The Precious Metals Week in Review – April 30th, 2021

1. Economic surprises marked this week. The Federal Reserve’s Federal Open Market Committee’s meeting concluded on Wednesday without changes to the current economic policy but with an acknowledgment of “froth” in equity markets. Chairman Jerome Powell highlighted how vaccination programs and guesses on when sectors of the economy might reopen are a source of speculation. “Some of the asset prices are high. You are seeing things in the capital markets that are a bit frothy. That’s a fact. I won’t say it has nothing to do with monetary policy, but it also [has a] tremendous amount to do with vaccination and reopening of the economy […] That’s really what has been moving markets a lot in the past few months,” said Powell on Wednesday.

Encouraging news from Canada and the United States emerged this week as government agencies released data concerning the performance of the two economies. Both countries grew at similar rates during the first quarter of the year and were just below pre-pandemic levels. Although the Eurozone’s economy contracted during the first three months of the year, economists and analysts remain optimistic as vaccination campaigns make progress and vaccinated tourists this summer could boost the bloc’s economy. The COVID-19 health crisis in India and Brazil continues to worry health experts, politicians, and economists as new variants continue to make headway and overwhelm hospitals and morgues. Last week, Canada canceled all incoming flights from India; on Friday, the U.S. took the same measure effective next Tuesday.

2. For the week ending on April 24, the seasonally adjusted number of Americans filing for unemployment decreased vis-à-vis the previous week’s revised level. The estimated number of initial claims totaled 553,000, a decline of 13,000 from 566,000. The revised figure for the week ending on April 17 increased by 19,000 claims, from 547,000 to 566,000. Meanwhile, the four-week moving average for the week ending April 24 declined by 44,750 to 611,750 from the preceding week’s revised average, reaching its lowest level since March 14, 2020. The revised four-week average for the week of April 17 increased by 4,750 to 655,750 claims. The number of Americans who cannot claim unemployment benefits and who applied for Pandemic Unemployment Assistance declined this week. This unadjusted figure diminished by 11,609 applications, from 133,358 in the week ending April 17 to 121,749 by April 24.

3. The Department of Commerce said on Thursday that the U.S. economy grew at a 6.4% seasonally adjusted annual rate during the first quarter of the year. The figure comes as a surprise, and a big sigh of relief as it is just 1% below 2019’s peak, reached right before the pandemic started. The roll of good news continued on Friday with the Commerce Department saying that household income surged in March to a whopping 21.1% and spending grew by 4.2%, the largest consumption increase month over month since last summer. According to Earnest Research, these numbers reflect the economic effect of the latest round of fiscal relief, which has spurred the most spending of all. Experts think that an increase in spending, along with vaccines and a sustained decline in cases, could lead the services sector to reopen soon. According to Barclays economist, Pooja Sriram “If we have Covid-19 cases under control, that would ideally make way for us to reopen the services sector of the economy,” which is crucial to the continuation of the recovery. The surge in income and spending came with an increase in the personal savings rate of 14% month over month, reaching 27.6% in March—the second-highest in the record after that of April 2020. This increase suggests that Americans will have the cash to spend in the coming months, which will prove essential to fostering economic recovery.

4. On the other side of the border, preliminary estimates suggest that the Canadian economy grew at an annual rate of 6.5% in the first quarter of the year—that is 1.3% below pre-pandemic levels—said Statistics Canada in its latest GDP report for February. However, as the third wave of COVID-19 infections hits the country, economists and financial experts look at recent trends to get a sense of the impact this surge might have on the economy. According to government data, the Canadian market managed to grow during the second wave. Derek Holt, Scotiabank head of capital markets economics, used that fact as an indication of what could come ahead: “Canada’s economy remains among the most resilient major economies in the world in the face of recurring COVID-19 risks. […] The start of the [second] quarter is likely to be a setback, but then again, Canada has been resilient and posted economic growth throughout the rolling restrictions and easings,” wrote Holt in a recent note to investors. Although six out of the 20 sectors composing the Canadian economy contracted in February, Canada is one of the few economies that has grown during the pandemic along with the U.S. and Australia. As Bank of Montreal chief economist, Doug Porter wrote in a note to clients: “Even with much more forceful restrictions, a slower vaccine rollout, and without the help of the two mega U.S. stimulus packages at the start of the year, somehow the Canadian economy matched the U.S. step for step through the winter months. […] That is impressive.” Statistics Canada will release on June 1 the revised GDP data by industry for March and the first quarter.

5. After wrapping up the two-day meeting of the Federal Open Market Committee, the Federal Reserve issued its usual statement recapitulating the economic policy decisions adopted by the central bank. As expected, the Fed decided to maintain its pandemic measures: short-term interest rates between 0 and 0.25 and $120 billion in bond purchases per month. Although the statement acknowledged a “strengthened” economy—a clear contrast with the prior statement’s phrasing that noted a recent “turn up” in employment and economic activity indicators—the committee decided unanimously to keep the policies in place. During the accustomed post-meeting press conference, Federal Reserve Chairman Jerome Powell reiterated that the central bank will wait for inflation to moderately surpass the 2% target for some time and that the economy is still far from reaching the Fed’s goal. “The economy is a long way from our goals and is likely to take some time for substantial further progress to be achieved. […] We expect to maintain an accommodative stance to monetary policy until these employment and inflation outcomes are achieved,” said Powell. However, market experts were disappointed once again as Powell did not delve into the specifics of what “substantial further progress” meant, nor gave any insights as to when policies might change.

