The Precious Metals Week in Review – July 16th, 2021

1. The week kicked off with worrying news of June’s rising inflation levels on Tuesday. As a result, the Labor Department’s Consumer Price Index report for June became the main topic of Federal Reserve Chairman Jerome Powell’s semiannual testimony to the House of Representatives on Wednesday and Thursday. On the economic front, Saudi Arabia and the United Arab Emirates finally reached a provisional agreement on production quotas on Wednesday. On the international relations arena, the United States issued a warning to American businesses operating in Hong Kong under Beijing’s tightening grip on Thursday. Additionally, news emerged that the Biden Administration will not resume the U.S.-China Strategic and Economic Dialogues, marking a continuity with the previous administration and signaling a worsening of relations. On the same day, Canadian Prime Minister Justin Trudeau met with Premiers to discuss the border reopening to non-essential American travelers by mid-August; however, it might be too late for businesses on both sides of the border. Finally, the week closed with mixed news. On the negative end, the Center for Disease Control and Prevention warned on Friday that COVID-19 is becoming the pandemic of unvaccinated people; less than 50% of Americans are fully vaccinated. On the positive side, the Commerce Department’s latest retail sales report shows that the overall consumption of goods and services increased compared to the previous month.

2. For the week ending on July 10, 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 386,000 to 360,000, reaching the lowest level since March 14, 2020—right at the onset of the pandemic. The revised figure for the week ending on July 3 increased by 13,000 unemployment insurance applications, from 373,000 to 386,000. Meanwhile, the four-week moving average for the week ending July 10 shrank by 14,500 to 382,500 from the preceding week’s revised average—the lowest for this figure since March 14, 2020. The revised four-week average for the week of July 3 rose by 2,500 to 397,000 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 4,228 applications, from 100,590 in the week ending July 3 to 96,362 by July 10.

3. The Bureau of Labor Statistics released Tuesday its monthly Consumer Price Index report for June, and it came with several record highs. According to the Labor Department, inflation increased by 0.9% in June—the largest one-month increase since June 2008—following a 0.6% in May. Year-over-year, inflation rose by 5.4%, the largest 12-month hike since the period ending August 2008. The index for cars and trucks continued its steep climb as the chip shortage drags on, while the energy index increased by 1.5%. The index for all items clambered by 4.5% over the previous year, making it the largest increase since November 1991. Although the base effect—a large increase in prices after a year of lower commodity prices because of the pandemic, in this case—accounts for these whopping 12-month increases, some economists think inflation is more severe than expected. As stated by Wells Fargo senior economist Sarah House, “What this really shows is inflation pressures remain more acute than appreciated and are going to be with us for a longer period.” Nevertheless, Fed officials continue to think that the phenomenon is transitory; San Francisco Fed President Mary Daly said to CNBC on Tuesday that the central bank “expected a pop in inflation like this. Right now, it’s really ‘remain steady in the boat.’ Don’t read too much signal out of any month of data. And let’s get through this volatile period so we can really see where the economy is.”

4. On Wednesday and Thursday, Federal Reserve Chairman Jerome Powell delivered his semiannual report to the House of Representatives. Powell’s testimony before Congress came a day after the Labor Department revealed higher than expected hikes in inflation, which became the main topic of the hearing. Although inflation is well above 2%, the Fed thinks it is not time to raise interest rates yet because the economy still has a long way to go, and figures currently reflect one-time increases in sectors that are booming, such as air travel, accommodation, and cars. “Honestly, it would be a mistake to do it at a time when virtually all forecasters believe that these things will come down on their own accord. It would be a mistake to act prematurely,” said Powell. However, he highlighted that the central bank’s current reluctance to increase rates did not mean that the Fed was “comfortable with that.” Although the Fed still maintains inflation is transitory, some economists have begun to wonder how significant the drop will be and if inflation will settle around the Fed’s 2% goal. TS Lombard chief US economist Steven Blitz said that the Fed is right about inflation’s temporariness and that the economy will get a respite; however, “It’s not going to be as big of one as they think.”

