The Precious Metals Week in Review – June 18th, 2021

1. The week started with encouraging news in the international arena. Russia, the United States, and 23 other countries reached an agreement to fight cybercriminals. Russian President Vladimir Putin reiterated his goodwill to fight cybercrime in an interview with a state-news outlet. In the interview, the leader expressed his willingness to extradite cybercriminals on a reciprocal agreement with the U.S. On Wednesday, the U.S. and Russian heads of state convened in Geneva. Although the leaders did not make any progress in crucial matters, they both agreed to reestablish diplomatic channels and reinstate their respective ambassadors to their posts. On the same day, the Federal Open Market Committee announced its plan to increase rates by 2023; even though the news sent shockwaves through the markets, experts consider that the stock market correction did not come as a surprise, in fact, it was long due. On Thursday, the Labor Department’s weekly unemployment insurance report ended an eight-week streak of decreasing initial claims with a rise of 37,000 new applications. Finally, despite extending the border closure order for another month, the Canadian government announced on Friday that it would issue a new plan on Monday to gradually ease the restrictions.

2. For the week ending on June 12, the seasonally adjusted number of Americans filing for unemployment climbed for the first time in eight weeks vis-à-vis the previous week’s revised level. The estimated number of initial claims increased from 375,000 to 412,000. The revised figure for the week ending on June 5 decreased by 1,000 unemployment insurance applications, from 376,000 to 375,000. Meanwhile, the four-week moving average for the week ending June 12 declined by 8,000 to 395,000 from the preceding week’s revised average, reaching its lowest level in 15 months. The revised four-week average for the week of June 5 rose by 500 to 403,000 claims. The number of Americans who cannot claim unemployment benefits and who applied for Pandemic Unemployment Assistance swelled this week as well. This unadjusted figure soared by 46,722 applications, from 71,303 in the week ending June 5 to 118,025 by June 12.

3. On Wednesday, the Federal Reserve Open Market Committee meeting closed with an announcement of changes to the central bank’s monetary policies. Although the Committee decided to keep the interest rate near zero, it announced that it could increase the rate twice by the end of 2023, sooner than it had anticipated. Regarding inflation, the statement said that with inflation having run constantly below the 2% goal, “The Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time, and longer-term inflation expectations remain well-anchored at 2 percent.” The Fed also said that tapering was not yet on the table and that it would “continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month.” This policy would remain in place until the economy makes substantial progress toward the Committee’s maximum employment and price stability goals. Markets reacted badly to the news on Wednesday and Thursday. On Friday, markets reacted similarly after St. Louis Federal Reserve President James Bullard commented that the first increase could even come at the end of 2022. Despite the voices of alarm, ThinkMarkets analyst Fawad Razaqzada pointed out that the stock market selloff was not a surprise; it was long due. While the rest of the economy struggled, the stock market grew at record speeds and hit several records during the pandemic. This dip is just investors putting a different price tag on the “reflation trade” game they played all year, Razaqzada added.

4. On Sunday, Russian-state news agency TASS reported that Russian President Vladimir Putin was willing to extradite cybercriminals to the U.S. on a reciprocal agreement. Putin told state-TV channel Rossiya-1 that Russia would abide by an extradition agreement with the U.S. “but only if the other side … agrees to do the same and will also extradite corresponding criminals to the Russian Federation.” Putin’s statement came before the Geneva summit between the two heads of state scheduled for Wednesday. Both presidents said that the three-hour-long conference had been positive but without any substantial progress. Biden said that the summit was compulsory as relations between the two countries had reached a stalemate. “I did what I came to do,” Biden added and acknowledged that the meeting had ended as expected: with no agreements but with a better understanding of an astute counterpart. Nevertheless, Biden and Putin agreed to re-commission each country’s ambassador to their posts and to appoint experts to focus on cyberattacks. Putin’s press conference had the same tone: a pragmatic conversation among counterparts that did not lead to friendship but that had been constructive. Putin said the meeting had left him with a good impression of Biden. “He’s a balanced and professional man, and it’s clear that he’s very experienced. It seems to me that we did speak the same language,” said Putin.

5. Early this week, a major mall owner filed for bankruptcy. Washington Prime Group, owner of over 100 malls in the U.S., argued on Monday that COVID-19 “created significant challenges” and made the legal action necessary. The group said that last year, temporary closures, added to rent easing for some tenants, were the primary causes of the liquidation. The bankruptcy processes of some major tenants the previous year also contributed to Washington Prime Group’s Chapter-11 filing and that of CBL Properties and PREIT, two other major mall proprietors who filed last year. The shift to online buying that the pandemic sped up and the sustained growth of online retail will lead to similar outcomes for more mall owners. However, other economic sectors seem to be close to full recovery. Americans seem to be increasingly using their credit cards to spend on dining and travel. On Monday, American Express CEO Steve Squeri said that their records show that travel bookings in May were 95% of what they were in 2019. Squeri forecasts that by the end of this year, the U.S. “will have a full consumer recovery from a travel perspective, and overall by the end of the year, I think globally, we’ll probably be about 80% of what we were in 2019,” he said. Last Friday, the Transportation Security Administration recorded for the first time in 15 months more than 2 million passengers passing through their checkpoints in a single day. Restaurant spending is also on the mend; according to AmEx’s data, May dining expenses totaled 85% of 2019 numbers. According to Squeri, the U.S. economy “is really starting to come back.”

