The Precious Metals Week in Review – May 28th, 2021

1. The week ended on a high note with an unemployment claims report that reached another record low and exceeded economists’ expectations. Additionally, the Department of Commerce reported on Friday that consumer spending continued to grow through April despite a decline in household income. On Wednesday, the energy industry lost key legal battles in the Netherlands and Australia, which forced energy companies and agencies to cut emissions. At the same time, shareholders of two oil giants voted out the board directors and adopted new emission-reduction goals. Despite the challenges, oil prices steadily climbed this week, reflecting in part Memorial Day’s demand surge and recent supply disruptions.

2. For the week ending on May 22, the seasonally adjusted number of Americans filing for unemployment decreased for the sixth consecutive week vis-à-vis the previous week’s unrevised level and attained another 14-month low. The estimated number of initial claims totaled 406,000, a decline of 38,000 from 444,000, the lowest level since March 14 of last year—right at the onset of the pandemic—when new claims stood at 256,000. Meanwhile, the four-week moving average declined by 46,000 to 458,750 from the preceding week’s unrevised average of 504,750. This figure also hit its lowest level since March 14, 2020, when it reached 225,000. The number of Americans who cannot claim unemployment benefits and who applied for Pandemic Unemployment Assistance decreased again this week. This unadjusted figure dropped by 1,596 applications, from 95,142 in the week ending May 15 to 93,546 by May 22. This week’s report positively surprised economists surveyed by the Wall Street Journal as they had forecasted 425,000 new claims for last week, an estimate considerably higher than the 406,000 claims recorded.

3. On Friday, the Department of Commerce reported that consumer spending continued increasing throughout April. Compared to March’s spending increase of 4.7%, April’s came at a much slower pace. Although April’s 0.5% spending increase seems feeble compared to March’s, this hike was achieved despite a 13.1% decrease in household income, reflecting the previous month’s stimulus efforts. Rising vaccination rates and falling business restrictions led Americans to spend more on services, like traveling, dining out, and even spas, leading economists to forecast this spring’s GDP to increase at a 10% annual rate. Nevertheless, the services sector has a long way to go and still needs to adapt to the permanent changes in spending habits brought about by the pandemic. The sale of exercising equipment during the pandemic will surely keep some away from gyms after the pandemic. Similarly, those telecommuters who relocated away from their workplaces most likely will not return to after-work happy hours in bars and restaurants. Regardless of the changes, the services sector remains one of America’s economic backbones; robust consumer spending in this sector will undoubtedly be one of the signals decision-makers will consider before concluding that the U.S. economy is in healthy shape.

4. Home sale prices hit a new high in March. According to the S&P CoreLogic Case-Shiller National Home Price Index, which tracks the purchase and resale price of U.S. residential homes, the index increased 13.2% in March year-over-year, compared to 12% the previous month. March’s reading was the highest annual rate increase since December 2005. The news came a day after the Department of Commerce reported that the median price of new sold homes in April was $372,400, a 20.1% hike from the previous year and the highest annual increase since 1988. The median sales price for existing homes followed close at $341,600 and soared by a similar percentage in the same month, 19.1%. Low mortgage interest rates and a shortage of homes for sale are behind this fast price hike. The undersupply seems to be disincentivizing buyers as April marked the third consecutive month of declining existing-home purchases. Nevertheless, this may not be enough to bring down prices; on the contrary, economists expect the shortage to continue driving prices upwards. And although home builders have picked up the pace of construction, it has not been enough to end the lack, as they face their own deficits: of skilled labor, construction-ready land, and increasing material costs.

5. To make matters worse, the Wall Street Journal reported on Wednesday that realtors are bypassing the public market and offering unlisted homes to selected potential buyers. The practice, known as whisper or pocket listings, remains legal despite recent changes the National Association of Realtors made to policies to discourage the practice. According to Redfin Corp., the whisper listings are on the rise; in March 2019, pocket listings accounted for 2.5% of sales year-over-year. That figure increased by 0.1% in the year ending in March 2020 and grew by 0.4% the following year, reaching 3% by March 2021.

6. U.S.-Russian relations hit a new obstacle on Thursday when the Biden administration decided not to reenter the Open Skies arms control agreement. The 1992 treaty sought to lower conflict risk by allowing the former Soviet states and Western signatories to perform unarmed surveillance flights over each other’s territory. A State Department spokeswoman argued on Thursday that Russia violated the pact and that this country’s “behavior, including its recent actions with respect to Ukraine, is not that of a partner committed to confidence-building.” The comment alluded to Russia’s reaction last year when the Trump administration announced it would exit the deal; back then, Moscow said it was a deplorable decision that undermined trust-promoting efforts in the military realm. At the time, U.S. officials said that Russia had violated the accord by limiting flights over its territory while flying over the U.S. to collect information on American infrastructure. On Friday, Russian Deputy Foreign Minister Sergei Ryabkov decried that “The U.S. has made another political mistake, inflicting a new blow to the European security system… We gave them a good chance, which they did not take. They continue circulating fabrications about Russia’s violations of this agreement, which is completely absurd.” Without this accord, the New Start nuclear weapons pact would be the only treaty binding Washington and Moscow; this Obama administration deal was signed in 2010 to control the weapons race between the two countries. The Kremlin announced in January this year that it would leave the treaty, and it sent this month legislation to the parliament to make the departure effective. Despite the impasse between the two nations, Presidents Biden and Putin are due to meet in Geneva in June.

