The Precious Metals Week in Review – August 6th, 2021

1. On Monday, oil benchmarks started off the week on the wrong foot with a steep decrease and closed it with several-month lows. On Wednesday, World Health Organization Director-General Tedros Adhanom Ghebreyesus surprised the world by requesting a moratorium on booster COVID-19 vaccines until the end of September to “enable at least 10% of the population of every country to be vaccinated.”. On Thursday, a coalition of business associations and corporations addressed U.S. Trade Representative Katherine Tai in a letter, requesting the Biden administration resume trade talks with China. On the same day, President Biden signed an executive order establishing at 50% the sales target for electric and hydrogen-fueled cars for the year 2030, following negotiations with American carmakers. Finally, on Friday, the U.S. Bureau of Labor Statistics and Statistics Canada reported job gains for the U.S. and Canadian economies for July.

2. For the week ending on July 31, 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 399,000 to 385,000. The revised figure for the week ending on July 24 declined by 1,000 unemployment insurance applications, from 400,000 to 399,000. Meanwhile, the four-week moving average for the week ending July 31 inched down up by 250 to 394,000 from the preceding week’s revised average. Similarly, the revised four-week average for the week of July 24 dipped by 250 to 394,250 claims. The number of Americans who cannot claim unemployment benefits and applied for Pandemic Unemployment Assistance increased this week. This unadjusted figure increased by 1,416 applications, from 93,060 in the week ending July 24 to 94,476 by July 31. The year prior, this figure stood at 694,092.

3. On Friday, the U.S. Bureau of Labor Statistics announced that hiring accelerated in July in its latest release of the Nonfarm payroll report. The branch of the Department of Labor estimated July’s hirings at 943,000, taking the unemployment rate down by 0.5% to 5.4%, compared to June’s 5.9%. Although the news surpassed economists’ expectations of 858,000 new jobs according to Bloomberg’s poll, analysts reacted with reserve as the data was collected during the first half of July—right before the upsurge of the coronavirus Delta variant. Experts have expressed concerns over the possibility that a new wave of restrictions will undermine the job additions of recent months. However, the return-to-school season and the travel and restaurant industries’ momentum have kept the economy’s growth on course. As a result, some have taken July’s data as a sign that the economy will overcome the Delta variant outbreak. PNC chief economist Gus Faucher said that “This is a great report, very solid in terms of job growth, wage growth, and the decline in the unemployment rate. […] I don’t see the Delta variant derailing the recovery.” The sectors with the largest job gains were leisure and hospitality, with 300,000; education—private and government-funded—added 261,000; professional and business services contributed with 60,000, and transportation and warehousing added 50,000 posts. The other services industry, health care, manufacturing, information, financial activities, and mining gained less than 40,000 each, while retail trade lost 6,000 following significant increases the two previous months.

4. July’s Labour Force Survey came out on Friday, bringing mixed news. On the one hand, July’s 94,000 job additions fell short of the 165,000 jobs Bay Street analysts estimated. On the other, this is the second straight month of job gains after May’s and April’s combined losses of 275,000; together, June and July added 325,000 jobs, leaving the economy 246,000 (or 1.3%) posts below pre-pandemic levels. The unemployment rate fell to 7.5% from June’s 7,8%, meaning that the economy has recovered close to 92% of the pandemic job losses. In July, the private sector was responsible for all jobs created—123,000 in total—of which 83,000 were full-time posts. Additionally, the number of Canadians that worked less than half of their usual hours fell by a whopping 116,000 (or 10.1%). Like their American counterparts, Canadian businesses are also experiencing difficulties filling positions; however, experts say that is a sign of a bottleneck rather than a shortage. In a recent interview with Bloomberg Markets, Centre for Future Work economist and director Jim Stanford dispelled the notion that the Canadian economy was facing a labor shortage. In the late July interview, Stanford argued that unemployment was still at 7.8% and that employment pools remained untapped, like people working fewer hours than usual and disincentivized workers. Stanford added that although the “labor shortage” argument was common in the hospitality industry, it was essential to understand that restaurants and cafés “were all shut down in many cases for a year and a half, [and] now they are opening up at the same time. They may have lost the connection with the workers they had. They all have to go out at the same time and try to reconnect with labor, so that is clearly a challenge for them logistically. I would call that a bottleneck, certainly, and it’s gonna take time to adapt, but in no way can we call it a generalized labor shortage.” According to Statistics Canada, all of the employment gains were in the services-producing sector (93,000). Accommodation and food services alone added 35,000, while labor in the finance, insurance, real estate, rental, and leasing industry contributed 15,000 jobs.

