The Precious Metals Week in Review – June 4th, 2021

1. The week ended on a somewhat positive note with record lows for the weekly unemployment claims report and U.S. daily averages of COVID-19 cases, deaths, and hospitalizations. Nevertheless, May’s job reports in the U.S. and Canada were rather disappointing. Although the U.S. Labor Department’s latest nonfarm payroll report recorded gains of 559,000 posts—lower than expected but an improvement over April’s gains—some economists think that it is a prelude to a more robust and sustained economic recovery in the second half of the year. Despite the solid increases, Cleveland Federal Reserve President Loretta Meister said that May’s gains were not enough for the Fed to change its pandemic policies because it did not meet the Fed’s “substantial further progress” benchmark. Canada’s job losses in May, along with reports of worldwide increases in food prices and high inflation levels in the world’s largest economies, dampened to some extent the week’s positive news. Tensions between the U.S. and Russia increased this week after a cyberattack on the world’s largest meatpacking company halted cattle slaughter in the U.S. and Australia and sent meat prices up; authorities suspect the criminal group has ties to Russia. Similarly, US-China relations are being tested again this week as the Biden administration extended the list of Chinese companies barred for U.S. investors.

2. For the week ending on May 29, the seasonally adjusted number of Americans filing for unemployment decreased for the seventh consecutive week vis-à-vis the previous week’s revised level; the figure fell below the 400,000 claims threshold, marking a new low in over 15 months. The estimated number of initial claims declined from 405,000 to 385,000. The revised figure for the week ending on May 22 decreased by 1,000 unemployment insurance applications, from 406,000 to 405,000. Meanwhile, the four-week moving average for the week ending May 29 declined by 30,500 to 428,000 from the preceding week’s revised average, reaching its lowest level in over 15 months. The revised four-week average for the week of May 22 dwindled by 250 to 458,500 claims. The number of Americans who cannot claim unemployment benefits and who applied for Pandemic Unemployment Assistance declined this week. This unadjusted figure shrank by 17,461 applications, from 93,559 in the week ending May 22 to 76,098 by May 29. As a side note, this week’s initial jobless claims surpassed economists’ expectations; experts surveyed by Reuters anticipated jobless applications to be in the vicinity of 390,000, that is, above the 385,000 initial claims reported.

3. The latest issue of the nonfarm labor report came with average news for economists on Friday. In the latest publication, the Department of Labor reported 559,000 jobs added to the U.S. economy in May, compared to the revised 278,000 for April. The unemployment rate fell from 6.1% in April to 5.8% in May. Analysts received April’s report with guardedness as May’s increase represents an improvement from April’s low, but it is well below March’s 785,000 new jobs. Jefferies economist Thomas Simons said, “this is not the ‘million jobs per month’ … but it isn’t a disaster either. The data is consistent with other indicators of a labor shortage that was … previously well understood and that should abate somewhat as the enhanced unemployment benefits programs continue to expire throughout the summer.” However, others were more pessimistic; Deutsche Bank’s chief U.S. economist Matthew Luzzetti said it was a “middle-of-the-road report. … It is disappointing relative to where we were a few months ago, where we were anticipating you could see a million-plus type print over these coming months. We have had to ratchet down our expectations about what job gains are likely to be going forward.” The sectors with the most significant job gains were leisure and hospitality with 292,000; public and private education, 144,000; and health care and social, 46,000. The sectors that fared worse this month were construction with 20,000 fewer jobs and retail trade with 6,000 lost positions.

