The Precious Metals Week in Review – September 17th, 2021

1. Inflation pressures continue to rise as supply chain issues affect nearly every industry, including automotive, agriculture, housing, manufacturing, and even the wine and spirits industry. The DJIA slipped over one hundred points on Friday alone as investors appeared to suddenly fear further volatility in the second half of September. The DJIA logged its third straight losing week and the S&P 500 saw its second straight week of losses.

2. For the week ending September 11, the seasonally adjusted number of Americans filing initial claims for unemployment increased from the previous week’s revised level by 20,000 claims to reach a new level of 332,000. The previous week’s level was revised higher by 2,000 claims to a new level of 312,000. The 4-week moving average of claims was 335,750, a decrease of 4,250 from the previous week’s revised moving average. This remains the lowest level for the 4-week moving average since March 14, 2020. The previous week’s average was revised higher by 500 to a new level of 340,000.

3. The U.S. Federal Reserve is preparing for its upcoming Federal Open Monetary Committee meeting next week but this time the central bank will be facing much heavier scrutiny. Reports surfaced this week that Fed officials, including its Chairman, Jerome Powell, may have been trading stocks and bonds that could have been directly influenced by the monetary decisions they were making. It also appears that there is a widening rift within the ranks of the Fed between those who feel that the time has come to begin tightening monetary policy and those who would rather continue waiting.

4. The matter surrounding Fed officials trading stocks which might have been affected by the decisions they were making could have serious consequences for the Fed’s credibility. Christopher Whalen, chairman of Whalen Global Advisors and a veteran of the Federal Reserve said “Keep in mind, they already have rules they imposed on the banks, for example, and yet the Fed’s governors don’t live by those same rules. After Dodd-Frank, every agency in Washington tightened up little conflicts like insider trading, and yet the Fed is somehow exempt from those rules? They look ridiculous.”

5. The Food and Drug Administration advisory committee announced on Friday that it had rejected a proposal to distribute booster shots of Pfizer and BioNTech’s Covid-19 vaccine to the general public. The panel instead recommended that such booster shots be given to people 65 and older, or immunocompromised individuals only. The FDA is not bound by the decisions of the committee however, so the Biden administration’s plan to offer boosters to most of America may still be on the table.

6. One day after Taiwan announced a $9 billion boost in military spending to counter a growing “severe” threat from China, Taiwan’s air force was scrambled on Friday to warn off 10 Chinese aircraft that entered its air defense zone. Taiwan has been lodging complaints for over a year of repeated missions made by China’s air force, frequently intruding into the southwestern portion of its air defense zone.

7. One of China’s most indebted property developers, Evergrande, may be on the brink of default. Jenny Zeng, co-head of Asia fixed income at AllianceBernstein, told CNBC’s “Street Signs Asia” program on Friday that there could be a “domino effect” from the developer’s potential collapse. Many economists are worried that Evergrande’s collapse could become China’s own “Lehman moment”, a term which arose when the collapse of Lehman Brothers triggered the start of a massive and worldwide financial crisis in 2008.

8. U.S. Crude supplies struggled to come back online after back-to-back hurricanes in the Gulf of Mexico shut down drilling and refining operations there. Oil prices were down around 1% on Friday as the market absorbed the fact that additional supplies would be making their way back into global stockpiles. Brent crude was down 77 cents, hitting $74.90 per barrel late in the morning, while West Texas Intermediate fell 99 cents to $71.62 per barrel.

9. The euro dipped against the U.S. dollar at the start of the trading week, but the drop was short-lived and the euro began drifting sideways in a narrow trading channel until Thursday morning. On Thursday, the euro dropped sharply into negative territory but attempted to recover some ground overnight. Late Friday, the euro reversed course again, dropping sharply lower to close out the week at its lows against the U.S. dollar. The Japanese yen also drifted sideways against the U.S. dollar at the start of the trading week, but by Tuesday had surged higher to touch its highs for the week late in the afternoon. The yen drifted sideways in a narrow band through Thursday but began dropping lower late in the day. By Friday the yen had dropped back to its opening levels for the week and will close out the week slightly lower against the U.S. dollar.

Inflation pressures continue to be a primary concern in all sectors, seemingly second only to the ongoing Covid-19 pandemic. Supply shortages of semiconductors are still crippling the automotive industry, leading to production limitations and even shuttering of some production lines altogether. The result is that prices for the reduced vehicle inventory have surged under basic supply and demand principles. The same principles hold true across other industries. Labor shortages plague every sector, reducing output and efficiency across all of them. The interaction between sectors means rising costs and limited output in one sector spreads out into many others. In the U.S., rising lumber costs have sent new home prices surging. In the agricultural industry, shortages in both labor and shipping have reduced crop productions and sent grain prices higher. These higher grain costs have triggered higher meat costs, as farmers are forced to pay higher prices for their cattle feed. In the wine and spirits industry, the same high costs for grain and lumber have sent manufacturing costs for barrel aged wines and spirits soaring – you can’t make whine or whiskey without grain and lumber. The Federal Reserve continues to maintain that inflation is “transitory” and that the nation is likely not facing a 1970s style surge in consumer prices, but as prices continue to creep higher, the likelihood that high prices will become “sticky” increases.

China may be facing its own “Lehman moment” after Beijing took steps to curtail borrowing costs for real estate firms. Evergrande, the world’s most indebted property developer, appears to be facing a complete collapse. Should that collapse occur, other distressed property developers in China may topple as well in a “domino effect.” While these struggling developers are each small when looking at their individual market shares, when taken as a whole, they could potentially make up about 10 to 15% of the total market. A collapse of multiple developers could trickle out into the overall global economy just as Lehman’s collapse did in 2008.

Covid-19 continues to be the primary driver for the ongoing global financial crisis. Lockdowns continue across the globe and the resulting labor and supply shortages have sent inflation indicators surging. Central banks around the world are beginning to openly contemplate what steps that they can take to combat rapidly rising inflation. Economist John Rutledge, who had a major part in President Ronald Reagan’s economic plan, told CNBC’s “Trading Nation” program on Thursday that the world should expect continued shortages in the global supply chain well into 2023. Mr. Rutledge said “The nature of epidemics is that they don’t just have a one-and-done wave of infections. They have many waves of infections.” Rutledge warned that he expects variants of Covid-19 will continue to shut down ports, saying “Seamen have not been inoculated around the world. So, some port, somewhere, is going to close again, and it’ll hit semi[conductor]s, but other things as well.” Rutledge continued, saying “Mostly, you produce more slowly, and that’s what hits GDP. If you can’t get the materials you need, you have to slow down production.” Commenting on the ongoing shortage of labor around the world, Rutledge said “It’s not clear how many of those workers are afraid to go to work, don’t want to go to work or still have plenty of cash. But it’s pretty clear to me that this worker shortage is not going to go away in three months or six months or 12 months.”

As inflation pressures continue to mount under the ongoing global pandemic, savvy investors have stuck to their long-term plan to acquire physical precious metals when buying opportunities appear, keeping in mind the long-term nature of precious metals ownership. These investors hope that the continued accumulation of precious metals will help them build a well-diversified investment portfolio. The key to profitability through the ownership of physical precious metals is to acquire the physical product and hold 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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