The Precious Metals Week in Review – August 20th, 2021

1. The week kicked off with declining oil prices as industrial and retail data from China signaled a slowdown in economic growth. On Tuesday, the Department of Commerce announced that July’s retail trade data showed a decline of 1.1% in retail sales online, at stores, and restaurants; the report suggests that the pace of economic growth in the U.S. is declining, which could only be aggravated by increasing COVID-19 cases. On Wednesday, the release of July’s Federal Open Market meeting minutes revealed that the central bank could start tapering its bond purchases late this year. The news sent shockwaves through the stock market, causing a sell-off and strengthening the U.S. dollar. Good news came at last on Thursday, with unemployment insurance claims reaching a new low. Meanwhile, Canadian companies started instating vaccine mandates as part of their plans to bring employees back to the workplace; small- and medium-size companies seem to support the measure in order to avoid a new shutdown. Finally, the week ended with news on the vaccine front; Pfizer could be the first pharmaceutical to get full approval from the Food and Drug Administration (FDA) for its COVID-19 vaccine next week.

2. For the week ending August 14, the seasonally adjusted number of Americans filing for unemployment decreased from the previous week’s revised level. The estimated number of initial claims fell by 29,000 from 377,000 to 348,000, reaching its lowest level since the beginning of the pandemic. The revised figure for the week ending on August 7 increased by 2,000 unemployment insurance applications, from 375,000 to 377,000. Meanwhile, the four-week moving average for the week ending August 14 declined by 19,000 to 377,750 from the preceding week’s revised average, reaching a new bottom since the start of the pandemic. The revised four-week average for August 7 inched up by 500 to 396,750 claims. The number of Americans who cannot claim unemployment benefits and applied for Pandemic Unemployment Assistance increased again this week. This unadjusted figure rose by 5,532 applications, from 103,847 in the week ending August 7 to 109,379 by August 14. The year prior, this figure stood at 514,747.

3. On Wednesday, the Federal Reserve released the minutes of its latest Federal Open Market Committee meeting, revealing that some Fed officials expressed their will to start tapering the monthly bond purchases late this year. However, not all Committee members agreed; some said they would prefer to wait until early 2022 to start reducing asset purchases. The minutes show that central bankers highlighted that tapering did not precede an increase in interest rates and underlined the importance of communicating “the absence of any mechanical link between the timing of tapering and that of an eventual increase.” In addition, meeting participants discussed what the asset makeup should be during the asset reduction process. Most agreed that a proportional reduction of the pace of “Treasury securities and agency [mortgage-backed securities]” would be beneficial as purchases of both assets would cease simultaneously. Regarding the state of the economy, the minutes suggest that Fed officials agreed that the economy “had made progress toward the Committee’s maximum-employment and price-stability goals.” Nevertheless, most participants considered that the goal of “substantial further progress” toward the maximum-employment objective had not been met yet. Regarding the standard set for price stability, division of opinions arose when “most participants remarked that it had been achieved,” and “a few participants noted […] that the transitory nature of this year’s rise in inflation,” among other factors, “cast doubt on the degree of progress […] made toward” the said goal.

4. On Tuesday, the Department of Commerce released July’s Advance Monthly Retail Trade Report showing a drop of 1.1% in retail sales online, at stores, and restaurants compared to June’s data. The report continues to show that Americans’ preferences are shifting from goods to services. Auto sales fell 3.9%, followed by drops in clothing and accessories (2.6%) and sporting and hobby goods (1.9%). Meanwhile, sales at bars and restaurants rose by 1.7%, while trade in gasoline stations increased by 2.4%, and sales in health and personal care stores by 0.1%. Despite the overall drop, retail sales continue to surpass year-over-year and pre-pandemic data significantly; July’s retail and food services sales increased by 15.8% from July 2020 and 17.5% from February 2020. In addition, big-box retailers like Walmart and Home Depot reported increased sales in the last quarter this week, although slower than before. Economists expect this trend to continue: growing and higher spending in services rather than goods—although at a declining pace—as the effect of the federal aid dwindles. Nevertheless, some fear that July’s data could signal the start of a pullback in consumption as infections of the coronavirus Delta variant increase. Despite July’s mixed news on retail trade, the Federal Reserve released Tuesday July’s report on Industrial Production and Capacity Utilization. The central bank said that industrial production increased by 0.9% compared to June and that manufactory output rose by 1.4%.

5. According to a MassMutual poll conducted in late July, Americans are spending on average $765 more per month than the previous year. Young adults seem to be spending more than other age groups; according to the survey, Millennials and Gen Z-ers reported spending $1,016 more a month compared to the previous summer. The data suggests that younger Americans “seem to be rushing to the door to get out and start living their lives again instead of making more disciplined decisions, including putting some away, just because they’ve been missing out for the last year and a half,” said MassMutual senior executive, Paul LaPiana. The weeks ahead could bring those numbers even higher as kids return to schools and adults to workplaces. The spending increase means that savings are falling; according to the Department of Commerce, the personal savings rate has fallen to over 9% from a historic high of 33% last year. Nevertheless, the MassMutual poll found that 48% of Americans said they saved less than $500 over the previous three months, compared to 36% of respondents that said the same in April. Increasing numbers of COVID-19 infections could reinforce Americans’ savings patterns and prompt them to reduce spending once again.