4. Canada lost 68,000 jobs in May after losing 207,000 posts in April, said Statistics Canada on Friday in their latest Labour Force Survey. May’s losses continue to reflect the losses the third wave of the pandemic brought about, which analysts expect will soon come to an end as vaccination efforts ramp up and provinces shed restrictions. CIBC Capital Markets senior economist Royce Mendes said in a note to clients that “There appears to finally be some sunshine peaking through the clouds, with provinces embarking on reopening plans. … June should show a modest recovery that will transition into more robust growth readings early in the second half of the year as additional segments of the economy are reopened.” Statistics Canada reported that most of the position losses happened in part-time jobs (-54,000) and the private sector (-60,000). The sectors with the largest job drops were manufacturing (-36,000), retail trade (-29,000), and “other services” (-24,000), the latter two being the most affected by public health restrictions. On the other hand, the natural resources industry surpassed its February 2020 levels by 29,000. Transportation and warehousing had the most significant job gains with 21,900 new jobs; followed by professional, scientific, and other support services (+8,900); and natural resources (+8,600).

5. Global food prices reached their highest for the 12th consecutive month in May, according to the United Nations’ food price index. Prices have increased nearly 40% year-over-year and in the last month alone, 4.8%—the steepest monthly spike in over a decade. Senior economist at the U.N. Food and Agriculture Organization, Abdolreza Abbassian, noted in an interview with CNN Business that the price hike has taken everyone by surprise. Brazil’s drought has added to record demand for corn in China, and a global surge in the use of sugar, cereals, and vegetable oils, pushing prices upwards. However, price increases are being felt across the board and affecting energy, construction materials like lumber and steel, and labor in some countries. In rich countries, consumer prices reached a 12-year high in April, according to the OECD. In the 20 largest economies, responsible for about 80% of global economic activity, the annual inflation rate increased to 3.8% in April from 3.1% in March. Although analysts admit that much of the inflation reflected in the OECD’s report is the result of base effects—where prices seem higher after a year of lower commodity prices because of the pandemic—the mismatch between an unforeseen high demand and a reduced demand continues to worry investors and affect the supply.

6. Brazilian JBS, the largest meatpacking company in the world, reported to the White House on Tuesday it had been the victim of a Russian ransomware attack that disrupted meat production in Australia and the U.S. The company released a statement on the same day saying that the “vast majority” of the plants processing beef, pork, and poultry would be operational on Wednesday. The attack halted cattle slaughter at all the company’s plants in the U.S.—JBS alone processes about 25% of the total cattle beef in the country; in Australia, operations ceased entirely on Monday. Meat prices responded to the cyberattack, reaching their highest in a month with a $5.60 increase. This price uptick adds to strains the industry already faced before the attack, i.e., inflationary pressures caused by tight supplies and increasing demand from reopening restaurants. This episode comes almost a month after a criminal group with ties to Russia cyberattacked the largest U.S. petroleum pipeline. The JBS attack prompted investigations from the FBI and conversations between the White House and the Kremlin, increasing tensions between the two governments. According to White House’s spokeswoman Karine Jean-Pierre, “The White House is engaging directly with the Russian government on this matter and delivering the message that responsible states do not harbor ransomware criminals.”

7. On Thursday, President Joe Biden expanded the restrictions weighing on investors with interests in Chinese companies. In an executive order, President Biden increased the number of Chinese companies barred to U.S. investors from 48 to 59 in an attempt to counter the Chinese government’s geopolitical ambitions, marking a continuity with the previous administration. The measure forbids American capital from supporting the “Chinese defense sector, while also expanding the U.S. Government’s ability to address the threat of Chinese surveillance technology firms that contribute—both inside and outside China—to the surveillance of religious or ethnic minorities or otherwise facilitate repression and serious human rights abuses,” said the White House in a press release. The executive order, which bars U.S. investment in companies like Huawei Technologies, Aerosun Corp., Aero Engine Corp., and Fujian Torch Electron Technology, will take effect on August 2, at 12:01 E.T. Analysts interpret this move as a sign that the Biden administration may advance many Trump-era policies designed to curb China’s global influence. Chinese Foreign Ministry Spokesman Wang Wenbin said the decision completely disregarded facts and added that “The U.S. should respect the rule of law and the market, correct its mistakes, and stop actions that undermine the global financial market order and investors’ lawful rights and interests.”

