The Precious Metals Week in Review – August 13th, 2021

1. On Monday, the Taliban captured the capital of the Samangan province after an important pro-government commander joined the extremist group, undoing 20 years of U.S. warfare in the country. By Thursday, the Taliban had conquered the main western city of Herat and made progress in Kandahar, the country’s second-largest municipality. On Friday, media outlets reported that the extremist group headed to Kabul urging Canada, the U.S., and the U.K. to send special forces to evacuate embassy personnel, nationals, and translators. On Tuesday, the U.S. Senate approved a roughly $1 trillion infrastructure package. The bill passed with wide support from both parties; 19 Republican lawmakers joined 50 Democrats to provide $550 billion for water, electrical grid, and broadband projects, among others. However, it is expected that the law draft will face a tougher path on the House. On Wednesday, the Department of Labor reported that inflation had increased in July; however, data showed that prices could be climbing at a slower pace. On the same day, the third-busiest container port in the world, the Chinese Ningbo-Zhoushan port, closed after an employee tested positive for the Delta variant of the coronavirus. This is the second Chinese port to close because of COVID-19 cases, raising fears of increasing shipping costs and a repeat of last year’s slowdown in the flow of goods. The week closed with a weakening consumer sentiment for the first half of August and a Food and Drugs Administration approval for a third dose of Pfizer or Moderna vaccines for patients with compromised immune systems.

2. For the week ending August 7, 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 387,000 to 375,000. The revised figure for the week ending on July 31 increased by 2,000 unemployment insurance applications, from 385,000 to 387,000. Meanwhile, the four-week moving average for the week ending August 7 rose by 1,750 to 396,250 from the preceding week’s revised average. Similarly, the revised four-week average for July 31 inched up by 500 to 394,500 claims. The number of Americans who cannot claim unemployment benefits and applied for Pandemic Unemployment Assistance increased this week. This unadjusted figure rose by 10,145 applications, from 94,247 in the week ending July 31 to 104,572 by August 7. The year prior, this figure stood at 481,731.

3. On Wednesday, the Department of Labor reported that although consumer prices increased in July, there are signs that price pressures are weakening. The Consumer Price Index (CPI)—a measure of price variation of retail goods and other items—increased by 5.4% before seasonal adjustment, year over year, reaching a 13-year high. However, July’s CPI rose only by 0.5% compared to June’s 0.9% climb, making this month-to-month drop the largest in 15 months. The core CPI—which excludes the most volatile index components, food and energy—rose 0.3% in July v. June’s 0.9% climb and the previous three-month average of 0.8%. According to a Reuter’s poll, economists’ predictions were very close to July’s reading: 0.5% for the CPI and 0.4% for the core CPI. July’s report seems to back the Federal Reserve’s thesis of transitory inflation; however, opinions on the matter diverge. Jefferies LLC chief financial economist Aneta Markowska spoke to the Wall Street Journal and likened the index decrease to a high fever that went from 104 degrees to 101. Markowska said that although “It’s just not as hot as what we saw in the prior three months, there is still some pressure in the pipeline that should show up in the next few months.” In contrast, Richmond Fed President Thomas Barkin told Reuters that inflation “seems to have crested” and added that the trend should continue in the coming months. Regardless of whether July’s data means progress or not, the coronavirus Delta variant is already making a dent in restaurant visits and airplane bookings.

4. Southwest Airlines announced on Wednesday that the coronavirus Delta variant is at the root of a surge in cancellations and a drop in bookings. The company said that demand after Labor Day Weekend is weaning, which will make it hard for the airline to turn a profit for the current quarter. The company now estimates revenue for July at 15% to 20% below 2020 levels, and it expects September revenues to decline by a quarter. Frontier Airlines has also expressed similar concerns; last week, the company said it worried about the effects of the rise in coronavirus cases on fall demand, which primarily depends on business trips. Restaurants are also seeing a decrease in reservations. OpenTable registered an 8% decline in reservations in its weekly average compared to the week ending August 10, 2019. J.P Morgan said on a note on Tuesday that credit-card spending on air travel has declined in recent weeks and that expenditures on restaurants have plateaued. Some restaurants have adopted mask mandates for workers and are bringing back plexiglass screens and sitting restrictions. The decrease in dining demand now adds to the labor shortage that has battered airlines, the bar and restaurant industry, and the economy in general.

5. U.S. consumer sentiment plummeted in early August to a decade low as Americans’ concern over the economy grew along with COVID-19 infections. The University of Michigan Surveys of Consumer measures how optimistic Americans feel about their finances and the economy in general. The index fell from 81.2 in July to 70.2 in August, indicating that the current wave of infections could have a bigger impact on the economy than previously thought. COVID-19 cases have increased twofold in the past two weeks and reached a six-month high. Additionally, prices have continued to climb and affect the pockets of Americans. The losses in consumer sentiment happened in all age, income, and education groups and touched all regions of the country; they also affected consumers’ perceptions of all aspects of the economy, ranging from personal finances to unemployment, inflation, and economic prospects. Surveys of Consumers director Richard Curtin said that “Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end.” However, Curtin expressed optimism as state and local governments adapt and find ways to curb the virus: “In the months ahead, it is likely that consumers will again voice more reasonable expectations, and with control of the Delta variant, shift toward outright optimism.”