6. Canadian banks started announcing this week their vaccination policies. The country’s five largest institutions said that staff working on premises must be fully vaccinated by October 31. The Royal Bank of Canada became the first to announce its policy on Thursday via an internal memo to staff; the next day, Bank of Montreal (BMO), Toronto-Dominion Bank (TD Bank), Canadian Imperial Bank of Commerce (CIBC), and Bank of Nova Scotia followed suit with similar internal statements. Although all five banks said they would accommodate employees with specific health issues, only TD Bank and BMO have given employees who still hesitate about the vaccine the possibility to opt for continuous rapid testing. The measure comes just a week after the Canadian federal government announced that it will make COVID-19 immunization mandatory for federal public servants and require proof of vaccination from travelers on trains, cruise ships, and domestic planes. According to a KPMG poll, compulsory vaccination in workplaces is gaining traction in Canadian society. The survey found that 62% of Canadian small- and medium-sized businesses are planning to make COVID-19 shots obligatory for their employees and that most companies support measures like vaccine passports and mandatory immunization to avoid another shutdown. KPMG’s poll might encourage other large companies to follow in the footsteps of large banks. Insurer Sun Life Financial has announced that it will demand vaccination proof from employees returning to offices in Montreal, Toronto, and Waterloo. Rogers Communications has said it is working on a plan with health and government officials to bring employees back to the office.

7. Brent and West Texas Intermediate crude oils continued the declining trend from last week and reached new lows. On Monday alone, crude prices fell 4% as industrial and retail data from China signaled that economic growth has slowed down; however, both benchmarks managed to close only 1.7% down. Losses piled up during the week, leading Brent to settle on Friday 7% below Monday’s opening level and WTI over 8% below. Both Brent oil and WTI crude had their biggest losses on Thursday, followed by Friday’s. Analysts attributed Thursday’s trim to the ongoing rise in COVID-19 cases—which could impair oil demand recovery—and to the U.S. dollar strengthening following the minute release of the latest Federal Open Market Committee meeting. On Friday, the benchmarks’ prices continued to drop; Brent settled at $65 while WTI closed at $62.32.

8. This week, the euro and the Japanese yen followed different trajectories against the U.S. dollar. The European currency kicked off the week with a slight ascent on Sunday evening that became the week’s high; however, a descent that lasted until Friday ensued, taking the euro to negative territory. The decline was slow at first but accelerated on Tuesday afternoon with an almost vertical drop. The currency then plateaued until the next rapid dive on Wednesday evening that ended with another plateau and a recovery attempt in the early afternoon of Thursday. However, the European currency lost the gained ground late in the afternoon and leveled off again. Finally, on Friday’s session, despite resuming the descent and touching the week’s low, the euro closed the week to the upside against the greenback.

9. In contrast, the Japanese yen spent the first half of the week in positive territory. On Sunday evening, the currency briefly touched negative turf but quickly rebounded, returned to positive territory, and reached the week’s high on Monday afternoon. Despite attempting to maintain the level, the yen dropped on Tuesday afternoon and leveled off until falling again on Wednesday morning into negative territory. In the evening, the Japanese currency reversed course and gained ground but dived to the week’s low in the early morning of Thursday. Then, the yen managed to climb back up to positive territory, where it spent a few hours in the morning but found itself below opening level again later in the day. Finally, on Friday’s session, the currency went back to positive territory, where it spent the latter part of the morning, but fell again in the afternoon. Despite that final drop, the yen closed the week to the upside against the greenback.

During a virtual town hall meeting with educators and students on Tuesday, Federal Reserve Chairman Jerome Powell said that the pandemic has permanently changed the U.S. economy and that there is no way back to pre-pandemic times. “We’re not simply going back to the economy that we had before the pandemic,” said Powell, adding that technology will likely play an even more prominent role in the economy than ever before. Many companies are investing in new technological platforms that will allow them to respond to the pandemic’s challenges. Powell thinks that “It seems a near certainty that there will be substantially more remote work going forward. That’s going to change the nature of work and the way work gets done.” On the one hand, it will open more jobs in the technological sector, particularly in support and maintenance. On the other, it will likely happen at the expense of many jobs in the services sector, which do not require high education levels or skills and pay lower wages. Powell noted that job data in these industries—travel, leisure, and hospitality—already shows a slower recovery and added that without more education and training, people might “have a harder time finding their way back into the workforce.”

On the COVID-19 front, U.S. health officials recommended on Wednesday, all American adults who got Moderna or Pfizer vaccines get a booster shot. Health officials recommended getting the third dose eight months after the second shot. The government expects to be ready to offer the third jab beginning September 20. The World Health Organization (WHO) did not greet the decision gladly. On the contrary, the institution’s Director-General, Dr. Tedros Adhanom Ghebreyesus, expressed his discontent regarding the American resolution in offering third doses less than a month after the WHO asked wealthy countries to halt the distribution of COVID-19 booster shots to allow poorer countries access the jab. In early August, Ghebreyesus said that holding off the third dose for at least two months would allow the WHO to vaccinate 10% of the population of every country by late September. The Director-General said in response to the American measure that “vaccine injustice is a shame on all humanity, and if we don’t tackle it together, we will prolong the acute stage of this pandemic for years when it could be over in a matter of months.” On Friday, news that the Food and Drugs Administration might give Pfizer full approval for its COVID-19 vaccine emerged alongside reports of India’s authorization for emergency use of the first DNA vaccine.

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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