8. Brent and West Texas Intermediate crude oils climbed steadily this week and reached new highs. While Brent crude finally surpassed the $70 mark, WTI oil not only started the week over the $65 threshold but bordered $70 by Friday. Both benchmarks hit their lowest at the start of the week; Brent at $68.75 on Monday and WTI at $66.41. on Tuesday (because of the Memorial Day holiday). The two crude oils had similar gains this week—$2.84 for Brent and $2.69 for WTI oil—and on Friday session increases—$0.43 for Brent oil and $0.44 for WTI crude. Brent oil settled at $71.82 for the week and WTI at $69.37. Analysts concluded that this week’s hike in prices resulted from OPEC+’s success at draining global oil inventories. The cartel-member countries convened on Tuesday with their allies and decided to continue with its previous plan to increase production by 2.1 million barrels per day between May and July. Despite fears that renewed COVID-19 outbreaks may dampen demand and affect oil prices, the group plans to add 350,000 barrels per day in June and increase to 440,000 barrels per day in July. Meanwhile, Saudi Arabia will gradually add back 1 million barrels per day after voluntarily cutting its production above the levels imposed on the rest of the OPEC+ members.

9. The euro and the Japanese yen had similar trajectories against the U.S. dollar but closed the week differently. The euro climbed right after opening on Sunday evening and accelerated the pace of the ascent by Monday morning. The currency leveled until Tuesday afternoon, when it reached the week’s high. Although the European currency dipped slightly after the hike, it remained close to the level it held before climbing for the week’s peak. Nevertheless, the euro fell into negative territory on Wednesday morning, returned to positive territory in the afternoon, and fell again into negative turf in the early morning of Thursday. Although the currency seemed to recover for a few hours, it engaged in a descent on Thursday afternoon that took it to the week’s low on Friday morning. Despite an impressive vertical ascent in the second half of Friday’s session, the euro closed the week in negative territory and to the downside against the greenback. The Japanese yen started the week with a slight ascent that continued throughout the wee hours of Tuesday when the currency touched the week’s high. Despite dipping later in the day, the Japanese currency managed to touch the week’s high for the second time in the afternoon. Nevertheless, the yen engaged in a descent until Wednesday afternoon that briefly took it to negative territory. The currency quickly recovered and climbed well above opening level but dived again into negative turf on Thursday afternoon. On the late evening of Thursday, the yen touched the week’s low; however, it started Friday with a slight climb that accelerated in the afternoon and took the currency close to the week’s high. The yen closed the week to the upside against the greenback.

Europe is currently working on an alternative plan to the U.S.-backed patent waiver to protect pharmaceuticals’ intellectual property rights and help close the gap between COVID-19 immunization have and have-nots. The European Union’s proposal would end export restrictions on vaccines and raw materials, expand manufacturing capacity to more countries, and even override patents in specific cases. The presentation of the new proposal to the World Trade Organization is scheduled for next week when members will convene to discuss the patent waiver. The E.U. will support this new proposal on the argument that the waiver would lead to a scarcity of vaccine raw materials and disincentivize pharmaceuticals to ramp up production and continue the research work required to update vaccines. French President Emmanuel Macron and Germany’s Health Minister flew to South African—one of the leaders of the waiver—to offer funding to finance projects to increase vaccine production in the continent.

U.S. COVID-19 deaths have reached their lowest levels since the beginning of the pandemic in March of 2020. On Thursday, the average daily deaths fell below 499 daily deaths—the average in late March 2020—to 432. Data collected by Johns Hopkins University also shows that seven-day average cases fell this week below 20,000 for the first time since late March of last year. These figures reflect the advanced state of the vaccination program in the U.S. 75% of Americans 65 years and older have been fully vaccinated; for the American adult population with at least one dose, that number stands 51.1% and 41.4% for fully vaccinated Americans. Analysts think that the high vaccination rates among senior Americans are among the leading causes of the plunge in average daily deaths and hospitalization rates. Hospitalization data published by the Department of Health and Human Services show a steep fall from 142,273 in January, when hospital occupation reached its highest level, to 23,340.

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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