The Precious Metals Week in Review – May 14th, 2021

1. A flurry of official reports shook markets this week but also brought some reassurance. On Wednesday, signs that inflation may be increasing faster than anticipated emerged in the latest Consumer Price Index report. Markets reacted to the news; investors were left wondering whether the Federal Reserve is wrong about inflation being temporary and if the central bank will have to unwind its easing policies faster than expected. Although the Fed has repeatedly said it will allow inflation levels to run above its 2% target, investors worry that prices could get too hot, forcing the central bank to raise interest rates continually and negatively affecting stocks. On Tuesday, the Department of Labor reported that March ended with 8.1 million job openings, encouraging Republican governors in 16 states to scale back unemployment insurance benefits starting in June. By the end of the week, the Department of Commerce reported that retail sales did not increase from March to April. Although some economists took it as a bad sign, others interpreted it as Americans maintaining March’s pace of consumption—an all-time high level since the beginning of the series in 1992.

2. For the week ending on May 8, the seasonally adjusted number of Americans filing for unemployment decreased for the fourth consecutive week vis-à-vis the previous week’s revised level and reached a 14-month low. The estimated number of initial claims totaled 473,000, a decline of 34,000 from 507,000. The revised figure for the week ending on May 1 increased by 9,000 unemployment insurance applications, from 498,000 to 507,000. Meanwhile, the four-week moving average for the week ending May 8 declined by 28,250 to 534,000 from the preceding week’s revised average, reaching its lowest level in 14 months. The revised four-week average for the week of May 1 increased by 2,250 to 562,250 claims. The number of Americans who cannot claim unemployment benefits and who applied for Pandemic Unemployment Assistance increased this week. This unadjusted figure augmented by 1,756 applications, from 101,815 in the week ending May 1 to 103,571 by May 7. As a side note, this week’s initial jobless claims surpassed economists’ expectations; experts surveyed by Bloomberg anticipated jobless applications to be in the vicinity of 490,000, above the 473,000 initial requests reported.

3. On Wednesday, the Department of Labor reported that prices of common goods in the U.S. climbed faster than expected as the economy reemerges after a year-long lockdown. The Consumer Price Index (C.P.I.) rose 0.8% in April, compared to economists’ forecast of 0.2%. This leap follows a 0.6% increase in the C.P.I. from February to March. The Bureau of Labor Statistics reported that prices have increased 4.2% in the past year, a reading above the 3.6% economists expected. According to the report, this is the largest 12-month increase since prices swelled 4.9% for the period ending September 2008. Economists blame the price hike on production bottlenecks affecting all economic sectors, including the labor market. Nevertheless, JPMorgan economists think these jams will fade as the recovery bolsters; the combination of economic growth, vaccines, and continuous policy support should prompt Americans to return to the workforce. In turn, this should relieve part of the pressure on the manufacturing sector and help overcome order backlogs. Investors are now wondering whether the Federal Reserve will raise rates to control inflation and when.

4. On Tuesday, the Bureau of Labor Statistics reported that March ended with a record of 8.1 million job openings. While Republican politicians and business-sector leaders argue that it is the result of a lenient job insurance program, economists and experts have looked at fears of contracting COVID-19, abysmal wages in some sectors, and lack of childcare as explanations for the phenomenon. According to data published by the Census Bureau last month, one in three unemployed Americans said they failed to cover typical expenses such as food, housing, and medical treatments despite government help. Almost 75% reported not having enough food for their children sometimes or often. On Monday, President Biden said that Americans want to work and that the White House has not found sufficient evidence that supports the notion that federal aid—of $300 per week until September—has kept people from taking jobs. He urged U.S. employers who have received federal relief to increase wages, protect employees from the virus, and encourage vaccination among workers to motivate them to return to the workforce. “My expectation is that as our economy comes back, these companies will provide fair wages and safe work environments. And if they do, they’ll find plenty of workers,” said President Biden. Nevertheless, he added that “that anyone collecting unemployment [insurance] who is offered a suitable job must take the job or lose their unemployment benefits,” unless COVID-19 is a concern. In the meantime, 16 Republican governors have announced their plans to scale back participation in federal stimulus programs, starting in June. The measure will affect more than 1.9 million Americans in Republican-governed states.

5. On Wednesday, the company operating the biggest U.S. petroleum pipeline, Colonial Pipeline Co., announced it would restart service in the afternoon; however, the reestablishment of regular service would not happen before the weekend. Service was initially interrupted last Friday when the financial computer networks of the company were cyber-attacked by Darkside, a Russian-linked hacker gang. Gasoline shortages and price spikes ensued after the shutdown. On Monday, President Joe Biden said that although the Russian government did not direct Darkside, “they have some responsibility to deal with this,” as Russia does not extradite its citizens, making it harder for authorities to prosecute them. On Thursday, Bloomberg reported that Colonial Pipeline Company paid a ransom in cryptocurrency, approximately $5 million at the time of the transaction. The news outlet also said that the decryption tool the hackers provided was so slow that the company decided to use its own backup to restore the system. The same day, President Biden said, “We have been in direct communications with Moscow about the imperative for responsible countries to take decisive action against these ransomware networks.” Colonial pipeline’s hack underscores the infrastructural vulnerability of the U.S.; this pipeline alone delivers gasoline, diesel, and jet fuel from Texas to New Jersey, and its shutdown pushed prices to their highest levels in over six years.

