The Precious Metals Week in Review – July 9th, 2021

1. Last week ended with the Chinese Cybersecurity Administration ban of ride-hailing app Didi in Chinese app stores. The Chinese government announced the decision four days after the company’s initial public offering in the U.S., harming American investors. On Monday, IT-management software firm Kaseya announced that a ransomware attack attributed to Russian cybercriminal gang REvil targeted between 800 and 1,500 businesses worldwide that use the company’s software and services. REvil is asking for a $70 million ransom to restore the data. The Federal Reserve released the minutes of its June meeting on Wednesday; news outlets and investors have combed the meeting logs looking for hints on when the central bank plans to effectuate monetary policy changes. Friday brought good news to Canadians on the unemployment and economic recovery front. Statistic Canada reported that the Canadian economy added in June 231,000 jobs after two consecutive months of losses; the job gains significantly exceeded economists’ expectations of 175,000 posts. Finally, another week went by without an OPEC+ agreement on future oil output quotas, which could lead oil-producing countries to make individual arrangements in this regard.

2. For the week ending on July 3, the seasonally adjusted number of Americans filing for unemployment increased from the previous week’s revised level. The estimated number of initial claims climbed from 371,000 to 373,000. The revised figure for the week ending on June 26 increased by 7,000 unemployment insurance applications, from 364,000 to 371,000. Meanwhile, the four-week moving average for the week ending July 3 shrank by 250 to 394,500 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 26 rose by 2,000 to 394,750 claims. The number of Americans who cannot claim unemployment benefits and who applied for Pandemic Unemployment Assistance declined this week. This unadjusted figure decreased by 15,185 applications, from 114,186 in the week ending June 26 to 99,001 by July 3. On Wednesday, the Department of Labor said that job openings rose in May by 16,000, bumping the total to a record 9.2 million job openings since it started recording this statistic in 2000. The number of unemployed Americans, 9.3 million, slightly exceeds the number of job vacancies, most of which are in the services industry.

3. On Wednesday, the Federal Reserve released the minutes of the latest Federal Open Market Meeting. As usual, news outlets and investors combed the meeting records for information on the central bank’s next monetary policy moves. The minutes show that Fed officials suggested the need to withdraw support for the economy sooner than anticipated because of strong economic growth that has exceeded expectations. Despite not being ready to reduce the monthly $120 billion purchases of mortgage securities and Treasuries, members did seem to hint that the time to taper could be nearing. As stated in the minutes, “Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data.” Although discussions on the matter will likely intensify during the next meeting scheduled for late July, the minutes also imply that “The Committee’s standard of “substantial further progress” was generally seen as not having yet been met, though participants expected progress to continue.” Meeting participants also agreed that there should be no rush and reiterated that the “Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.” The meeting logs also show that Fed officials consider that inflation still is temporary and that it will remain contained over the medium term. Nevertheless, some expressed concern about how business and consumer anticipation of “a significant rise in inflation expectations” could be self-fulfilling and alter inflation dynamics.

4. On Monday, the chief executive of U.S. IT-management software firm Kaseya said that between 800 and 1,500 businesses worldwide cyberattacked last Friday. The company outsources I.T. services via software for firms that are too small to have I.T. departments of their own. According to Internet security company ESET, the attack paralyzed hundreds of businesses in the United Kingdom, South Africa, Germany, the U.S., and Colombia. In addition, Reuters reported that the malware attack affected chiefly small businesses, like accountants and dentists’ offices, but also rendered inoperative the cash registers of Swedish supermarket Coop and left 11 New Zealand schools and kindergartens offline. The author of the attack, REvil, has demanded a $70 million ramson to restore the data; however, the cybercriminal gang expressed its willingness to negotiate its conditions in a conversation with Reuters. On Wednesday, NBC News obtained a report by Trustwave SpiderLabs in which the cybersecurity firm noted that REvil wrote the malware code sparing businesses that operated in Russian or other related languages—a common practice in this group’s attacks, according to experts. Although the Biden administration had not determined by Tuesday where the attack had originated, experts think that REvil operates in Russia or Eastern Europe.

5. On Friday, good news arrived with Statistics Canada’s release of June’s Labour Force Survey. Employment increased last month by 231,000 jobs—most of them in the private sector—after cumulative losses of 275,000 posts in April and May, and the unemployment rate dropped from 8.2% in May to 7.8%. Although the news blew economists’ expectations of 175,000 jobs, many remain cautious as job gains occurred in part-time work and concentrated on the 15 – 24 age group. By contrast, full-time work remained almost unchanged after falling by 143,000 job posts in the previous two months. As Statistics Canada noted, the job additions are consistent with the season and the easing of health restrictions, as most job gains occurred in the sectors of accommodation and food services, and retail trade. While the part-time work levels match those of February of 2020, employment remains 340,000 posts below pre-pandemic levels. Many Canadians returned to their workplaces in June. The number of people working from places other than home increased by 700,000, while that of people working from home fell by 400,000 to 4.7 million. For 2.6 million Canadians in the latter group, working from home was an adaptation to the pandemic. In total, the services sector accounted for 279,000 new jobs—the most significant increase since March—with 101,000 going to the accommodation and food services sector, 75,000 to retail, and 24,000 to the “other services” category. The educational services industry added 26,000; health care and social assistance, 21,000; professional, scientific, and technical services, 18,000; and building and other support services, 18,000. Conversely, the goods-producing sector fell for the second straight month in June, losing 48,000 posts.