5. The Canadian border reopening might come too late for businesses on both sides of the border. Despite the possibility that border officials might agree to allow the resumption of non-essential travel on July 21, this summer could go by without respite for local businesses. As opposed to a long-term plan, the border-closure monthly announcements have made it hard for companies to figure out a course of action. On the American side, the owner of Mike’s Parcel, Mason Peters, complains that “Every month, [government officials] tell us it’s 30 more days. So how do you plan for six months from now if you have no idea what things will look like in six months from now?” The border closure has led Peters to lose about 50% of his Canadian clientele who used his warehouse to collect packages and save money in shipping and customs. However, the border closure has brought new customers for some businesses. For businesses on the American side of Niagara Falls, American customers that would have crossed the bridge to visit the Canadian falls have opted to stay in the American part, helping local businesses. On Thursday, Prime Minister Justin Trudeau met with Canadian Premiers to discuss reopening plans. A statement issued after the meeting suggests that officials might renew their decision to remain closed on July 21. The communication said that if the “current positive path of vaccination rate and public health conditions continue,” non-essential American travelers could cross the border by mid-August, and non-essential travelers from other countries could be welcomed by early September.

6. The end of many COVID restrictions led to an increase in retail sales in June, said the Department of Commerce on Friday. According to the report, June’s retail and food services sales increased 0.6% from the previous month. Year-over-year, June’s sales increased 18% compared to the same month in 2020. As for the second quarter of 2021, estimates suggest that total sales in stores and restaurants increased 31.5% compared to the same period the year before. Although auto sales decreased again by 2%—primarily due to supply-chain disruptions, sales in the other categories rose by 1.3%. Goods and services associated with the end of COVID-19 restrictions—like clothing, accessories, restaurants, and bars—did better in June compared to products that boomed while stay-at-home orders were in place; furniture, building materials, and sporting goods purchases fell in June. And according to the National Retail Federation, the boom could continue. The trade association revised its annual retail sales forecast upwardly for this year to $4.44 – $4.56 trillion from $4.33 – $4.44 trillion and expects a prolonged increase in demand over the coming months for sectors like travel. The organization also predicted a spike in school supplies demand during the back-to-school season.

7. On Monday, Treasury Secretary Janet Yellen met with the finance chiefs of G-20 member countries. Yellen seized the chance to call out China, Russia, and Belarus for endangering the post-World War II “rules-based international order.” Yellen singled out China and accused it of “unfair economic practices, malign behavior, and human rights abuses” in her remarks to her European counterparts. Unfortunately, the Chinese delegation joined the gathering remotely, impeding any one-on-one meetings with Yellen or any G-20 finance ministers. The incident might have given Yellen one more reason not to resume the U.S.-China Strategic and Economic Dialogues that began in 2006 and continued until 2018 when the Trump administration halted them. Reports of the decision emerged this week, suggesting an ongoing deterioration of ties between the two world powers. Former ambassador to China Max Baucus regretted the situation in an interview with Bloomberg radio: “We’re making a mistake by not trying to find some way to properly, carefully deal with China. The more we shift toward a decoupling, the more we stand to risk falling into deeper problems.” On Thursday, the Biden administration said it would issue an official warning to American businesses operating in Hong Kong about the increasing risks of remaining in the region under Beijing’s tightening grip. In the announcement, the official cited as dangers the undermining of legal and regulatory frameworks, prospects of electronic surveillance without a warrant, and the mandatory transfer of customer and business data to the government. The official added that “The developments over the last year in Hong Kong … [represented] operational, financial, legal and reputational risks for multinational firms.” When questioned about the warning in a press conference, President Biden said that “The situation in Hong Kong is deteriorating,” and added that “the Chinese government is not keeping its commitment” to respect Hong Kong’s special political and economic status.

