of Americans filing for the Pandemic Emergency Program—which can be done once regular unemployment benefits have run out—just increased by 1 million. As of February 6, 19 million Americans were receiving this type of compensation.

3. Democrats in the House of Representatives expected to pass today the $1.9 trillion COVID-19 stimulus package and send it to the Senate. Democrats in both chambers hope to have the bill on President Biden’s desk for his signature by March 14. Although the party holds the majority in the Senate, the law project could sink with a single Democrat vote against. As a matter of fact, Democrats opted to use the budget reconciliation figure, which requires a simple majority, to pass this law because of the slim majority they have in the Senate. Despite holding a majority in the House, the stimulus bill has already suffered setbacks. On Thursday, nonpartisan Senate lawmaker Elizabeth MacDonough ruled that the minimum wage increase could not be part of the relief package as the budget reconciliation figure does not allow it. Regardless, House Democrats included the $15 minimum wage in the bill; in House Speaker Nancy Pelosi’s words, the measure remained in the draft law because Democrats “are determined to pursue every possible path” to pass this federal increase. As expected, Republican Senators hailed MacDonough’s decision. Senate Budget Committee ranking member Lindsey Graham said in a statement he was “very pleased the Senate Parliamentarian has ruled that a minimum wage increase is an inappropriate policy change in reconciliation. This decision reinforces reconciliation cannot be used as a vehicle to pass major legislative change—by either party—on a simple majority vote.” The Republican party used the budget reconciliation figure back in 2017 to eliminate the Affordable Care Act’s individual mandate and approve tax cuts to households and businesses.

4. On Friday, an advisory panel of the Food and Drug Administration convened to vote on the emergency use of Johnson & Johnson’s one-dose COVID-19 vaccine. Although the FDA is not compelled to follow the recommendations from its Vaccine and Related Biological Products Advisory Committee, it often does. During the eight-hour-long meeting, the committee decided that the jab’s benefits heavily outweighed the risks of granting emergency approval; Johnson & Johnson requested clearance for use in adults of 18 years and older. The FDA could issue its authorization as soon as 24 hours after the meeting, as it did with Pfizer’s and Moderna’s immunizations. The federal government expects to ship between 3 to 4 million J&J doses next week. The company has agreed with the U.S. government to supply 100 million doses by late June and announced on Tuesday that it expects to deliver 20 million doses by the end of March. Although the 66% effectiveness of J&J’s inoculation seems small when compared to 95% for Moderna’s and Pfizer’s, one must bear in mind that unlike the latter, J&J’s jabs were tested against more aggressive and contagious variants. As noted by the White House Chief Medical Advisor Dr. Anthony Fauci, J&J’s immunization showed a 100% efficacy at preventing COVID-19 hospitalizations and deaths in its late-stage trial.

5. This week, Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee made the news and kept media outlets vigilant. On Tuesday, Powell’s declaration ditched much of what we know about economics. When asked about inflation stemming from significant government investments in infrastructure, the Fed Chair cast aside this concern and argued that to the best of his knowledge, it was not a problem at present and that the Fed had the tools to push back on it. When Republican Senator John Kennedy enquired about the current high levels of money supply, Powell—one year younger than Kennedy—answered: “When you and I studied economics a million years ago, M2 and monetary aggregates seemed to have a relationship to economic growth. Right now, […] M2 […] does not really have important implications. It is something we have to unlearn, I guess.” Although Republican Senator Pat Toomey suggested that Powell should stay within the boundaries of his economic mandate and avoid areas like racial inequality and climate change, the Fed’s head has advised lawmakers and has weighed in on topics like socioeconomic disparity. As Powell stated, nowadays, when the Fed talks about maximum employment, “we don’t just mean the unemployment rate, we mean the employment rate […] as a percentage of the population, which also takes onboard relatively high levels of participation. We look at wages. We look at many things, a broad range of indicators on maximum employment.”

6. This week, the Canadian Parliament scrutinized the Department of Immigration, Refugees and Citizenship (IRCC) and VFS Global, a company contracted by the Canadian government to collect personal and biometric information for visas. The reason for the said inspection was that VFS Global subcontracted the recollection of personal data for visas to Beijing Shuangxiong Foreign Service Co, a company owned by the Chinese police, and there is no evidence of clearance from Canadian federal security agencies for this arrangement. As reported by the Globe and Mail, some of the center’s staff are members of the Chinese Communist Party and were recruited at the school that trains the party’s elite. During the hearing, politicians expressed their concern over the transmission of this information to the Chinese government. Public Safety Minister Bill Blair responded that IRCC has assured him that no personal information is stored in China and that there are security protocols in place to make sure that it is safely sent to Canada. It also transpired that Beijing Shuangxiong was given the contract 12 years ago and that the Canadian government ignored until recently that the Beijing police owned Beijing Shuang Xiong. Despite VFS Global’s assurances that the visa collection center operates under strict security protocols and that the local companies do not have access to VFS’s IT systems, government critics found it disturbing that departments and agencies have the freedom to make arrangements without consulting federal security and intelligence agencies.

