The Precious Metals Week in Review – May 7th, 2021

1. A bust in employment disappointed economists, analysts, and policymakers on Friday as April’s labor reports for the U.S. and Canada showed meager job gains for both countries. Important changes in the manufacturing sector became apparent this week. The car industry is adapting to supply-chain shortages by stockpiling and building facilities to secure the production of parts and components. On Wednesday, the E.U. unveiled a new bill that seeks to curtail Chinese investment in the bloc. While some economists have criticized the measure because it would punish China for playing the subsidy game the E.U. masters, others point out the flaws the Chinese government’s participation in the economy is currently exporting to Western markets. On the vaccine front, the immunization rate is declining in the United States as the sectors of the population willing to receive the shot shrink and the chances of reaching herd immunity decrease by the day. On Wednesday, the White House announced its willingness to bypass vaccine patents to allow developing nations to produce COVID-19 jabs. While some countries have expressed their support for the initiative, pharmaceuticals and experts have warned that intellectual property waivers will not necessarily boost production.

2. For the week ending on May 1, 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 498,000, a decline of 92,000 from 590,000; this is the first time jobless claims fell below 500,000 since the beginning of the pandemic. The revised figure for the week ending on April 24 increased by 37,000 claims, from 553,000 to 590,000. Meanwhile, the four-week moving average for the week ending May 1 declined by 61,000 to 560,000 from the preceding week’s revised average, reaching its lowest level in over 13 months. The revised four-week average for the week of April 24 increased by 9,250 to 621,000 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 20,200 applications, from 121,414 in the week ending April 24 to 101,214 by May 1. As a side note, this week’s initial jobless claims surpassed economists’ expectations; experts surveyed by Dow Jones anticipated jobless applications to be in the vicinity of 527,000, well above the 498,000 initial requests reported.

3. Despite the signs of recovery in this week’s Unemployment Insurance Claims report, April’s nonfarm payroll report disappointed on Friday with a little-changed unemployment rate and less than expected new jobs. Contrary to expectations, the unemployment rate rose 0.1% to 6.1% in April, and the economy only created 266,000 new jobs—a stark contrast from Dow Jones’ estimates of 5.8% and 1 million new jobs. Despite the progress in vaccination rates, the reopening of businesses, and the positive effects of the fiscal stimulus rounds on spending, the economy continues to run into obstacles, mostly due to imbalances in the demand and supply of labor, goods, and services. Business owners and companies have reported a short labor supply despite the large swaths of the population looking for jobs; experts say it stems from workers’ fear of contracting COVID-19, childcare obligations, and expanded unemployment benefits. Economists think these figures are a short-term phenomenon and do not doubt that jobs will come back; it is all a matter of when—they say.

For now, expectations are that the Federal Reserve will continue with its easing policies, and pressure on the institution to increase rates has been set aside for the time being. April’s figures also suggest that the inflation in wages and prices that investors have been speculating about is not happening—at least not at the levels it was thought. The leisure and hospitality sector saw the most considerable increase with 331,000 new jobs, followed by the government with 48,000 posts, financial activities with 19,000 positions, and Health care and social assistance with 18,500 placements. The professional and business services sector was April’s biggest loser with -79,000 jobs; transportation and warehousing followed from close with -74,100 posts, while manufacturing shed 18,000 positions, and retail trade, 15,300.

4. Unemployment in Canada followed the same trend as in the U.S.; unemployment rose by 0.6% to 8.1%, and the economy lost 207,000 jobs in April after cumulative employment gains of 562,000 in the previous two months. According to Statistics Canada, the tightening of anti-COVID-19 measures in several provinces in late March and early April accounts for the massive job shed. Although the losses did not come as a surprise, the magnitude did; economists expected April would record 175,000 fewer posts, but not the 207,000 reported. However, economists remain cautious and say that this is not the end of the third wave’s economic backlash. “With restrictions remaining in place across the country, Canada’s labor market recovery will probably not fully course correct in May,” said T.D. Bank economist Sri Thanabalasingam. Analysts found it particularly worrisome that long-term unemployment seems to be on the rise. The number of Canadians that have been unemployed for 27 weeks or more rose to 486,000; of that pool, 312,000 Canadians have been unemployed for a year or longer. Most of the placements lost in April were full-time jobs, 129,000, compared to 78,000 part-time posts. Young Canadians between the ages of 15 and 24 bore the brunt of April’s layoffs with almost half of the total. The sectors that shed the most positions were retail with -84,000, followed by hospitality with -59,000, and culture and recreation, -26,000; the sectors with the largest gains were public admin, followed by scientific and technical services, and finance and real state with 15,000 new positions each. Despite April’s dip, Canada has recovered 83% of the jobs lost to the pandemic.

5. Pandemic shortage of car parts and raw materials could end the beloved “Just in Time” (JIT) manufacturing approach that carmakers have abided by for over 50 years. Car producers have decided to follow in the footsteps of Tesla, who decided to build a $5 billion battery factory in Nevada with Panasonic Corp to solve its battery supply-chain issues. Although batteries are not the only bottleneck in Tesla’s car production, the new plant set the tone for the company, which is now identifying the essential materials and seeking to buy them directly. General Motors and Volkswagen have similar plans. G.M. is currently building a $2.3 billion factory in Ohio and planning to build a second one that will produce enough batteries to churn out hundreds of thousands of electric vehicles per year; Volkswagen is building six factories for the same purpose. Although Tesla’s bid to solve its supply-chain problems takes car making back to the 1920s—when Ford had a hand in the production of all the raw materials its cars required—executives are not prepared to entirely ditch JIT because of the sizable savings it allows. Chiefs are opting for abandoning JIT only in the areas of significant vulnerability; they are stockpiling crucial but inexpensive components, like semiconductors, and opting for the production of parts when needed.

