The Precious Metals Week in Review – July 23rd, 2021

1. The week kicked off with reports of NSO Group’s Pegasus spyware invading the privacy of world leaders’, journalists’, and activists’ smartphones. The next day, the Canadian government announced that vaccinated Americans can cross the border for discretionary travel starting August 9. However, the Department of Homeland Security decided to postpone the opening of its borders to Canadians and Mexicans for 30 more days until August 21, arguing that the Delta variant is spreading rapidly. The World Health Organization warned on Wednesday that a new wave of COVID-19 infections has just started, which could jeopardize the economic recovery of the world economy. The International Monetary Fund issued a warning in this regard to the Federal Reserve, reminding the central bank that the phasing out of its pandemic-era monetary policies could have severe repercussions for the world economy if not communicated properly.

2. For the week ending on July 17, 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 368,000—a pandemic low—to 419,000. The revised figure for the week ending on July 10 increased by 8,000 unemployment insurance applications, from 360,000 to 368,000. Meanwhile, the four-week moving average for the week ending July 17 inched up by 750 to 385,250 from the preceding week’s revised average. The revised four-week average for the week of July 10 rose by 2,000 to 384,500 claims. The number of Americans who cannot claim unemployment benefits and who applied for Pandemic Unemployment Assistance increased this week. This unadjusted figure soared by 13,970 applications, from 96,287 in the week ending July 10 to 110,257 by July 17. Economists read this week’s climb as a one-week phenomenon and attribute it to weekly data volatility.

3. On Thursday, the International Monetary Fund’s (IMF) executive board urged the Federal Reserve to carefully communicate its eventual decision to end its COVID-19 monetary policies to ensure transparency and order. The recommendation came with an acknowledgment of the central bank’s effort to support the economic recovery while attempting to maintain inflation levels around 2%. However, as the IMF noted, the Fed’s decisions could imperil the world’s economic recovery as an increase in interest rates in the United States could draw capital flows from the rest of the world, risking the recovery of emerging economies. The IMF added that an adequate transition “will require deft communications, under a potentially tight timeline, to avoid market misunderstandings, volatility in market pricing, and/or an unwarranted tightening in financial conditions.” The board seized the opportunity to commend the current administration’s efforts to boost infrastructure, labor force participation, and productivity. However, the Fund said that the government could do a better job targeting the populations in need of aid, which could help keep inflation in check. It also recommended increasing tax revenues by collecting business taxes based on cash flows instead of income and suggested devoting resources to programs focusing on poverty reduction and transitioning to a greener economy, among others. Fed officials are scheduled to convene next week; it is expected that the Federal Open Market Committee will discuss at length when to start tapering its securities purchases and at what pace.

4. On Monday, the Canadian government announced that fully vaccinated U.S. citizens and residents could enter the country for “discretionary (non-essential) travel,” starting August 9; for the rest of the world, the foreseen date is September 7. However, the U.S. Department of Homeland Security (DHS) extended its travel restrictions until August 21 for Canadians and Mexicans under the argument that the Delta variant is rapidly spreading. The statement added that the DHS would remain in contact with its Canadian and Mexican counterparts “to identify the conditions under which restrictions may be eased safely and sustainably.” Experts think that the American reluctance to reopening the border has more to do with the refugee crisis at the Mexican American border than the handling of Delta cases by Canadian authorities. At any rate, this does not ameliorate relations between the U.S. and Canada. On the contrary, tensions have increased since President Biden took office in January. Canadians feel that Biden has not been particularly helpful on issues like the protectionist trade measures being discussed in the Congress and the Buy America executive order, and disputes around the Enbridge Line 5 pipeline and softwood lumber. To further complicate matters, the Biden administration recently appointed Washington lobbyist and senior Comcast executive David Cohen, a prominent Democrat fundraiser who, according to former Canadian diplomats in the U.S., is not close enough to the President. The consensus among experts seems to be that Canada is out of the U.S. radar and that, contrary to expectations, bilateral relations have not improved since Biden came into office.

5. Pandemic-related shortages have now hit school supplies. Small shops and large retailers currently face high shipping rates, increased production costs, and shipping delays from China and other Asian countries as they furnish for the back-to-school season. Analysts expect a boost in school supplies sales, notably clothing and shoes, as kids prepare to return to in-person classes. The National Retail Federation estimates that child tax credits from the Biden administration will lead to an increase of 6.4% in back-to-school sales, reaching $108.1 billion this year. The federation also calculates an increase of 10.8% in average spending for all age groups, reaching $2,049. Despite buyers’ willingness to spend, they might face fewer discounts and a reduced inventory because most products are manufactured abroad and imported. Larger retailers will likely fare better as they might have saved last year’s products that did not sell but might have reservations about giving deals. While this sector could face a shortage, automakers might get a break soon. Taiwanese semiconductor producers have increased their production in mainland China by building large factories. This decision could represent a 5% GDP increase for China, said Iris Pang, ING Greater China chief. “Taiwanese semiconductor companies are […] making chips for autos, so the chip shortage should be solved for autos in a few weeks;” nevertheless, it might persist for other electronics, like smartphones, said Pang. Lumber, another scarcity hit industry, could now face a new hike in prices on account of the wildfires affecting the American and Canadian west coast. Canfor Corp., one of the largest producers in North America, announced that it would cut lumber output starting Monday; it is expected that more companies will follow suit.