8. Brent and West Texas Intermediate crude oil prices fell this week below the $75 threshold. Despite reaching three-year highs on Wednesday for Brent oil and Tuesday for WTI, news of a deal on production quotas between Saudi Arabia and the United Arab Emirates pushed down oil prices. The downward trend continued Thursday when both benchmarks hit the week’s low, but only Brent crude managed to reverse course on Friday. Brent oil closed the week at $73.30, losing 2.09%, and WTI at $71.45, with a 3.09% price decrease. On Wednesday, news outlets reported that Saudi Arabia and the United Arab Emirates had struck a compromise to remove the latter’s output limits. However, the agreement is provisional and still requires OPEC+ approval and could prompt other countries to make the same request. On Thursday, OPEC issued its first global oil market demand forecast for 2022. The organization foresees demand to climb by 3.3 million barrels per day to reach an average of 99.9 million bpd. In June, the International Energy Agency made a similar estimate and said it expects consumption will hit pre-pandemic levels late next year.

9. The euro spent all week in negative territory against the U.S. dollar. The European currency hit the week’s high a few hours after opening and then engaged in a slow descent. However, the drop accelerated in the wee hours of Tuesday and took the currency to the week’s low after midnight. On Wednesday, the euro managed to reverse course during the day and climb through Thursday morning. Nevertheless, the European currency fell again—although well above the week’s low—and closed the week to the downside against the greenback. The Japanese yen spent the first half of the week in negative territory against the U.S. dollar but ended it above the opening level. The Japanese currency started the week with a slow descent that took it to the week’s low by the wee hours of Wednesday. Nevertheless, it quickly recovered, reached positive ground by the early afternoon, and hit the week’s high by Thursday morning. After peaking, the currency dipped but bounced close to the week’s high in the wee hours of Friday. On the last session of the week, the yen took a brief dive to negative turf and resurfaced above opening level but closed the week to the downside against the greenback.

According to Dr. Rochelle Wallensky at the Center for Disease Control and Prevention (C.D.C), “This is becoming a pandemic of the unvaccinated.” On Friday, Dr. Wallensky warned during her White House COVID-19 briefing that outbreaks of the virus are taking over regions of the country with low vaccination rates, while “communities that are fully vaccinated are generally faring well.” Data shows that states that have vaccinated more than 50% of their population are seeing 4 cases per 100,000, while those with less than 50% are having 11 cases per 100,000 people. Last week, the average number of infections per day reached 26,448—a whopping increase of 67% from the previous week. This pattern has alarmed health authorities as the Delta variant continues to gain ground in the U.S., and only 48.4% of Americans have been fully vaccinated, despite having enough shots to inoculate the entire population. According to Dr. Anthony Fauci, the Delta variant’s dominance in the U.S. is over 50%, and in certain regions, it surpasses 70%. As a result, the Los Angeles County local government is reinstating the use of face masks beginning Saturday. Similarly, local health authorities in Southern Nevada are recommending vaccinated and unvaccinated people to resume the use of face coverings.

At 1 a.m. on Tuesday (Eastern Time), Russian cybercriminal REvil, short for “Ransomware Evil,” went offline. The organization was responsible for the recent ransomware attacks on IT-management software firm Kaseya and Brazilian meatpacker J.B.S. It remains unknown who was responsible for the disappearance of the criminal group from the web. On Friday of last week, President Biden gave his Russian counterpart an ultimatum in a phone conversation about the attack on Kaseya, which left offline thousands of businesses worldwide. According to President Biden, “I made it very clear to … [President Putin] that the United States expects when a ransomware operation is coming from his soil—even though it’s not sponsored by the state— … [that they will] act if we give them enough information to act on who that is.” Later that day, when asked if the United States would be willing to attack REvil’s servers if Russia did not make a move, Biden answered affirmatively. Although many may have sighed with relief after REvil’s disappearance, some of the cybercriminal group’s victims have been left without access to stolen data nor the possibility to pay the ransom.

As market inflation levels continue to soar and endanger economic recovery, many continue purchasing physical precious metals. 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. Despite precious metal’s hedge attributes, 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.

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