6. The E.U. discussed on Wednesday a new bill seeking to rein in foreign government-subsidized companies in an attempt to counter the expansion of Chinese firms in the bloc. Although the legislation does not single out China, it would make large companies from this country the primary target. In the past decade, the Chinese government has subsidized state-owned companies with millions of dollars to build factories abroad and buy Western rivals, thus exporting Chinese market flaws to other countries. As a non-market economy, the Chinese government allows government-owned businesses to operate on very slim margins or even at a loss in market economies, which Western officials and experts have decried. Although the U.S. and the E.U. also subsidize their industries through tax breaks, research-and-development funding, and export financing, China’s singularity is in the substantial role state-run companies play in its economy. If the bill receives the green light from the bloc’s 27 governments, the law could grant the E.U. powers to block foreign companies from buying firms in Europe or signing contracts with European governments if proved that they benefit from foreign government subsidies. Companies could face severe fines of up to 10% of the firm’s turnover if they failed to comply with the rules. However, European economists recognize the contradiction in the legislation. Center for European Policy Studies economist, Daniel Gros, said that China should not be penalized for that as the E.U. itself has “And we have lots of other subsidies. The footprint of our governments in our economies is very, very large.” Chinese ambassador to the E.U., Zhang Ming, expressed his concern over the piece of legislation and spoke along the same lines as Gros: “We often see the E.U. as our professor for building our market economy […] [,] so we don’t want to see our professor and our partner have any hesitation when it comes to these principles.”

7. Brent and West Texas Intermediate crude oils had somewhat different weeks; while Brent oil climbed the first two days of the week, WTI only ascended on Tuesday, surpassing the $65 mark. Despite losing ground on Wednesday, both benchmarks touched the week’s high that day; Brent crude bordered the $70 threshold at $69.95, and WTI reached $66.76. Both crude oils continued descending through Thursday and Friday, and despite closing the week to the downside, Brent crude managed to end the week near the $70 mark at $68.27 and WTI bordering on $65, at $64.82. Expectations around the summer driving season accounted for the rally earlier this week. Although analysts remain optimistic about crude oils’ prospects as the European and U.S. economies reopen, concerns over the surge in COVID-19 cases in India—the world’s third-largest oil importer—persist. The health crisis in India coincides with the OPEC+’s agreement to increase oil output by 600,000 barrels per day. The increase in production added to a decrease in selling prices for Asia that Saudi Arabia dictated should help India in its economic recovery. On Thursday, Indian-state oil refiners placed orders for normal levels of oil supply—ranging between 14.8 and 15 million barrels per month—of Saudi oil.

8. The euro and the Japanese yen struggled during most of the week to remain above negative territory and closed the week to the upside against the U.S. dollar. The euro briefly rose right after opening on Sunday evening and then dipped in preparation for the first important hike of the week in the early morning of Monday. The currency peaked in the afternoon but closed the day with a descent that took the currency to negative territory. All Tuesday until the early morning of Wednesday, the euro moved up and down, entering and leaving the negative territory. Hours later, the European currency reached the week’s low and stayed below opening level until Thursday morning, when the currency managed to climb out of negative turf successfully. The euro peaked and then plateaued during the remainder of Thursday’s session and started Friday’s trading with a steep and fast ascent that took it to the week’s high right before closing the week. Needless to say, the euro closed the week to the upside against the greenback. The Japanese yen ticked up and then dived into the week’s low in negative territory right after opening. On Monday morning, the currency managed to reverse course and engaged in a steep ascent, entering positive turf and peaking in the afternoon. However, the yen plateaued in the remainder of the session then fell and started Tuesday’s trading in negative territory. From there on, the Japanese currency straddled between negative and positive territory until early Thursday afternoon when it entered positive turf for good. The yen started Friday’s session with a slow descent that turned into a vertical and fast climb by noon and reached the week’s high hours later. Despite a slight dip before closing, the yen ended the week to the upside against the greenback.

On Wednesday, the White House announced its willingness to waive intellectual property protections for the COVID-19 jab to allow developing nations to produce COVID-19 vaccines. U.S. Trade Representative Katherine Tai said in a statement that “The administration believes strongly in intellectual property protections, but in service of ending this pandemic, supports the waiver of those protections for COVID-19 vaccines.” India and South Africa first proposed the waiver in October seeking to lift protections on a broad range of COVID-19 related patents and have gathered support from 100 states, mainly developing countries. While some have expressed their support for the initiative, other countries continue to oppose it, including the United Kingdom, Canada, Switzerland, Australia, Norway, Japan, Brazil, and E.U. countries, garnering disapproval from these countries’ populations and organizations, like Doctors Without Borders.

In Canada, a coalition of Parliament members from different parties urged Prime Minister Justin Trudeau to support the waiver through a letter signed by more than 70 parliamentarians, including 30 of Trudeau’s party. At a news conference on Friday, Trudeau avoided direct responses from journalists on the matter and stated that Canada is participating in the discussions held at World Trade Organization and is working toward building a consensus. As expected, pharmaceuticals also oppose the measure; they argue that lifting intellectual property restrictions will not solve the issue as access to patents does not guarantee access to all the know-how required to make the vaccines. Additionally, opposers argue that ramping up production in this way would require the construction of new factories, the training of staff, and investing in expensive equipment while at the same time deterring current producers from continuing to churn out vaccines.

As businesses reopen and demand for goods and services regains momentum, many investors continue purchasing physical precious metals to shield their portfolios from inflation. 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 bubbly equity markets and potential price increases. Despite the hedge attributes of precious metals, 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.

Precious Metals International, Ltd.

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