5. On Thursday, U.S. President Joe Biden signed an executive order urging automakers to reach a sales target of 50% for hybrid, electric, and hydrogen fuel cell vehicles by 2030. The ruling followed a series of negotiations with car manufacturers who voluntarily accepted the challenge as long as the federal government supported the change with infrastructure and consumer tax incentives. The measure came increases to auto mileage standards set during the Obama administration and weakened under the Trump presidency. According to a White House fact sheet, the new legislation would reduce the U.S.’s annual carbon dioxide production by about one-third; it would also impede the burning of 200 billion gallons of fuel over cars’ lifetime.

6. On Thursday, Republicans and Democrats attempted to rush the vote to pass the infrastructure bill that would, among other things, finance the construction of service stations for electric and hydrogen-fueled cars. Nevertheless, an estimate of the Congressional Budget Office released on Thursday showed that the $1 trillion package would add $256 billion to the U.S. deficit, refuting the bill proponents’ statement that the infrastructure bill would pay for itself. The news led Tennessee Republican Senator Bill Hagerty to oppose speeding up the vote. On Friday, the infrastructure bill hit another bump when a bipartisan group of lawmakers sought to limit the capacity of the federal government to increase federal regulation on cryptocurrencies. The Senators argued that the law would give the Biden administration unlimited powers that could eventually impair the emerging digital currency. Cryptocurrencies became part of the infrastructure bill after Republicans opposed financing it with tax hikes on corporations and wealthy Americans. As a result, the bipartisan committee leading the proposal opted for untapped funding sources, like collecting unpaid taxes on cryptocurrencies and reclaiming unused pandemic aid funds.

7. A coalition of the most influential business associations representing diverse sectors of the U.S. economy have called on the Biden administration to resume negotiations with China. The Wall Street Journal reported that the coalition wrote on Thursday to Treasury Secretary Janet Yellen and U.S. Trade Representative Katherine Tai, arguing that China had fulfilled “important benchmarks and commitments” set in the 2020 Phase One trade accord with the U.S. A spokesperson for the Office of the Trade Representative said that they “are conducting a robust, strategic review of our economic relationship with China to create effective policy that delivers results for American workers, farmers, and businesses.” However, the business group’s letter signals the frustration of several American industries with the slow pace at which the current administration is reviewing the economic policy with China and the Phase One trade accord signed under President Trump. Chinese officials have stated that they will not advance on trade matters until the American government accepts the deal. Nevertheless, China is still behind in its commitment to increase purchases by $200 billion over two years. In the letter, the lobbying group expressed its support for the Phase One deal and acknowledged that resolving the tariffs issue requires more commitment on China’s end. However, it requested some tariff exemptions for companies and the start of an overall tariff phasing out. Although tariffs on Chinese goods were set to ensure that China met its part of the pact, it is U.S. importers who pay for them. The letter also highlighted that “continued engagement with China on trade and economic issues” was vital for American businesses and requested the inclusion of topics not incorporated in the Phase One treaty, such as government procurements, cybersecurity, digital trade, state subsidies.

