The Precious Metals Week in Review – August 27th, 2021

1. The week started with good news for the oil and pharmaceutical industries. On Monday, the Food and Drug Administration granted the Pfizer and BioNTech coronavirus vaccine full clearance, removing obstacles for institutions that want to mandate the immunization. In the meantime, oil prices rebounded after last week’s disastrous performance with more than a 5% climb on Monday alone. The week went on amid Western powers’ efforts to remove the remaining military and civilian personnel from Afghanistan; nevertheless, it ended with a suicide bomb attack outside Kabul’s airport, killing 13 American troops and close to 200 Afghan civilians. On Friday, however, the U.S. retaliated with a drone attack. On Thursday also, the weekly unemployment insurance report recorded an increase in initial applications. Still, the total remained close to the pandemic lows reached this month, signaling that the job-market recovery continues despite rising numbers of the coronavirus Delta variant cases. Meanwhile, the Department of Commerce revised up its GDP estimates for the second quarter by 0.1%; the next day, the agency reported that Americans’ savings and spending on services had increased in July. Finally, on Friday, Federal Reserve Chairman Jerome Powell participated in a virtual event and stopped short of announcing a timeline for tapering the central bank’s monthly bond purchases. He seized the occasion to reaffirm his belief that inflation is transitory; however, he received pushback from analysts and media for his argument. The stock market closed at new record highs after Powell’s remarks.

2. For the week ending August 21, the seasonally adjusted number of Americans filing for unemployment increased from the previous week’s revised level. The estimated number of initial claims climbed by 4,000 from 349,000 to 353,000, hovering just above the pandemic’s lowest level. The revised figure for the week ending on August 14 increased by 1,000 unemployment insurance applications, from 348,000 to 349,000. Meanwhile, the four-week moving average for the week ending August 21 declined by 11,500 to 366,500 from the preceding week’s revised average, reaching a new bottom since the start of the pandemic. The revised four-week average for August 14 inched up by 250 to 378,000 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 9,628 applications, from 108,081 in the week ending August 14 to 117,709 by August 21. The year prior, this figure stood at 592,618.

3. Analysts awaited all week this Friday’s Jackson Hole Economic Policy Summit with expectation. The event, hosted by the Kansas City (Missouri) Fed, was moved to an online format last week as coronavirus Delta-variant cases continued to rise. In the meeting, Federal Reserve Chair Jerome Powell confirmed that the central bank could start moving forward with its plans to taper bond purchases this year. In the conference, Powell said that last month, he was of the view “that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace” of the monthly $120-billion purchases of treasury securities and agency mortgage-backed securities. However, since that meeting—continued Powell—the economy has seen “more progress in the form of a strong employment report for July,” which was tainted by the further spread of the Delta variant. The climb in Delta-variant cases has revived the threat of a new economic slowdown and is already jeopardizing the rebound of the travel and leisure industry. Despite that risk, the Chairman did not show much concern: “While the Delta variant presents a near-term risk, the prospects are good for continued progress toward maximum employment,” said Powell. Inflation was another central topic in Powell’s remarks, and he used the occasion to reaffirm his belief that the steep climb in prices we have seen is temporary. Powell explained that the effects of monetary policies can take a year to show and added that reacting too fast with a tightening policy to rein inflation could do more harm by slowing down the hiring and recovery pace. Nevertheless, he acknowledged the difficulty central banks face when differentiating “transitory inflation spikes from more troublesome developments, and it is sometimes difficult to do so with confidence in real-time.” “If sustained higher inflation were to become a serious concern,” added Powell, the Federal Reserve committee in charge of interest rates would respond with a hike to hold down inflation.

4. On Friday, the Department of Commerce released its latest Personal Income and Outlays report, which tracks Americans’ personal income and expenditures every month.  Personal income increased by 1.1% month-over-month—the biggest increase since March—primarily due to the child tax credit program that transfers federal funds to parents. Economists attributed the 0.3% growth slowdown in consumption to the climb in COVID-19 cases due to the Delta variant of the coronavirus. Fears of infection, as well as angst over the possibility of a repeat of last year’s lockdown, are likely influencing households’ decision to reduce spending in some areas. Spending in services increased by $102.6 billion, while expenditures in goods declined considerably by $60.4 billion; motor vehicles led the decline, followed by recreational goods and clothing and footwear, said the report. Meanwhile, inflation recorded a second consecutive decline in July. Last month, the consumer price index increased 0.4% compared to June’s climb of 0.5%; similarly, the core price index—which excludes the prices of the most volatile goods, like food and energy—rose by 0.3% v. June’s 0.5% increment. In addition to Friday’s news, the Department of Commerce released its second estimate of the second quarter’s GDP on Thursday. The agency said that the second quarter’s GDP had increased by 6.6% and that it had revised up the figure from its first estimate released in July by 0.1%. The report highlighted an increase in consumer spending in services and goods as the main factor behind the GDP increase.

5. This week, Gap Inc raised its yearly sales forecast for the second time this year. The firm based its estimates on the wager that sales of its clothing brands Athleta and Old Navy will increase as kids return to school, adults return to offices, and socialization resumes. Last quarter’s data gave the company sound evidence for its prediction; Athleta’s sales jumped 35% in the second quarter compared to the same quarter the previous year, while Old Navy’s escalated 21%. Macy’s and Kohl’s reported last week a sales hike in the second quarter as well, 59% for Macy’s and 31.4% for Kohl’s, and have adjusted their sales forecasts for this year upwardly. Gap’s new net sales expectations are in the 30% range compared to the mid-20%; Kohl’s forecast revision put its net sales growth in the low-20% range v. mid to high teens. In the meantime, Macy’s said it anticipated its net sales for this year to rise to $23.55 billion to $23.95 billion, from a previous estimate of $21.73 billion to $22.23 billion. All three retailers announced working on strategies to avoid empty shells, particularly during the holiday season. Gap said to be investing in air freight, a measure that other retailers like Abercrombie & Fitch seem to be embracing.