6. The week kicked off with reports from a consortium of 17 news outlets that NSO Group’s Pegasus spyware has been used to spy on world leaders’, journalists’, and activists’ smartphones since at least 2016. Although the software’s license states that it is intended for surveillance use on terrorists and major criminals, evidence demonstrates that the company did not police its clients’ abusive utilization. Investigators from Amnesty International and French journalism non-profit Forbidden Stories have been able to identify ten potential governments responsible for selecting the targets; Bahrein, Mexico, Saudi Arabia, Hungary, India, and United Arab Emirates are among them. The investigation also proved wrong the widely shared belief that Apple’s iPhones are safer than Androids; thus far, the only difference investigators have found between the two operating systems is that Pegasus is easier to detect on iPhones. On a related note, managed service provider Kaseya—the most recent victim of cybercriminal group REvil—announced on Thursday it had received a universal key to decrypts the systems of the more than 1,000 victims worldwide. However, Kaseya spokeswoman Dana Liedholm did not say how the organization obtained the key, which has raised questions because REvil disappeared last week from the Internet. Also, on Thursday, the websites of numerous businesses, financial companies, and airlines went offline as internet services provider Akamai Technologies Inc. experienced a disruption in its service. The company stated that the cyberattack had not been the cause of the interruption; it also said it returned to operation within an hour.

7. On Monday, Brent and West Texas Intermediate crude oils fell below the $70 threshold, dropping by the largest margin this year as concerns over the Delta coronavirus variant sparked fears of another decline in demand. Brent crude fell by $4.97 and WTI by $5.39 on Monday. News of OPEC+’s Sunday agreement to increase production by 400,000 barrels per day every month, from August until December, stoked fears of output surplus, contributing to the plunge. Both benchmarks touched the week’s low on Tuesday, at $67.44 for Brent and $65.21 for WTI. Nevertheless, they rebounded during that day’s session and engaged in an ascent that lasted through the week. On Friday, both crude oils reached the week’s high; while WTI crude closed the week at its peak at $72.19, Brent oil ended Friday’s session ¢3 below the week’s apex at $74.19. Both crude oils finished the week to the upside, offsetting the week’s losses and closing above last week’s levels. Despite the speculation around oil demand, analysts think that prices will continue to climb as daily oil output remains 2.3 million barrels below demand levels, according to Goldman Sachs estimations.

8. The euro started the week with a brief visit to negative territory against the U.S. dollar. The European currency remained on positive turf until the wee hours of Monday and then plummeted into negative ground until noon. The euro quickly reversed course and peaked but could not stay above the opening level for long. Then, the currency initiated a descent that extended until Wednesday morning, when it touched the week’s low. Although the euro regained ground throughout the day, it did not reach positive territory until the late morning of Thursday and the week’s high until the afternoon. However, the European currency dived again into negative territory close to the week’s low in the remainder of Thursday’s session. Even though it regained ground on Friday, the euro closed the week to the downside against the greenback. The Japanese yen spent the first half of the week on positive territory against the U.S. dollar. The currency ascended from the beginning of the week until reaching the week’s high at noon on Monday. However, the yen engaged in a slow descent that accelerated on Tuesday afternoon and led it into negative turf on Wednesday at noon. Next, the currency succeeded in reversing course and returning to positive territory a couple of times. Nevertheless, in the wee hours of Friday, the yen started climbing down, reaching the week’s low at closing time and ending the week to the downside against the greenback.

Airlines are finally getting a break after more than a year of losses. Airline executives have reported that demand for air-passenger transportation is stronger than before the pandemic. Thanks to traveler demand and government funding, Southwest and American Airlines reported profits during the second quarter, and Delta joined them last week with a first profitability report. Yet, despite the financial progress toward recovery, the industry is facing significant challenges. First, the sudden increase in demand overwhelmed airlines who did not expect such a great appetite for travel this season; the Transportation Security Administration estimates at 2 million the number of people passing through American airports. Then came the adaptation to the large market: rehiring employees and expanding routes.

Nevertheless, the airline industry is not exempt from the labor shortage affecting all sectors of the economy. Airlines are experiencing pilots, flight attendants, customer service workers, and ramp staff scarcity; thus, companies simultaneously compete for employees and scramble to respond to people’s desire to travel. And last but not least, weather and weather-related issues have come to add to the hardships. Hurricane Elsa forced airlines to delay and cancel flights, while the haze stemming from the wildfires on the west coast could eventually have the same repercussions. Additionally, the rising costs of fuel and the restrictions on international travel have led some to question whether the current momentum will persist beyond the summer. On Wednesday, World Health Organization Director-General Tedros Adhanom Ghebreyesus said that a new wave of COVID-19 infections has just started, sowing doubts on the resumption of international travel in the short run.

On Thursday, the National Association of Realtors said that home sales increased in June by 1.4% compared to May to a seasonally adjusted annual rate of 5.86 million. Year-over-year, sales increased in June by 22.9%, and the median existing-home price climbed by 23.4% to $363,300, hitting a new record. However, the Association also noted that an increase in supply could suggest that the real estate market is cooling down. While some experts fear that a higher inventory will not push prices down, others think that the market will continue to cool off in the coming months and do not foresee prices soaring at the pace they did over the last 12 months.

As the perils of a new wave of COVID-19 infections drawn nearer, 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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