6. On Friday, the Department of Commerce reported that Americans maintained March’s spending pace throughout April. Although retail sales—which comprise purchases at restaurants, at stores, and online—did not increase from March to April, economists highlight that it is still well above pre-pandemic levels and consider it a sign of healthy spending. Retail trade sales increased 46.1% compared to the year prior, while clothing and clothing accessories were up 726.8% from April 2020. Food services and drinking places went up by 116.8% from last year. Although month-to-month data shows that Americans spent less in April in some areas, auto and auto-parts purchases at dealers increased by 2.9% and consumption at restaurants and bars by 3%. The retail categories that experienced a contraction in spending were clothing and accessories, sporting goods, and furniture. Similarly, sales at general merchandise stores, like online and big-box retailers, also fell.

7. Brent and West Texas Intermediate crude oils started the week with an ascent that took them the week’s high on Wednesday, reaching $69.90 for Brent oil and $66.50 for W.T.I. crude. However, both fell steeply on Thursday’s session but managed to regain ground on Friday. On Wednesday, Colonial pipeline’s service resumption pushed prices down on Thursday, taking W.T.I. oil to its lowest this week. On Thursday’s trading, both benchmarks posted their biggest daily drops in percentage terms since April; India’s coronavirus crisis contributed to this fall, taking Brent oil 3.3% and WTI 3.4% down. Despite the crisis in India, OPEC continues to uphold its forecast of a strong recovery in world oil demand this year as growth in the United States and China compensate for India’s decline. In a monthly report released on Tuesday, the organization reiterated last month’s forecast and said that demand will increase by 6.6% or 5.95 million barrels per day in 2021. Despite the optimistic tone, OPEC recognized in its report the pandemic and India’s health crisis as “significant uncertainties” and expressed its hopes of “improving momentum again [in] the second half of 2021.” Brent crude ended the week at $68.83 and W.T.I. at $65.51.

8. The euro and the Japanese yen spent most of the week in negative territory against the U.S. dollar. The euro dipped into negative turf right after opening but managed to return to positive territory on Monday’s trading and reach the week’s high twice. However, by the afternoon, the currency fell again below opening level until Tuesday morning when it resurfaced again. In the afternoon, the euro touched the week’s high for the third and last time of the week, remained above the opening level for a few hours, and initiated a descent that took it to the week’s low on Thursday morning. Throughout the day, the European currency unsuccessfully attempted several recoveries. Friday, the attempts continued and concluded with a successful and steep ascent that allowed the euro to finish the week to the upside against the greenback, although on negative turf. Similarly, the yen first dipped after the start of the trading week until Tuesday afternoon, when it managed to briefly go above opening level and reach the week’s high. Nevertheless, the Japanese currency could not hold the ascent for long and fell into negative territory until the wee hours of Wednesday. Despite a recovery attempt, the yen fell even further throughout Wednesday’s session and touched the week’s low in the early hours of Thursday. Although the Japanese currency managed to ascend during the session, it started Friday’s trading with another descent. On the last day of the week, the yen recovered some ground, and although it could not leave negative turf, it closed the week to the upside against the greenback.

On the vaccination front, the Food and Drug Administration (F.D.A.) cleared the Pfizer-BioNTech COVID-19 vaccine for use on adolescents ages 12 to 15. The decision came after the F.D.A. concluded from a study on 2,260 teens in that age group that the two-dose vaccine was safe. On Wednesday, the Center for Disease Control and Prevention (C.D.C.) recommended using the shot in the said age group. By the next day, more than a dozen states had opened vaccination schedules for teenagers. It is expected that the F.D.A.’s clearance will provide an immediate boost in demand for the vaccine as parents and kids look forward to summer activities and the start of in-person classes next fall. The authorization could boost school efforts to fully reopen classrooms to middle and high-school students, although questions remain about when children could get vaccinated in many states. The decision also comes at a time when vaccines among adults seem to have plateaued; only 45.1% of adults are fully vaccinated thus far.

On Thursday, the C.D.C. said fully vaccinated Americans can stop wearing masks and social distancing in most settings. The decision took businesses and state officials by surprise and raised a series of practical questions about how it would be implemented. By Friday, some retailers announced they would maintain rules around mask-wearing, while others said they were still reviewing C.D.C.’s guidance. Most of the epidemiologists surveyed by the New York Times in the past two weeks expressed concerns about the decision. While 80% of 723 surveyed epidemiologists said they expected mask-wearing in public would remain in place for at least another year, only 5% said Americans would no longer need to wear masks by the summer. Although many epidemiologists agreed with the C.D.C. that fully vaccinated people could gather without precautions, the new guidance green-lighted vaccinated Americans to forego masking, indoors and outdoors, in groups with an unknown number of unvaccinated people. However, mask use remains in place in certain places like public transit and doctors’ offices.

As more and more signs of generalized steep price hikes emerge, 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 markets and 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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