The Precious Metals Week in Review – July 30th, 2021

1. The week started with the Federal Open Market Committee’s meeting on Tuesday and Wednesday. Although the Federal Reserve did not announce any changes to its current monetary policy, experts think that the tapering countdown clock has just started. Also, on Tuesday, the Center for Disease Control and Prevention issued a recommendation urging vaccinated Americans to use face masks in indoor spaces. From Wednesday on, Statistics Canada and the U.S. Department of Commerce made the headlines with reports about their respective economies. First, Statistics Canada said on Wednesday that even though consumer prices had increased in June, the Consumer Price Index (CPI) decreased compared to the previous month. Then, on Friday, the agency said that preliminary data suggested that the Canadian economy grew in June after two consecutive months of contraction. On Thursday, the Department of Commerce reported that the U.S. economy had climbed out of its pandemic low with June’s Gross Domestic Product (GDP) increase. Then on Friday, the same government department informed that household spending bounced back in June after contracting by 0.1% in May. Finally, the week concluded with the House’s failure to extend the nationwide eviction moratorium set to expire on Saturday, while the bipartisan infrastructure bill made headway in the Senate.

2. For the week ending on July 24, the seasonally adjusted number of Americans filing for unemployment decreased from the previous week’s revised level. The estimated number of initial claims dipped from 424,000 to 400,000. The revised figure for the week ending on July 17 increased by 5,000 unemployment insurance applications, from 419,000 to 424,000. Meanwhile, the four-week moving average for the week ending July 24 climbed up by 8,000 to 394,500 from the preceding week’s revised average. The revised four-week average for the week of July 17 rose by 1,250 to 386,500 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 14,702 applications, from 109,868 in the week ending July 17 to 95,166 by July 24.

3. On Tuesday and Wednesday, the Federal Reserve’s Open Market Committee convened to discuss possible changes to the current monetary policy. As expected, discussions about tapering the monthly government bond purchases and increasing the interest rate ramped up. Nevertheless, the committee decided not to do any of the above as the economy is still far from “making substantial progress” toward the Fed’s goals of maximum employment and stable prices. Despite the central bank’s reluctance to announcing changes to its policy, Gus Faucher, chief economist at PNC, thinks the Fed started its “tapering clock” in this meeting. According to Faucher, the committee’s acknowledgment of the economy’s progress toward full employment and 2% inflation goals signals that the countdown has begun, even if the ‘substantial’ further progress the committee is looking has not happened yet. Chairman Jerome Powell’s admission that some committee members supported tapering the mortgage-backed securities faster than Treasurys seemed to support Faucher’s reasoning. Regarding the repercussions of the Delta variant upsurge, Powell seemed rather hopeful. “With successive waves of Covid over the past year and some months now, there has tended to be […] less in the way of economic implications from each wave, and we will see whether that is the case with the Delta variant,” said Powell. Nevertheless, he highlighted that COVID will remain a risk for “as long as there is time and space for the development of new strains.”

4. The second quarter ended on a high, with the U.S. economy’s output rising above its pandemic low (after adjusting for inflation) for the first time since the coronavirus took over the world. The U.S. economy grew at a 6.5% annual rate in June—0.2% above the first quarter—said the Department of Commerce on Thursday. Even though the reading was below economists’ expectations of 8.4%, it was the best growth rate since 2003. Consumer spending and the fiscal stimulus accounted for the increase: goods consumption rose 11.8% compared to the first quarter, and services increased by 12.4%; consumption makes about 70% of all economic activity. Although economists and experts continue expressing concerns over the effects of inflation, supply-chain disruptions, and labor shortage on the economy, the recent upsurge in Delta variant cases has taken center stage. As a result, state and local governments could decide to reimpose restrictions on business, and consumers could cut spending on dining, travel, and other activities that supported the second quarter’s growth. On Tuesday, the Center for Disease Control and Prevention (CDC) recommended the resumption of face mask use for vaccinated people indoors in certain regions of the U.S. and universal masking for students, teachers, and staff regardless of vaccination status.

5. The Department of Commerce reported on Friday that household spending bounced back in June by a seasonally adjusted 1%, following May’s 0.1% dip. Economists reacted positively to the news and took it as a sign that the economy continues on its way to recovery. The rise in wages and salaries pushed personal income up by 0.1%, while the personal savings rate declined by 9.4%—reflecting consumer’s willingness to spend on both goods and services after months of stockpiling savings. Spending on services and non-durable goods increased in June, while consumption of durable goods declined for the second consecutive month. However, recent reports from credit-card companies suggest that general spending slowed down in July, as increasing production costs are transferred to consumers in the form of higher prices and cases of the coronavirus Delta variant continue to rise. The upsurge in positive cases has prompted state and local governments, as well as businesses, to reinstate the use of face masks indoors. Despite fears that this new wave could dampen economic recovery, analysts seem to agree that its effects would not be as destructive as the first wave’s, given that people and businesses have had time to adapt.