6. On Monday, vaccinated Americans waited at the Canadian land border for more than an hour to cross after over 16 months of closure meant to curb the spread of the coronavirus. Canadian business owners on tourist spots and border towns hope that the reopening will come on time to boost their operations. Reopening to vaccinated travelers from other countries is scheduled for early September. However, even though Canadians can fly into the United States for nonessential travel, they cannot cross by ferry or the land border, at least, until August 21. U.S. officials cited the climb in COVID-19 cases last month to justify the decision. In the meantime, the Canadian government decided on Wednesday to issue “proof of vaccination credentials […] [to] support the re-opening of societies and economies.” The news release published on the Immigration, Refugees, and Citizenship (IRCC) website, said that the immunization credentials’ goal is to create a “reliable and secure way” to prove Canadians’ vaccination history to immigration officials in Canada and abroad. The government currently works on developing a digital vaccination proof; however, the document says that authorities will create other formats so all Canadians have easy access to their vaccination credentials.

7. Brent and West Texas Intermediate crude oils started the week on the wrong foot. Both benchmarks dipped about 4% on Monday, extending last week’s losses and touching their lowest since May. Both oils fell below the $70 threshold; Brent oil dropped to $67.60 and WTI $65.15. The descent came after a United Nations panel issued a grim warning on climate change, adding to growing concerns over the effects of coronavirus restrictions in China on fuel demand recovery. Although Tuesday’s and Wednesday’s gains greatly surpassed Monday’s steep losses, Wednesday’s news brought turmoil for the commodity after the White House prompted OPEC countries and allies to boost oil production. The statement said that the increases in production quotas that OPEC+ negotiated last month would be insufficient to meet the demand and dampen economic recovery. On Thursday, both oils reached the week’s high at $71.90 for Brent oil and $69.63 for WTI crude. However, prices resumed the fall after the International Energy Agency (IEA) revised down its global demand for this year and said that the combination of increasing oil output and the Delta variant surge decreased demand’s chances to surpass supply. On Friday, the drop continued throughout the day and led both benchmarks to end the week to the downside and in the vicinity of last week’s closing prices; Brent settled at $70.25 and WTI at $68.04.

8. The euro and the Japanese yen followed similar trajectories against the U.S. dollar. The European currency made its week debut with a brief visit to negative territory late on Sunday evening; despite recovering, it returned to negative turf on Monday afternoon. The euro managed to hit the brakes and plateau on the wee hours of Tuesday, although not for long as the currency resumed its descent later in the morning, plateaued again, and then fell to the week’s low on Wednesday’s early morning. Nevertheless, the currency managed to reverse course in the afternoon and leveled until the next day’s morning. On Thursday, the euro lost some ground to the dollar but maintained the level until Friday morning when it engaged in a steep ascent. The euro climbed steadily throughout Friday’s session, entered positive territory, and reached the week’s high by closing time. Needless to say, the European currency closed the week to the upside against the greenback. Instead of falling to negative territory after opening, the yen climbed confidently until Monday afternoon. Nevertheless, it steadily fell into negative turf until touching the week’s low on Wednesday morning. The Japanese currency accomplished to reverse course later in the morning, plateau, and sustain the level until the next day’s session. On Friday’s early morning, the yen engaged in a steady and almost vertical ascent that took it to the week’s high at closing and to end the week to the upside against the greenback.

According to the National Association of Realtors (NAR), the second quarter ended with median single-family existing-home sales prices reaching $357,900, year over year. Compared to last year, the median single-family existing-home sales price rose by $66,800, that is, 22.9%. The NAR attributed the ongoing increase to the continued housing low inventory levels and record-low interest rates. However, NAR chief economist Lawrence Yun said in the report that “Home price gains and the accompanying housing wealth accumulation have been spectacular over the past year, but are unlikely to be repeated in 2022.” Yun said that a combination of increasing supply and a tapering demand seems to be taking the market “from ‘super-hot’ to ‘warm’ with markedly slower price gains.” The decrease in appetite is significantly due to first-time buyers leaving the market; the conflation of fast-increasing prices and low-interest rates entail higher incomes, which are not typical of young buyers. Additionally, the pace at which prices are increasing is defeating the benefits of low-interest rates and forcing more buyers out of the market.

On Tuesday, the Centers for Disease Control and Prevention (CDC) announced that the vaccination pace in the U.S. had picked up again, reaching 500,000 people per day—a level not seen since June. Heated discussions about whether to mandate vaccination or not—or even impose prophylactic measures in schools and work settings—are increasing. On Tuesday, Florida Governor Ron DeSantis said that the State Board of Education could refuse to pay school principals and school board members who implement the mandatory use of face masks in their schools. The controversy arose as school district superintendents ignored a state executive order when trying to comply with CDC guidelines. In opposition to Florida’s stance on the handling of the coronavirus surge in school settings, California is requiring teachers and school staff to vaccinate against the coronavirus or undergo weekly testing. The measure should not receive much pushback from educators since about 90% of schoolteachers nationwide have been inoculated; however, immunization among support staff is lower, and some resistance could arise from these employees.

While California became the first state to impose this type of action on Wednesday, the Department of Defense became the second federal agency to impose a vaccine mandate, followed by the Health and Human Services Department on Friday. Although vaccine requirements are not new in the military, the coronavirus vaccine could be the first to be mandated without the Food and Drugs Administration’s (FDA) full approval; currently, the coronavirus vaccine only has an emergency-use authorization. Defense Secretary Lloyd Austin announced the decision on Monday and said that if the coronavirus vaccine does not receive full FDA approval by September, he will seek a presidential waiver. Thus far, 73% of the active force personnel have at least one shot. On Friday, the Health and Human Services Department (HHS) followed in the footsteps of the Veteran Affairs Department—the first federal agency to mandate vaccines for some civilian employees. The vaccination mandate will impact about 25,000 employees working for the HHS’ Indian Health Service and the National Institutes of Health. The rationale for the measure was to protect those who interact regularly or those who could come in close contact with patients.

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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