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

1. Progress on the vaccination front and an increase in oil prices marked this week, along with inflation warnings from the Federal Reserve. On Thursday, Federal Reserve Chairman Jerome Powell admitted in a conversation with The Wall Street Journal that the reopening of businesses could cause inflation in the short term. Powell attributed the increase in prices to the “base effect,” in this case, an inflation distortion caused by the abnormally low prices the economy experienced right at the beginning of the pandemic. Powell’s words sent shockwaves through the stock market and caused a bond and stock sell-off as investors feared that it could indicate that the Fed was planning to change its asset-purchase policy without warning. On a different front, the coronavirus relief bill made headway in the Senate on the second half of the week after Republican Senator Ron Johnson forced reading the 628-page proposal on the floor on Thursday. On Friday, the law project faced another delay as Democrats disagreed on the amount and duration of the unemployment benefits supplement. After agreeing on $300 per week through September, instead of the initial $400 until August, the Senate prepared for a vote-a-rama session—a marathon of unlimited amendments—so the bill can move to the next stage.

2. For the week ending on February 27, the seasonally adjusted number of Americans filing for unemployment increased vis-à-vis the previous week’s revised level. The number of estimated initial claims totaled 745,000, an increase of 9,000 from 736,000. The revised figure for the week ending on February 20 rose by 6,000 claims, from 730,000 to 736,000. Meanwhile, the four-week moving average for the week ending February 27 was 790,750, a decrease of 16,750 claims from the preceding week’s revised average. This figure’s revision for the week ending February 20 fell by 250, totaling 807,500 claims. The number of Americans who cannot claim unemployment benefits, such as freelancers and gig workers, and who applied for Pandemic Unemployment Assistance increased for the week closing on February 27. This unadjusted figure grew by more than 9,200 applications, from 427,500 in the week ending February 20 to 436,700 by February 27.

3. Analysts were in for a pleasant surprise when February’s Employment Situation Summary greatly exceeded their expectations of a job gain of 210,000 posts and a steady unemployment rate of 6.3%. On Friday, the Department of Labor reported 379,000 new jobs and a 6.2% unemployment rate instead. This is the biggest job gain since October of last year, and experts attribute it to the vaccination campaign’s progress and the reopening of businesses. Despite this rise in hirings, the Employment Situation Summary warned that after a year of grappling with the pandemic, the U.S. economy is still short of 9.5 million jobs or 6.2% from pre-pandemic levels. By the same token, the percentage of American discouraged workers and people making do with part-time jobs because of the crisis remained unchanged at 11.1%. The hospitality sector alone contributed with 355,000 posts. Other industries that reported job gains were professional and business services (53,000), health care and social assistance (46,000), retail trade (41,000), and manufacturing (21,000). In contrast, the sectors with the biggest losses were construction (61,000), local and state government education (58,000), and mining (8,000).

4. On Tuesday, President Joe Biden announced that by the end of May, the U.S. would have enough COVID-19 vaccine doses to inoculate its entire adult population. The announcement is an improvement of previous presidential statements that had set July as the nearest vaccination goal. This development comes after the Food and Drug Administration authorized Johnson & Johnson’s vaccine for emergency use on Saturday and after the government struck a deal with long-time rival Merck to accelerate the production of the J&J vaccine. Although the parts have not disclosed the amounts of doses that Merck will produce for J&J, experts estimate that Merck could possibly double the output J&J would deliver on its own. Nevertheless, the Merck agreement is not expected to kick in before the second half of the year as investments need to be made to adapt the current facilities to produce the new jab. Health experts expect that new variants could emerge in that period which may require the Merck-produced booster shots.

5. On Friday, Health Canada approved J&J’s vaccine for emergency use on adults; experts hope the authorization will expedite the immunization campaign as the vaccine requires only one dose and can be stored at regular refrigerator temperatures. Experts have noted that Canada’s inoculation campaign has had a slow start compared to the U.K. and the United States. Specialists blame the delay on Canada’s lack of infrastructure to produce vaccines in its territory and the fact that Canada purchased the jabs but did not secure them before other countries did. Duke University researcher Andrea Taylor explained to The Globe and Mail that “Canada, for some reason, was very quick to make purchases and really slow to invest in the manufacturing piece. I don’t know what went into those decisions. They may have had more faith in the global supply chain than other countries.” Procurement Minister Anita Anand’s declarations to the House of Commons on Thursday painted a more complex picture of the process. The Canadian government tried to negotiate with every pharmaceutical the “possibility of domestic biomanufacturing.” Nevertheless, “The manufacturers reviewed the identified assets here in Canada and concluded that biomanufacturing capacity in this country. At the time of contract, which was last August and September, was too limited to justify the investment of capital and expertise to start manufacturing in Canada.” Canadian Prime Minister Justin Trudeau announced on Friday that the federal government should receive 1.5 million doses of the Pfizer immunization and two more million in April and May.

6. Public health officials, health workers, and even business owners have raised alarms after Texas and Mississippi governors, Greg Abbott and Tate Reeves, lifted statewide mask orders on their respective states. Along with ending the face mask mandate, both governors have allowed businesses to operate at full capacity and have left the decision to whether impose mask-wearing or not within establishments on owners. Business owners have expressed concerns as many would like patrons to use face masks, but the enforcement would be problematic as customers have strongly resisted mask usage—even under state orders. Public health officials and health workers fear a fourth wave of COVID-19 infections considering that vaccination efforts still have a long way to go. Furthermore, experts have warned that despite the significant decrease in daily infection numbers, deciding to rescind restrictions at this time does not make sense since figures have plateaued in the past week. On Wednesday, Dr. Anthony Fauci highlighted the bad timing of the decision: “We’ve been to this scene before, months and months ago when we tried to open up the country and open up the economy when certain states did not abide by the guidelines, we had rebounds that were very troublesome.” The presence of more transmissible and deadlier variants of the virus from the U.K., South Africa, and Brazil have made the measure more worrisome for health workers.