6. On Friday, Canadian Liberals pledged CAD$1 billion in funding to help provincial and local governments implement proof-of-vaccination certifications for non-essential businesses and public spaces. However, the money would not only finance proof-of-vaccination requirements; it would also fund booster shots and the study of COVID-19’s long-term effects, including the so-called “long-COVID.” Liberal Leader Justin Trudeau announced the measure from a restaurant in Mississauga, Ontario, saying: “If your premier mandates that everyone in your local restaurant or gym or other non-essential location must be fully vaccinated and show proof, we’ll pay for the development and rollout of that program.” He also expressed his support for vaccine mandates for non-essential businesses because the vaccine “keeps people safe, it encourages everyone to do the right thing, it keeps our businesses open, and it keeps our economy rebuilding.” As expected, vaccination requirements have become a key topic of contention for the federal elections, scheduled for September 20. While Justin Trudeau fully supports vaccination and vaccination requirements for federal workers and train and airplane passengers, his main opponent, Conservative Leader Erin O’Toole, is advancing the opposite ideas and saying that negative COVID tests should suffice. At the provincial level, British Columbia and Québec are at the forefront of vaccine-passport implementation, Ontario resisted until recently, and Alberta continues to refuse the measure. Although the Ontarian government has not announced the policy yet, news emerged on Friday saying it will make a statement next week. Sources told CBC Canada, on condition of confidentiality, that despite the opposition of some cabinet members, the proposal will go ahead.

7. After last week’s disastrous performance, Brent and West Texas Intermediate crude oils made a strong comeback this week. On Monday, the prices of the two benchmarks touched the week’s low before climbing more than 5% compared to last week’s closing prices. The rally went on Tuesday and Wednesday, as reports about the spread of the coronavirus Delta variant in China showed that Chinese authorities were succeeding in controlling the disease’s propagation. However, prices got another boost on Tuesday after a Mexican offshore oil rig fire killed several staff members and reduced oil and gas production levels. On Thursday, oil prices fell by more than 1% but regained the lost ground on Friday, when reports confirmed that tropical storm Ida was heading toward the Gulf of Mexico, forcing the closure of several rigs off the shore. On Friday, oil prices got another boost from a falling U.S. dollar following Federal Reserve Chair Jerome Powell’s statement announcing that the central bank might start planning the tapering of its monthly bond purchases. As a result, Brent oil climbed 2.29% on Friday, while WTI crude ascended by 1.96%; both benchmarks touched the week’s high on the last session of the week. Brent crude closed the week to the upside at $72.70, just ¢6 below the week’s high, and WTI oil settled at $68.74, ¢30 below the week’s high.

8. The euro and the Japanese yen had distinctly different weeks against the U.S. dollar; however, both currencies closed the week to the upside against the greenback. The euro started the week inching down into negative territory but soon corrected course and engaged in a steady ascent that lasted until Monday evening, taking the currency above the opening level. The euro then took a break from its strenuous ascent with a slight descent and tried to regain momentum throughout Tuesday’s session; however, the European currency plateaued until Wednesday afternoon, when it climbed up again and stabilized. On Thursday’s late morning, the euro fell and hit a valley. On Friday’s session, the currency had two ascent attempts before engaging in a steep ascent that took it to the week’s high right at closing time. Needless to say, the euro closed the week to the upside against the greenback.

9. The Japanese yen had a more hectic week than the euro. The currency started with a descent and a visit to the week’s low on Monday at noon. Nevertheless, the yen recovered quickly with a vertical ascent that flattened late in the evening. On Tuesday, the yen visited both negative and positive territory—in that order—and reached the week’s high in the early afternoon. In the evening, the currency plateaued again and readied to start the next day’s session with another descent and a brief visit to negative territory. Despite the yen’s attempt to climb above the opening level, the Japanese currency engaged instead in a decline that ended in the evening after leveling. For the fourth consecutive day, the yen started the trading session with a descent; however, this time, the currency rebounded faster and initiated an ascending trend that lasted until Friday morning. Despite a steep drop that took the yen to the week’s low, it climbed up almost vertically in the afternoon and closed the week to the upside against the greenback.

The microchip industry is undergoing a major reshuffle with new mergers and price hikes. On Wednesday, news of a possible merger between Western Digital Corp. and Japan’s Kioxia Holdings Corp. emerged, saying that the talks were at an advanced stage and that the deal could reach more than $20 billion. Although negotiations could fail, the two companies already have deep ties, which could favor the sale. The transaction would require the approval of the Japanese and American governments; however, Washington would likely agree as the purchase would increase the U.S.’ competitiveness v-à-v China. Western Digital’s and Kioxia’s merger would add to the recent deals signed since the pandemic: Analog Devices Inc. bought Maxim Integrated Products Inc. in July of 2020, Nvidia Corp’s acquired Arm Holdings in September, and AMD Inc.’s purchased Xilinx Inc. a month later.

Then, on Thursday, the world’s largest chip producer Taiwan Semiconductor Manufacturing Co., announced that it could raise its prices. The price increase would go up to 20% for less sophisticated chips used in the car industry and 10% for the most advanced ones; the new prices will be applied late this year or early 2022. The news comes amid recent car makers’ announcements regarding the semiconductor shortage’s effects on vehicle manufacturers. Last week, Toyota said it would cut production by 40% in September, while General Motors declared earlier this month that it had to halt assembly in three factories that produce its top-selling product, pickup trucks.

As businesses prepare to face a possible dwindle in consumption, 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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