6. On Friday, the Canadian government extended once again its ban on non-essential travel via the U.S.-Canada border until July 21. Nevertheless, Public Safety and Emergency Preparedness Minister Bill Blair said in a tweet that the Canadian government is planning to release on Monday a plan with new measures for citizens, permanent residents, and others who are currently allowed to enter Canada. Canadian President Justin Trudeau reiterated this information on Twitter and added that the country needed to reach its goal of 75% of Canadians with at least one COVID-19-vaccine dose before reopening the border. According to University of Oxford data, 60% of Canadians had received the first dose, and 20% were fully vaccinated as of Friday. Trudeau also tweeted on Friday that the vaccination pace should pick up soon with the large Moderna shipments due by the end of the month and “steady shipments coming from Pfizer;” he also said that most Canadians could be fully vaccinated this fall.

7. Despite dipping in the middle of the week, both Brent and West Texas Intermediate crude oils were up again on Friday. Both benchmarks touched the week’s high on Wednesday; Brent soared to its highest since April 2019 at $74.96 and WTI, since October 2018, at $72.99. Nevertheless, they both fell afterward following the Fed’s monetary policy announcement. Time difference spared Brent a day of decline, sinking only on Thursday, while WTI tumbled on Wednesday and Thursday. As a result, both crude oils touched the week’s low on Thursday: $72.01 for Brent and $69.77 for WTI. Despite the descent, both benchmarks climbed back up on Friday; Brent closed the week at $73.22 and WTI at $71.50. WTI crude oil made the news this week for narrowing the discount to Brent crude oil. Some experts explained the narrowing price gap results from a substantial rise in demand in the U.S. OPEC’s Economic Commission Board met this week and partly focused on U.S. output. Sources said that experts expect U.S. production to remain limited despite current rising prices and a history of adjusting shale-oil-output to price signals. As one OPEC+ anonymous source said to Reuters, experts think producers are focusing on “investment discipline and free cash flow for the investors.” Authorities in the topic believe that the output limits are a short-term strategy that could end next year with a significant rise in shale output in 2022.

8. The euro and the Japanese yen ended the week in negative territory against the U.S. dollar. The euro kicked off the week with a slight dip below opening level, followed by a slight ascent that put the currency back in positive territory. The euro remained slightly above opening level, reaching the week’s high on Tuesday morning. Nevertheless, by Wednesday afternoon, the European currency quickly dived into negative territory. The euro managed to slow down the fall by midnight but continued the descent for the remainder of the week. Despite a small attempt at recovering, the euro closed the week to the downside against the greenback. The Japanese yen had a similar week, although with more ups and downs. The yen inched up right after opening, close to what would be the week’s high. On Monday morning, the currency soared to the week’s high but could not sustain the ascent and fell. The yen plateaued in the evening and remained at the same level until the early morning of Wednesday. For the remainder of the session, the Japanese currency managed to regain some ground and level for a few hours; however, it quickly plummeted until the evening. On Thursday morning, the currency reversed course, and it climbed and peaked again on Friday morning. Despite the upward trend, the yen experienced another descent and ascent before closing the week to the downside against the greenback.

The G-7 concluded early this week on a high note with the end of the 17-year Boeing-Airbus trade fight. On Tuesday, the U.S. and European Union decided to suspend their dispute over government subsidies to the two airplane producers. As U.S. trade Representative Katherine Tai said, both parties agreed to put away their “litigation briefcases” and focus instead on what will be best for both sides in an increasingly competitive world. “Instead of fighting with one of our closest allies, we are finally coming together against a common threat,” Ms. Tai added, referring to China, who is heavily subsidizing efforts to develop large passenger airliners. Although China has a long way to level with the American and European airliner giants, it currently controls a quarter of the market. Despite the progress made in this area, not all members of the Group of Seven were equally eager to follow the U.S. on its punitive agenda against China. Biden could not convince all members to fully back his proposal to call out China for its abuses over the Uyghurs, a Chinese ethnic and religious minority. While Britain, Canada, and France were quick to follow Biden, the rest was not convinced. Germany, a large car exporter to China, quickly reacted and expressed that a tough strategy against China could backfire. Vaccines were another major topic of the summit; conversations on this issue concluded with a unanimous pledge to donate 1 billion COVID-19 vaccine doses to low-income countries.

On the vaccine front, a large clinical trial for a new COVID-19 vaccine by Novavax Inc produced promising results: 90.4% effectiveness at preventing symptomatic disease in adults. The two-dose vaccine was tested on 29,960 people in the U.S. and Mexico and showed a level of effectiveness close to 93% against “predominantly circulating variants of concern and variants of interest,” read the statement released on Monday. Novavax’s president of research and development, Dr. Gregory Glenn, said that the vaccine “offers a reassuring tolerability and safety profile.” Although the vaccine will likely become the fourth vaccine to get the Food and Drug Administration’s approval, the company said it will take the company months to submit the clearance request as it still needs to make arrangements for production. The shot can be stored at normal fridge temperatures, an important factor to help boost immunization in low-income countries. Novavax CEO Stanly Erck said the vaccine could become first available to middle- to low-income countries through the World Health Organization Covax initiative, possibly by late September.

Rampant inflation and stock market corrections make 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 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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