The Precious Metals Week in Review – July 2nd, 2021

1. The week ended on a high note, with June’s nonfarm payroll report announcing a robust increase in new jobs in the U.S. On the economic diplomacy front, the U.S. received backing from 129 states who signed on the Organization for Economic Cooperation and Development’s initiative to set a minimum global corporate tax of 15%. In the international realm, the Chinese Communist Party celebrated its 100th anniversary on Thursday, and Xi Jinping seized the occasion to threaten any state that dares to bully China. On the same day, U.S. Commerce Secretary Gina Raimondo dismissed the remarks that seemed to target the U.S. and added that the government would do its best to ensure that American companies access the Chinese market and get fair treatment. In addition, the effects of the pandemic are changing the way employees think about their workspaces, and companies are reassessing their business travel preferences. Finally, the OPEC+ closed this week’s meeting without deciding on its future production quotas, affecting Brent and West Texas Intermediate crude oils’ performance on Friday’s session.

2. For the week ending on June 26, the seasonally adjusted number of Americans filing for unemployment decreased from the previous week’s revised level. The estimated number of initial claims declined from 415,000 to 364,000—this is the lowest level for this statistic since March 14, 2020. The revised figure for the week ending on June 19 increased by 4,000 unemployment insurance applications, from 411,000 to 415,000. Meanwhile, the four-week moving average for the week ending June 26 shrank by 6,000 to 392,750 from the preceding week’s revised average, the lowest for this figure in over 15 months. The revised four-week average for the week of June 19 rose by 1,000 to 398,750 claims. The number of Americans who cannot claim unemployment benefits and who applied for Pandemic Unemployment Assistance increased this week. This unadjusted figure climbed by 3,489 applications, from 111,778 in the week ending June 19 to 115,267 by June 26.

3. June’s nonfarm payroll report came with good news on Friday morning. The economy added 850,000 new jobs—the highest since the addition of 1.6 million posts last August. Nevertheless, economists celebrated June’s numbers with caution as the economy remains 6.8 million jobs below pre-pandemic levels. The sectors with the largest job gains were hospitality and leisure with 343,000 new jobs, followed by education with 269,000, professional services (72,000), and retail (67,000). Despite the significant jobs gain, the unemployment rate increased by 0.1% to 5.9%. Economists think the discrepancy could be due in part to “job leavers,” those who quit their jobs voluntarily to look for a new post. In June, that number increased by 164,000 to 942,000, the highest for this figure since June of 2016. Many are leaving jobs they took during the pandemic crisis to look for better opportunities. In addition, some white-collar workers are searching for jobs that allow for remote work or a combination of corporate office and telework. Many companies have had to reassess their work-from-home policies as more North Americans are making telework a condition to take a position. Canadian software firm Vidyard and U.S. insurance Allstate Corp. have moved to allow their workers more flexibility in this regard. Only 1% of Allstate workers will go back to the office, 24% will alternate between office and home, while 75% will telecommute, reported The Wall Street Journal.

4. The pandemic has changed travel business priorities for some companies. Canadian companies have begun to reassess their business travel needs as the Canadian federal and provincial governments lift restrictions. The pandemic forced many firms to conduct their businesses virtually and has now led many CEOs to consider hybrid modalities as the new normal, while others cannot wait to return to travel as usual. As reported in The Globe and Mail, companies in the software and digital sectors like Vendasta Technologies Inc and Magnet Forensics have opted for a hybrid framework. In both cases, business travel would be limited to situations like competing with other firms for a client or projects requiring the participation of employees from different countries. However, for firms whose employees depend on equipment or on-site presence, like engineering or construction companies, business travel will likely return to its pre-pandemic usual once provincial and federal governments lift restrictions. Nevertheless, as Canadian Chamber of Commerce president Perrin Beatty said, the easing of restrictions after July 5 would only aid some businesses. Canadian government restrictions against non-essential travel will continue to curtail trade for trade-show dependent enterprises and firms in the tourism sector, among others.

5. On Thursday, 130 countries, including the U.S. and Canada, signed a global tax initiative for international companies. After years of negotiations, 130 officials from different countries agreed on a 15% minimum tax rate for corporations meant to keep in check tax avoidance and havens. The Organization for Economic Cooperation and Development (OECD), which has coordinated the negotiations for the past decade, said in a communication that the finalized document detailing the agreement’s implementation will be released in October. The OECD’s official statement includes the minimum tax rate and contemplates a series of formulas to determine when and how the rules would apply to companies. The OECD estimates that governments lose $100 to $250 billion annually to tax avoidance schemes. U.S. Treasury Secretary Janet Yellen, a champion of this initiative since the beginning of her tenure, said it was time for governments to end the “race to the bottom” of lower corporate tax rates. “Today is an historic day for economic diplomacy,” said Yellen in a statement on Thursday. She added: “For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response. The result was a global race to the bottom: Who could lower their corporate rate further and faster? No nation has won this race. Lower tax rates have not only failed to attract new businesses, [but] they have also deprived countries of funding.” Yellen’s stance echoes U.S. President Joe Biden’s 15% minimum tax proposal; Ireland, a low-tax country, along with eight other states, abstained from signing.