6. According to preliminary data released by Statistics Canada on Friday, the economy could have grown in the second quarter of the year after declining 0.5% in April and 0.3% in May. With June’s preliminary data, the economy would have grown at an annualized rate of 2.5% in the second quarter. This figure exceeds The Bank of Canada’s revised expectations of 2% growth for the second quarter, after an initial estimate of 3.5%. Statistics Canada calculated June’s growth at 0.7%, putting total economic growth for that month 1% below pre-pandemic levels. The easing of restrictions across the country explains June’s positive data. Sectors depending on in-person services, like retail trade, accommodation, and food, grew the most, followed by “manufacturing and mining, quarrying, and oil and gas extraction.” Revised data for June and the second quarter will be published in late August.

7. Statistics Canada said on Wednesday that the Consumer Price Index rose to 3.1% year over year but decreased from May’s 3.6%. Despite June’s hike, the prices of food, clothing and footwear, transportation, and recreation increased at a slower pace compared to the previous month. Clothing slowed down most of all components, most likely, reflecting the heavy discounts that retailers are offering to sell inventory accumulated late last year when stores closed. Nevertheless, prices remain hot; money stockpiles in deposit accounts, combined with supply-chain shortages and companies’ plans to raise prices to offset higher production costs, will likely keep the upward trend. Although the Bank of Canada maintains that inflation is transitory, it anticipates the annual CPI will remain above 3% for the remainder of the year and foresees its return to the 2% target by 2024. Desjardins Securities chief economist Jimmy Jean thinks that inflation will likely continue for a while: “Inflation remains elevated by any stretch of the imagination. The elements are still there for price pressures to be fairly robust.” The Bank of Canada has stated it will maintain the interest rate at 0.25% until the second half of 2022, when it expects the GDP will return to pre-pandemic levels.

8. Brent and West Texas Intermediate crude oils touched the week’s low on Monday and declined on Tuesday as concerns mounted around the upsurge in Delta variant cases. Over the weekend, several countries reported record daily increases and lockdown extensions, which led analysts to fear a decline in demand. However, WTI recovered by Wednesday as oil supplies in the U.S. decreased to the lowest level since January of 2020. On Thursday and Friday, both oils climbed as analysts underscored that despite the rise of coronavirus cases in Asia, parts of Europe, and the U.S., increasing vaccination rates would limit the need for strict lockdowns. Experts seem to agree that the new wave of coronavirus infections could cause a modest decrease, but not a plunge like last year’s. Both crudes reached the week’s high on Friday, $76.38 for Brent and $74.23 for WTI. Brent crude oil closed the week at $76.33, gaining 2.46% or $1.83 during the week, while WTI ended at $73.83, posting a gain of 2.84% or $2.04. Despite WTI’s largest accretion this week, it did not post any monthly increment, whereas Brent rose 1.6% in July, marking the fourth consecutive monthly gain of the year.

9. For a change, the euro and the Japanese yen spent all week in positive territory against the greenback. The euro kicked off the week with a brief visit to negative territory and the week’s low; nevertheless, it engaged in the first ascent of the week right after, reaching the first peak by Monday afternoon. Next, the currency leveled and dropped for the first time on Tuesday morning. The euro recovered quickly and continued the ascent, then plateaued and fell again on Wednesday morning. By the afternoon, the European currency was climbing back up again, this time, for longer, reaching the week’s high on Friday morning. Yet, the euro continued with the trend it established earlier during the week and fell after peaking. Despite that last drop, the euro regained some ground and closed the week to the upside against the U.S. dollar. The Japanese yen had a similar trajectory against the greenback, except that the week’s low was in positive territory right after markets opened on Sunday evening. The currency started with an ascent that ended on Monday morning with a decline. Nonetheless, the yen clambered rapidly, peaking close to the week’s high and falling again on Wednesday morning. Like the euro, the Japanese currency initiated its last ascent on Wednesday afternoon, taking it to the week’s high by Thursday’s late evening. Despite descending on Friday’s session, the yen closed the week to the upside against the greenback.

Divisions in the U.S. Congress impeded Democrats to pass an extension on the federal eviction moratorium set to expire on Saturday by the end of the day. The Democrat-led initiative failed at the eleventh hour when House Majority Leader Steny Hoyer (D) tried to pass the bill by unanimous consent—which does not require a vote. Nevertheless, Republican Representative Patrick McHenry blocked the effort arguing that the moratorium was unconstitutional. Regardless of McHenry’s opposition, it was unlikely that the initiative would have succeeded in the Senate. The CDC first put the nationwide eviction ban into effect in September of last year and has been extended several times already. However, a series of lawsuits led the Supreme Court to decide that only Congress could renew the moratorium. President Joe Biden released a statement on Friday calling “on all state and local governments to take all possible steps to immediately disburse [the Emergency Rental Assistance and American Rescue Plan funds] given the imminent ending of the CDC eviction moratorium. Every state and local government must get these funds out to ensure we prevent every eviction we can.” Congress left Washington on Friday and is not expected to return until September 20.

By contrast, the bipartisan infrastructure bill is making headway in the Senate. The Senate voted Friday to move forward after a majority of 66 to 28 voted to advance the bill to the next stage. The measure assigns $550 billion to the improvement of aging transportation, water, power, and broadband infrastructure. Majority Leader Chuck Schumer is hoping to pass the bill as soon as next week.

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.

Trading Department – Precious Metals International, Ltd.

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