7. Wednesday was a shock day for the energy industry. In the Netherlands, Royal Dutch Shell PLC lost a landmark legal battle; a Dutch court ordered the oil giant to cut greenhouse gas emissions by 45% by 2030, accelerating the company’s plans to become a net-zero emissions corporation by 2050. Shareholders of Exxon Mobil Corp. and Chevron Corp. put pressure on both firms to facilitate a transition to cleaner energy and cut emissions. Exxon shareholders voted to replace two of its 12-member board elements with directors perceived as better suited to help the company transition and fight climate change. Meanwhile, more than 60% of Chevron’s shareholders voted to cut Scope 3 emissions—those that result from the operation of companies; nevertheless, the vote did not establish a timeframe nor a target for the cut. In Australia, a federal court ruled that federal Environment Minister Sussan Ley had to consider the harm that the expansion plans of a coal mine in southeastern Australia would cause on young people due to climate change. A group of 8 teenagers led the class action against Minister Ley. Finally, Canada’s second-largest oil producer Suncor Energy Inc. announced its plan to abide by Prime Minister Justin Trudeau’s plan to decrease national emissions by 40%-45% by 2030. The company said it would cut annual emissions by 34% (or 10 million tons) by 2030 while increasing production to a record of 800,000 barrels per day in the next four years by improving its current facilities.

8. Both Brent and West Texas Intermediate crude oils recovered the ground lost in the past week. Despite Wednesday’s blows to the energy industry, both benchmarks maintained the ascent. Brent crude now flirts with the $70 mark, and WTI is past the $65 threshold. While both oils touched their lowest levels on Monday—at $66.46 for Brent, $63.63 for WTI—both crudes reached their highest on Friday—$69.92 for Brent and $67.52 for WTI. Brent crude closed the week at $69.65, while WTI settled at $66.63. The increase in prices in the United States reflects low inventories amid an increase in demand because of Memorial Day weekend, which marks the beginning of the summer driving season. According to the Energy Information Administration (EIA), the American Automobile Association (AAA) estimates that more than 37 million Americans will travel 50 miles or more during the holiday. This figure represents a 60% hike from 2020, when only 23 million traveled. Despite the constant rise in active oil rigs—107 added this year for a total of 359—the EIA reported on Friday that “refinery production of gasoline has not kept up with increasing U.S. gasoline demand because of unplanned refinery and pipeline disruptions in recent months, which has contributed to upward pressure on retail gasoline prices.”

9. The euro barely managed to close this week on positive territory against the U.S. dollar. The European currency opened the trading week with a sustained ascent that took it to the week’s high on Tuesday by noon. Despite some small dips, the currency managed to stay close to that level until the early morning of Wednesday; however, it was not for long. The euro initiated a descent that erased the ground gained at the beginning of the week and took it barely above opening levels. The euro straddled negative and positive turf until Friday morning, when it plunged into negative territory, reaching the week’s low around noon. However, the European currency reversed course in the afternoon, left negative territory, peaked, and fell right before closing, ending the week on positive turf but to the downside against the greenback. In contrast, the Japanese yen closed the week in negative territory against the U.S. dollar. The currency started the week with a slight ascent that took it to the week’s high by Tuesday morning. Nevertheless, the yen could not maintain the climbing pace and slid below opening level by the early afternoon. Although the Japanese currency managed to reenter positive turf in the evening, it initiated a slow descent into negative territory that plateaued on Thursday morning but accelerated at noon. After the steep drop, the yen leveled again in the evening until Friday morning, when it plunged, touching the week’s low. Despite recovering and peaking, the yen closed the week in negative territory and to the downside against the greenback.

On Thursday, the U.S. Senate voted a bipartisan bill to maintain the U.S. at the helm of technological innovation amid increasing Chinese competition. Nevertheless, the initiative—one of the few bipartisan efforts this year—could not move to the final stage after a 68-30 vote and some remaining issues with the House. Senate Majority Leader and head of the bill Chuck Schumer said the proposal seeks to stop the U.S.’s gradual decay in scientific research and innovation “and lay the foundation, instead, for another American century.” While Senate Republican leader Mitch McConnell argued that “there’s broad bipartisan agreement that America needs to upgrade our competitiveness with China,” and pressed Democrats to allow more amendments to the proposal before approving it. Besides designating government money to support science through the National Science Foundation (NSF), the bill also sanctions $52 billion to foster semiconductor production in the United States. Disagreement among parliamentarians centered on the role of the NSF, which led to shifting part of the funds to the Energy Department and its dependent research laboratories. A Congress-organized panel, presided by Google’s former CEO Eric Schmidt, suggested creating a new organization—the National Technology Foundation—and recommended funding Artificial Intelligence research. The degree of disagreement among politicians signals the importance of the bill and their struggle to come up with a way to accelerate research and development of technologies that could prove crucial for the military.

On the vaccine front, pharmaceuticals have continued lobbying countries and the U.S. to stop the COVID-19 vaccine-patent waiver initiative that is currently under discussion in the World Trade Organization (WTO). Lobbyists have warned WTO members that a waiver would only cause a raw-material strain and would fail to end the vaccine shortage. Pharmaceutical interest groups have urged congress members to pressure the Biden administration to back on their support of the waiver announced earlier this month. Sources have also said that lobby groups have met with Biden administration officials to discuss other courses of action. Vaccine makers have also requested governments to lift restrictions that keep pharmaceuticals from delivering more doses to developing countries, which in part prompted the waiver initiative led by India and South Africa in the first place. Germany, Japan, and other countries have opposed the measure.

As businesses reopen and demand goods and services regain 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 equity markets and potential price hikes. 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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