6. In the U.S., air travel demand took off, almost leaving airlines behind. As reported by the Wall Street Journal, air carriers were taken by surprise with the faster-than-expected rebound in air travel. Like most other industries, airlines are facing staff shortages. In the short to middle run, airlines are dealing with labor scarcity in areas like mechanics, customer-service call centers, and other ground staff positions; in the longer run, they are confronting a pilot shortage. The screeching halt that came about with the pandemic has made the return very steep. According to pilot hiring and training consultant Kit Darby, airlines “probably got rid of too many pilots, and they may have parked too many airplanes.” United Airlines said it avoided the problem by keeping all its pilots flying and negotiating with them a paycheck cut and a reduced schedule with fewer flights than other carriers. However, most airlines are facing difficulties because pilots need to learn how to fly new aircraft after companies retired old vessels or require refresher courses. Additionally, the formation of new pilots is backlogged because of limited flight instructor time availability and access to simulators. Southwest and American Airlines had to strategize to secure a good deployment of its operations for the July 4 weekend after a flurry of delays and cancellations in June. American opted for cutting schedules, while Southwest decided to pay double its ground staff and flight attendants to do extra shifts during the long weekend. Hurricane Elsa’s passage has forced the cancelation of hundreds of flights this week, and the situation could get grimmer as the hurricane season started earlier this year.

7. Brent and WTI crude oil closed the week to the upside, despite losing ground throughout the week. Both benchmarks reached the week’s high on Tuesday at $77.81 for Brent and $76.94 for WTI. Nevertheless, the two crudes lost ground on Tuesday, Wednesday and reached the week’s low on Thursday at $72.36 for Brent and $71.00 for WTI. Finally, the two crude oils regained territory until Friday’s closure and ended the week to the upside at $75.58 for Brent and $74.63 for WTI. Declining oil inventories in the U.S. boosted the recovery in the latter part of the week; signs of strong demand from China and India and reduced probabilities of Iranian oil returning to the market also contributed to the uptick. Nevertheless, OPEC+ talks continue deadlocked as Saudi Arabia and the United Arab Emirates could not see eye-to-eye over the increase in oil output quotas, and Russia is attempting to mediate. In the U.S., shale producers are not profiting from the high prices because investors are privileging the payment of debts, over investing in new drilling projects.

8. The week kicked off with a steep drop to negative territory for the euro against the U.S. dollar. The European currency quickly returned to positive turf and engaged in small ups and downs that led to the week’s high by the early morning of Tuesday. Next, the euro plummeted into negative territory and plateaued in the late part of the session. On Wednesday, the currency dropped even lower and touched the week’s low in the wee hours of Thursday. In the remainder of Thursday’s session, the euro quickly climbed close to positive territory but fell again. On Friday, the euro rose back to positive turf and closed the week to the upside against the greenback. The Japanese yen fell to negative territory right after trade opened against the U.S. dollar, touching the week’s low. Although the currency engaged in a slow climb until the early hours of Wednesday, it dipped and slowly ascended again until the morning of the next day. On Thursday, the Japanese currency skyrocketed until reaching the week’s high in the afternoon. Despite falling on Friday, the yen closed the week to the downside but above the week’s opening level.

Four days after the Chinese ride-hailing app Didi went public in the U.S., the Chinese Cyberspace Administration banned it from app stores. The cybersecurity watchdog argued that “Didi Chuxing app is found to have severely violated the laws by illegally collecting and using personal information.” The company responded that it was complying with Chinese regulations and removed the app in order to work on the changes the government dictated. Some U.S. critics see retaliation in the government’s decision, which has now extended to other Chinese apps listed in the U.S. According to the Wall Street Journal, Chinese officials suggested to Didi that it delay its initial public offering. The officials cited concerns that the U.S. government could use the firm’s IPO filing documents to gain access to Chinese citizens’ data, which sounds somewhat similar to the Trump administration’s reasoning against TikTok and Chinese other apps. Hedge fund manager and Beijing critic Kyle Bass has claimed it was not a coincidence that the Chinese Cyberspace Administration chose July 4—the United States’ celebration of independence—as the date to announce its ban. The action has dearly costed American investors because of declining stock prices. Bass called on the Securities and Exchange Commission to allow investors who purchased Didi shares to cancel the transaction and recoup their investment and said that Didi’s knowledge of the potential ban was enough to apply current federal securities laws.

The U.S. Centers for Disease Control and Prevention (CDC) said on Wednesday that the Delta variant—that was first identified in India—is dominant in the U.S. On the two-week period ending on July 3, the Delta variant reached 51.7% of the cases in the country, while the formerly dominant variant—Alpha, first identified in Britain—fell to 28.7%, according to estimates of the health agency. Canadian health authorities have also announced the presence of Delta in its territory, as well as the detection of Lambda, a mutation first discovered in Peru that was recently declared to be of concern by the World Health Organization. In the meantime, Pfizer and BioNTech have been working on an updated vaccine that would provide improved protection against Delta and a booster shot for which it will soon seek clearance from the Food and Drugs Administration. On Thursday, the companies also revealed that the clinical trials for the updated vaccine are scheduled to begin in August. Additionally, the pharmaceuticals announced that initial study data for the booster shot suggests that a third dose could boost antibody levels up to 10 times. The third dose would be administered six months after the second jab and protect against Delta and Beta—the South African variant.

Increasing 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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