6. On Thursday, on the occasion of the 100th anniversary of the Chinese Communist Party’s creation, Xi Jinping said in a speech that China would not accept “sanctimonious preaching from those who feel they have the right to lecture us.” Although Xi did not mention any specific country, experts and media interpreted the remarks targeted the U.S. Xi added that China would not take bullying from any country and that if any state attempted to do so, they would find themselves “battered and bloodied” after colliding with “a great wall of steel forged by over 1.4 billion people.” Xi also seized the occasion to praise the Communist Party: “A century ago China was declining and withering away in the eyes of the world. Today, the image it presents to the world is one of a thriving nation that is advancing with unstoppable momentum toward rejuvenation.” The same day, U.S. Commerce Secretary Gina Raimondo dismissed Xi’s words on CNBC’s Closing Bell as “a lot of bluster and rhetoric” and added that the U.S. will just play its game. Raimondo said that the U.S. will do everything in its power to ensure that U.S. companies receive fair treatment and get access to the Chinese market. “We will make sure that that is the case, that the Chinese play by the rules, protect I.P., allow our markets, our companies to access that market.”

7. Brent and West Texas Intermediate crude oils posted another week of gains. The oil benchmarks reached the week’s low on Tuesday—at $ 73.90 for Brent and $71.97 for W.T.I.—and the week’s high on Thursday above $76 for both crudes—$76.74 for Brent and $76.22 for W.T.I. Despite Thursday’s wins—which pushed W.T.I. above the $75 threshold—and Friday’s gains, oil lost ground on the last session of the week. On Thursday, OPEC+ convened to decide on production quotas for the coming months amid uncertainty about oil demand in developing-producing countries and fast-increasing demand in developed nations. Delegates seemed to reach an agreement that would increase output by 500,000 barrels a day starting in August and gradually increase production to 2 million barrels per day to the end of December. The deal boosted Brent and W.T.I. prices, although not for long. At the last minute, the United Arab Emirates expressed disagreement with the proposal, and the quotas decision was postponed until the next day. On Friday, discussions led to a preliminary agreement to increase production by 400,000 barrels a day until late 2022. Nevertheless, the U.A.E. opposed the deal, and the meeting ended with no n pact, limiting Friday’s oil gains.

8. The euro opened the week with a modest ascent against the U.S. dollar followed by a descent. Although the European currency managed to reverse quickly and return to positive territory, it was the currency’s last scaling above opening level and the week’s high. The euro declined from Monday afternoon through Tuesday at noon, then plateaued until early Wednesday morning, before falling again in the afternoon. In the evening, the euro gained momentum and ascended into the wee hours of Thursday. However, the European currency could not sustain the climb, fell, and reached the week’s low on Friday’s session at noon. Despite a final clamber in the afternoon, the euro closed the week to the downside against the greenback. The Japanese yen started the week similarly against the U.S. dollar, but it returned quickly to positive territory after falling below the opening level. The currency ascended slowly from Monday until Wednesday morning, cresting on Tuesday afternoon. In the late morning of Wednesday, the yen plummeted until the evening when it leveled. Nevertheless, the Japanese currency fell again through Thursday’s session and touched the week’s low on Friday morning. The yen recovered on Friday’s trading and accomplished to close the week the upside against the greenback, although in negative territory.

The car market remained hot in the second quarter of the year, but sales seem to be slowing down, reported The Wall Street Journal. According to J.D. Power, new-vehicle sales are expected to reach 8.3 million units, that is, a 32% increase year-on-year and about a 1% rise compared to the first half of 2019. Nevertheless, annualized vehicle sales—which allow for month-to-month comparisons free of seasonal distortions—show a different picture. In April, the car industry was on its way to selling 19 million cars by the end of the year; however, annualized sales had fallen to 15.4 million vehicles by the end of the second quarter. Carmakers have reported figures congruent with those numbers. Hyundai reported having the best second-quarter ever with sales reaching 204,000 cars; nevertheless, sales in June dropped to 72,465 from 90,000 in May. Toyota reported a 73% increase in car sales in the second quarter year-over-year but decreased sales from May to June.

Similarly, Honda’s sales grew 66% in the second quarter, but sales in June fell compared to May. The backdrop to these sale increases is a semiconductor shortage, which, accompanied by a swell in savings during the pandemic, has left dealerships with little to no car stock, higher prices, and eager buyers. Despite June’s sales fall, these analysts think that the current dynamics will remain through the end of this year—and might even persist through next, according to GM’s U.S. sales operations vice-president, Kurt McNeil. Car executives think the chip crisis affecting carmakers and other industries is expected to ease this year but remain throughout 2022.

Many travelers could see their travel plans to Europe spoiled this summer. The European Union’s “Green Pass,” a digital COVID-19 vaccine certificate, only recognizes the vaccines authorized by the bloc. So even though AstraZeneca—a British-Swedish pharmaceutical—licensed the Serum Institute of India to produce its vaccine under a different name, Covishield, it is not accepted as a valid shot for people seeking to enter the E.U. Only AstraZeneca’s European-produced version, Vaxzevria, got approved. Of the 89 million vaccines distributed thus far this year through the World Health Organization (WHO) initiative, COVAX, 90% are Covishield jabs.

Along with African Centers for Disease Control, the African Union issued a joint statement saying that the current rules jeopardize the equitable treatment of people who have received vaccines through COVAX. The WHO has also stated that it does not support the implementation of vaccine passports. Although Covishield’s production is intended chiefly for low-income countries, in Africa, Asia, and Latin America, several high-income countries—Canada among them—have purchased the immunization. However, Canadians who received Covishield will be exempt from the requirement as the E.U. added Canada and ten more countries to its list of accepted non-essential traveler nationalities.

As governments lift restrictions and demand for 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.

Trading Department – Precious Metals International, Ltd.

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