8. Brent and West Texas Intermediate crude oils posted their steepest weekly decline in several months this week as concerns over travel restrictions caused by the coronavirus Delta variant increase. Brent oil slid more than 6% from last Friday’s high—the largest drop in four months—and WTI crude fell more than 7%—the most significant falloff in 9 months. Many markets, not just oil, took a hit as infections in the U.S. reached a six-month high, China canceled flights and imposed restrictions in some cities, and Japan announced expanding its curbs to other regions. China’s decision has raised alarms as it is the second-largest oil consumer worldwide. The week kicked off with the most significant drop for both benchmarks; Brent fell $2.50 and WTI $$2.63. The two crude oils had another significant descent on Wednesday; Brent shed $1.95 and WTI $2.11. On Thursday, despite touching the week’s low, both benchmarks recouped about $1. The crudes resumed their descents on Friday and ended the week below the $70 mark; Brent oil settled at $70.49 and WTI at $67.82.

9. The euro and the Japanese yen split the week between positive and negative territory against the U.S. dollar. The euro’s first part of the week was relatively flat. It recorded two small ascents in the first part of the week before falling to negative territory on Tuesday afternoon. Although the European currency resurfaced in the wee hours of Wednesday, it was back on negative turf later that morning. The currency resisted the descent with a fast climb to the week’s high on Wednesday afternoon. Still, it fell quickly to a plateau in negative territory, where it stayed until the afternoon of Thursday. From there on, the euro descended—slow at first—and then fast, from Friday morning until the afternoon. Although another plateau couched the euro’s drop, the currency closed the week to the downside against the greenback after touching the bottommost point. The Japanese yen started the week close to opening levels and engaged in the first ascent of the week on Monday morning. Following a slowdown, the Japanese currency leveled and resumed the clamber, taking it to the second-highest point of the week on Tuesday afternoon. In the wee hours of Wednesday, the ascending trend ended, although the currency resisted it with a quick clamber to the week’s high on Wednesday afternoon followed by a sharp descent. Even though the pace of the decline diminished, the yen touched negative turf on Thursday afternoon and held the fall until Friday at noon, when it dived almost vertically. In the remainder of Friday’s session, the yen unsuccessfully made small attempts to recover but closed the week at its lowest and to the downside against the greenback.

On Thursday, the Biden administration granted Hong Kongers living in the United States temporary refuge in a memorandum, allowing them to live and work in the country for 18 months. The action is yet another initiative of the U.S. government to disapprove of Beijing’s crackdown on democracy and protests in Hong Kong. In response, the Chinese Foreign Ministry fiercely criticized the Biden administration for the memorandum. In a statement posted on the Ministry’s website, the office said that the safe-haven offer “slandered and smeared Hong Kong’s national security law, nakedly intervened in Hong Kong affairs and China’s internal affairs, and blatantly trampled on international law and the basic norms of international relations.” It added that the measure was a “vain attempt to stigmatize Hong Kong, stigmatize China, and stop at nothing to undermine Hong Kong through petty actions.” Finally, the statement highlighted that U.S. actions were “weaving lies and slandering Hong Kong’s national security laws [and] blatantly beautifying the anti-China chaos in Hong Kong.”

On Wednesday, World Health Organization (WHO) Director-General Tedros Adhanom Ghebreyesus called for a moratorium on booster shots during a press conference in Geneva. Although the announcement may seem counterintuitive, the rationale behind the request was to increase access to first shots in countries with limited vaccine access. Ghebreyesus said that the “WHO is calling for a moratorium on boosters until at least the end of September to enable at least 10% of the population of every country to be vaccinated. To make that happen, we need everyone’s cooperation, especially the handful of countries and companies that control the global supply of vaccines.” On Friday—the 199th day of Biden’s presidency—the U.S. achieved to fully vaccinate 50% of its population against COVID-19. According to the Centers for Disease Control and Prevention, CDC, almost 166 million Americans have received the shot; the figure ascends to 182 million for the number of American adults with a first dose. On the same day, United Airlines became the first airline to impose a vaccine mandate for all its employees and the fourth company in the United States after Walmart, Microsoft, and meatpacker Tyson Foods.

As businesses prepare for the eventuality of new restrictions and shutdowns, 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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