7. Michigan’s shutdown order of the Enbridge’s Line 5 pipeline is straining U.S.-Canada relations. Michigan Governor Gretchen Whitmer issued an executive order back in December to shut down the pipeline by May 2021 under the argument that it represents an environmental risk. Line 5 provides about 45% of the crude oil Ontario requires to produce gasoline and oil; the remainder is shipped through Line 9 to refineries in Québec. On its way to Ontario from Western Canada, Line 5 goes through Great Lakes states and provides Michigan’s Upper Peninsula and parts of Ohio with inexpensive propane for heating as well as Detroit Metro Airport with fuel for jets. Calgary-based Enbridge is currently disputing Whitmer’s orders in court and has said that it will not close Line 5 unless a tribunal dictates it. The company has also stated it will build a tunnel to make the underwater section of the 65-year-old pipeline safer. The Canadian Natural Resources Minister, Seamus O’Regan, has said that Line 5’s operation is “non-negotiable” for Canada as it imperils the country’s energetic safety. Government officials said earlier this week that Ottawa is ready to invoke a 1977 treaty between the two countries to force irrevocable arbitration on the matter if needed.

8. Both Brent and West Texas Intermediate crude oils started the week with a descent that lasted until Tuesday. On Wednesday, both oils reversed course and began an ascent that concluded on a multi-month high on Friday. On Thursday, OPEC countries and allies, known as OPEC+, decided to keep the output cuts in place until they meet again in April. The organization and its allies gave the green light to Kazakhstan and Russia to increase production moderately. In contrast, Saudi Arabia unilaterally agreed to continue cutting oil production by 1 million barrels per day. On the same day, the news about the production quotas led crude prices to their highest since January of 2020, and on Friday, oil prices outdid that mark and reached their highest since April of 2019. Both benchmarks touched the week’s high on Friday; Brent attained $69.69, its highest since May of 2019, and WTI rose to $66.42, its highest since April of 2019. Both crude oils closed the week to the upside; Brent settled at $69.69 and WTI at $66.28.

9. The euro and the Japanese yen declined throughout the week against the U.S. dollar. The euro inched up at the beginning of trading on Sunday evening; nevertheless, it fell into negative territory by the early morning of Monday until the morning of the next day. The European currency reversed course, and by the afternoon, it was above opening level, touching the week’s high by the evening. Nonetheless, the euro nosedived shortly after peaking and accelerated the pace of the fall on Thursday evening. The currency continued the trend throughout Friday and closed the week to the downside against the greenback. The Japanese yen had a similar week, except that it began the descent earlier in the week than the euro. The yen engaged in a series of ups and downs on Sunday evening, leaving negative territory, but returning shortly after. After touching the week’s high, the currency started a slow descent that lasted until Tuesday afternoon. Next, the yen tried to recover, but it only managed to continue falling. On Thursday afternoon, the Japanese currency accelerated the pace of the plunge until Friday morning. The yen attempted a recovery in the afternoon of Friday’s session, but it closed the week to the downside against the greenback.

Americans seem ready to dress up again to go back to work. After a 19% drop in apparel sales, retailers are preparing for “an explosion of feel-good purchasing,” said Stacey Widlitz, S.W. Retail Advisors president. Last year, when Americans bought clothing, they opted for comfort: sweatpants and sleepwear sales surged 17% and 6%, respectively, whereas fashion footwear plummeted 27%. Retailers are divided on their approach; while some are betting on a renewal of wardrobes alluding to words like “refresh,” “awakening,” and “spring,” others expect the momentum of lounge and comfort wear will continue. However, retailers are dealing with much more than anticipating the market’s wants. The congestion at ports is creating a container shortage and hindering stores’ ability to stock shelves with new merchandise. As a result, retailers are now opting to ship goods like recreation vehicles and parts, as well as vacuum cleaners, by air freight, thus increasing the cost of these goods.

Although Brexit negotiations ended on time, before the December 31 deadline, tensions between the U.K. and the European Union continued to unfold this week. On Wednesday, U.K. Prime Minister Boris Johnson decided unilaterally to extend for six months the adaptation period for supermarket goods contemplated in the Northern Ireland protocol, set to expire in late March. The said protocol was established as part of the Brexit agreement to control the flow of goods between Great Britain—no longer in the E.U.—and the Republic of Ireland—which remains in the Union, while at the same time respecting the Good Friday agreement that ended the Irish armed conflict in 1998. The Good Friday agreement instituted that borders between Northern Ireland and the Republic of Ireland should be practically invisible. For this reason, European and British negotiators decided to put control posts for British goods on the coast of Northern Ireland—which remains part of the U.K. but not of the E.U.—and contemplated a three-month grace period in which supermarket food would be exempt from control.

However, Johnson’s extension of the grace period “amounts to a violation of the relevant substantive provisions of the Protocol on Ireland/Northern Ireland and the good faith obligation under the Withdrawal Agreement,” said European Commission Vice President Maros Sefcovic. A U.K. government spokesperson stated on Wednesday that the U.K. had notified the E.U. of its decision earlier in the week and said that the extension was “for operational reasons.” Nevertheless, according to Sefcovic “This is the second time that the U.K. government is set to breach international law.” Ireland’s Foreign Minister Simon Coveney sided with the E.U. and said in an interview with RTE that the U.K. was an unreliable partner: “If the U.K. cannot simply be trusted because they take unilateral action in an unexpected way without negotiation, well then the British government leaves the E.U. with no option, and that is not where we want to be.”

As market volatility continues to swing and premature reopening of businesses endangers economic recovery, many 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.

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