6. The Euro Area and the European Union’s economy contracted in the first quarter of the year by 0.6% and 0.4%, respectively, said Eurostat on Friday. According to the technical definition, the Eurozone completed a second consecutive quarter of economic contraction, making the decline in economic activity a technical recession. Portugal experienced the sharpest fall (3.3%), followed by Latvia (2.6%), Germany (1.7%), Spain (0.5%), and Italy (0.4%). Lithuania’s economy grew the most at 1.8%, followed by Sweden (1.1%), Belgium (0.6%), and France (0.4%). Despite the second quarter of contraction, economists remain optimistic about prospects. The vaccination program should pick up pace in the second quarter and reach the arms of 70% of the European Union’s population by the end of the summer. Moreover, the E.U. expects that vaccination progress in other countries will lead to a more significant flow of vaccinated tourists to the region, thus boosting the bloc’s economy. In addition to immunizations, national governments of the E.U. should receive in the second half of the year COVID-19 financial packages, which is yet another reason for optimism among economists and analysts.

7. Brent and West Texas Intermediate crude oils bookended the week with descents. Despite Monday’s decline, Brent crude managed to stay above the $65 mark and WTI oil above the $60 threshold. From Tuesday through Thursday, both benchmarks climbed, reaching the week’s high on Thursday. However, both crudes fell on Friday as news emerged of swamped hospitals and morgues with COVID-19 victims in India—the world’s third-largest oil consumer. Additionally. a government report from Japan said that oil imports fell 25% in March year-over-year, adding to concerns over the future of oil demand. On the supply side, a rise in April’s oil output from Iran countered the OPEC and allies’ pact to taper supply, thus contributing to the price drop. Despite closing the last trading session of the month with drops, both oils saw price increases in April: Brent crude’s price rose 8% and WTI’s 6%. The benchmarks settled for the week at $67.26 and $63.49, respectively.

8. Unlike the two previous weeks, the euro and Japanese yen traded lower this week against the U.S. dollar. The euro briefly touched negative territory right after opening, surged in the wee hours of Monday but fell again later in the morning. After a series of ups and downs, the euro’s journey below opening level ended on Wednesday afternoon with an almost vertical ascent that took it to the week’s high by the early hours of Thursday. The European currency followed a jagged trajectory for the remainder of Thursday and seemed poised to close the week in positive territory until the early morning of Friday. Next, the currency initiated a fast descent that turned vertical in the afternoon and went back to negative territory. The euro plateaued nearing the end of the session, touching the week’s low and closing the week to the downside against the greenback. The Japanese yen’s week started with a short visit to positive territory that quickly turned into a sustained descent by the late morning on Monday. The decline held a somewhat steady pace until Wednesday afternoon when the yen recovered ground with a vertical ascent that it failed to sustain. By the early morning of Thursday, the currency resumed its descent and plateaued by the evening. Although it seemed that the Japanese currency had steadied, it fell even lower, touched the week’s low at closing, and finished the week to the downside against the greenback.

The chip shortage that first affected the auto industry is now reaching other sectors, from home appliances to heavy equipment. The scarcity began during the pandemic as carmakers and adjusted their chip orders to reflect the drop in car demand. Nevertheless, once demand picked up, automakers assumed semiconductor companies would respond immediately. However, chip producers did not think that the industry would recover so soon and continued to produce chips for booming products like videogame consoles, PCs, tablets, and smartphones. Late last year, carmakers sounded the shortage alarm. As soon as chip-dependent industries in other sectors heard of the car-chip shortage and noticed the long wait lines, they decided to place orders foreseeing that the scarcity would reach them too.

To make matters worse, earlier this year, calamities hit two large semiconductor-producing facilities, one in Japan and one in Texas, aggravating the shortage. Now, chipmakers cannot keep pace with the demand, input prices are on the rise, and scarcity is likely to continue throughout the year. Consequently, industries are missing business opportunities and facing higher prices; according to IHS Markit, the index measuring input prices for electronics producers hit in March their highest level in over twenty years of monitoring. Some companies, like Whirlpool, are constantly reassessing production to adapt to what they have in stock on any given day, while others are closing production plants or entire production lines, like V.W.

The vaccine campaigns this week had some positive news. On Monday, the White House announced it would share as many as 60 million doses of U.S.-made AstraZeneca vaccines. White House press secretary Jen Psaki said that “Given AstraZeneca is not authorized for use in the United States, we do not need to use AstraZeneca in our fight against COVID over the next few months.” Shipments will begin once the Food and Drug Administration confirms that all the doses comply with vaccine safety standards. In Europe, the E.U. sued AstraZeneca for failing to deliver COVID-19 shots by the scheduled dates. The pharmaceutical has only shipped 30 million doses of the 120 million it agreed to send by the end of the first quarter. Thus far, it seems implausible that AstraZeneca will be able to deliver the 180 million doses it had agreed for the second quarter as production issues at a single factory in Belgium have delayed the delivery of tens of millions of doses bound for the E.U. French drugmaker Sanofi has signed an agreement with Moderna to help manufacture and fill and finish as many as 200 million doses of the vaccine, beginning in September. This week, Pfizer announced it had sent its first batch of U.S.-produced vaccines abroad, which had not been possible under a past administration’s restriction that expired at the end of March. On Thursday, BioNTech CEO Ugur Sahin expressed his confidence about the efficacity of the Pfizer-BioNTech shot against the “double mutant” variant that is currently spreading in India. Sahin based his argument on tests done against similar “double mutant” variants in which the immunization has performed well.

Risk appetites have continued to grow in recent weeks, and the game of speculation has gained momentum, 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 from the uncertainty of bubbly equity markets 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.

Precious Metals International, Ltd.

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