7. Both Brent and West Texas Intermediate crude oil climbed steadily all week long but fell during Friday’s trading session. The decrease came after a sell-off in bond markets that led to an appreciation of the U.S. dollar, thus making oil priced in this currency more expensive to buy with other mediums of exchange. Both benchmarks traded at their highest on Thursday, Brent crude at $67.70 and WTI oil at $63.81; nevertheless, they both lost ground on Friday, and Brent settled at $65.97 at closure, while WTI did so at $61.66. February has been an excellent month for oil as both crude prices surpassed the $60 threshold and Brent crude reached pre-pandemic levels. Nevertheless, analysts warn that current oil prices are not a reflection of a healthy demand-supply relationship. Winter storms in the United States and the Gulf Coast further reduced an already OPEC-controlled output, and certainly, the current oil demand cannot warrant the current price levels. OPEC and allies, also called OPEC+, are scheduled to meet next week; investors expect participants to agree on an increase in oil supply.

8. The euro and the Japanese yen are closing the week on negative territory against the U.S. dollar. The euro spent most of the week above this week’s opening level. At the beginning of trade, the European currency spiked and quickly fell onto negative turf. Nevertheless, it managed to reverse course by Monday morning and initiate a steady climb that lasted until the wee hours of Tuesday. Afterward, the euro fell slightly and plateaued until Wednesday morning, when the currency inched higher before falling and briefly touching negative territory for the second time this week. The euro recovered within minutes and started a steep climb that took it to the week’s high on Thursday afternoon. Despite the currency’s efforts to remain at that level, it quickly fell and led the euro to close the week to the downside against the greenback. The Japanese yen started the week with a descent into negative territory that it managed to upturn by Monday morning. Then, Japanese currency undertook a steep ascent that led to the week’s high by Wednesday’s early hours. From there on, the yen engaged in a descent that took it back to negative turf and led it to close the week to the downside against the greenback.

The pandemic has drastically changed the retail landscape, and marketing analysts think that changes in behavior brought about by the pandemic are here to stay. Although many firms like Lord & Taylor and Men’s Warehouse were already struggling before the pandemic, the closure of non-essential retail simply accelerated shifts that were long due in the industry. With closures, online sales skyrocketed, and many retailers realized that they had not been communicating well with their customers for years. Former Amazon executive James Thomson reckons that “the big challenge that most of these companies had when COVID first kicked in is that they realized they didn’t […] actually know who their consumers were.” According to Thomson, some of the retailers that had loyalty programs had not necessarily put in the effort to manage them, while others did not have email lists or contact information for their customers. Then, the pandemic came, and retailers had to figure out ways to connect with their clients while at the same time devising strategies to serve them virtually. A year in the pandemic and social media shopping has become one of the most lucrative retail sales innovations. Stacy DeBroff, CEO of digital and social media marketing firm Influence Central, says that social media shopping has surged during the pandemic: Facebook and Instagram are the platforms leading this trend. DeBroff maintains that “54% of consumers in 2020 purchased products directly within the shopping features of a social medium platform.” She expects that these numbers will rise this year; a consumer survey of over 700 participants ran by the firm she chairs found that 33% use swipe-up links to shop, 34% buy using Instagram shoppable links, and 69% of consumers purchase directly via Facebook posts.

As reported by CNN Business, several authoritative voices raised concerns over Bitcoin this week. On Saturday, Elon Musk tweeted that the prices of both Bitcoin and Ethereum, the world’s largest cryptocurrencies, in that order, “do seem high lol.” On Monday, Janet Yellen, the erstwhile Federal Reserve chair and current Treasury Secretary expressed her concerns as well. At the New York Times DealBook conference, Yellen said that Bitcoin is an “extremely inefficient way of conducting transactions” and added that the speculative nature of the asset made her worry about the potential losses of investors. On the same day, Bill Gates expressed similar views in an interview with Bloomberg and said that “if you have less money than Elon [Musk], you should probably watch out.” Despite, or perhaps, because of the warnings, the Richmond Fed—the IT core of the Federal Reserve System—appointed Sunayna Tuteja as senior vice president and the institution’s first chief innovation officer. Tuteja had worked with TD Ameritrade for more than a decade and served as head of digital assets before leaving the institution. Tuteja’s appointment is a clear nod to the role that new technologies are playing in the current economy. The Richmond Fed’s statement says that Tuteja will be in charge of leading “efforts to identify, research, enable and advocate for new technologies while fostering a culture of innovation, collaboration, and experimentation.”

As the economy continues to show signs of distress, many investors continue purchasing physical precious metals. Savvy investors continue to see the ownership of physical precious metals as a means to diversifying their portfolios, and thus, as a shield from the uncertainty of equity markets. Despite precious metal’s hedge attributes, they 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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