The Precious Metals Week in Review – September 24th, 2021

1. Cryptocurrencies took a nose-dive this week as China’s central bank declared that all cryptocurrency related activities are illegal and threatened a massive crackdown on transactions. The People’s Bank of China said that all services offering trading, order matching or derivatives for virtual currencies are strictly prohibited. The central bank also declared that it also considers overseas exchanges illegal, meaning that it is now against the law for any Chinese business or citizen to trade them anywhere in the world. Bitcoin tumbled 8% while Ethereum dropped 11% on the news.

2. For the week ending September 18, the seasonally adjusted number of Americans filing initial claims for unemployment increased from the previous week’s revised level by 16,000 claims to reach a new level of 351,000. The previous week’s level was revised higher by 3,000 claims to a new level of 335,000. The 4-week moving average of claims was 335,750, a decrease of 750 from the previous week’s revised moving average. The previous week’s average was revised higher by 750.

3. The U.S. Federal Reserve indicated on Wednesday that they are ready to begin tapering off the stimulus that the central bank has been steadily providing as the global pandemic has raged on. The Fed has been buying at least $120 billion worth of bonds each month to support financial markets and the U.S. economy for the last year and a half as the pandemic spread. The Fed will now begin to reduce those purchases, but Chairman Jerome Powell said Wednesday that the central bank’s “policy will remain accommodative until we have reached” the bank’s goals for employment and inflation.

4. On Thursday, the White House began advising federal agencies to prepare for a government shutdown, the first since the pandemic began in late 2019. The Office of Management and Budget says that if no new appropriations bill is passed by next week, federal agencies are expected to execute shutdown plans. The appropriations bill must be passed by September 30 in order to prevent a lapse in government funding. House Democrats have already approved a measure to fund the government that would suspend the debt ceiling and approve emergency aid, such as disaster relief. It is likely that the proposal, which passed the House, will not make it through the Senate because Republicans are united in their opposition to any bill that attempts to raise, or suspend, the debt ceiling. Treasury officials have projected that the legislature has until October to pass their measures, or the U.S. could default on its debt payments for the first time ever. Late in the day, Treasury announced that it had only $244 Billion left before the government officially runs out of funding.

5. China continued to flex its might towards Taiwan this week. On Thursday, according to the island’s defense ministry, China flew two dozen military aircraft into Taiwan’s Air Defense Identification Zone. The flight included fighters, bombers, anti-submarine planes, electronic warfare, and early-warning aircraft. Taiwan once again scrambled its own patrol aircraft, as it did last week in a similar incident, issuing radio warnings and tracking the intruders with air-defense systems. A second intrusion was made later Thursday afternoon by two J-16s, two J-11s and one KJ-500 early-warning aircraft.

6. Evergrande, China’s gigantic, debt-ridden property developer which has been rumored to be on the brink of defaulting on its debt for weeks, went virtually radio silent this week after it was due to make an interest payment on Thursday. The developer was scheduled to pay $83 million of interest on Thursday for a dollar-denominated bond that is currently set to mature in March of 2022. As of Friday morning, the firm, which is the world’s most indebted developer, has not commented on whether it made that payment and has also made no filing with the Hong Kong exchange regarding the payment. Technically, Evergrande will not default on its debt unless it fails to make that payment within the next 30 days.

7. Oil prices rose this week, with Crude hitting its highest price in almost three years on tightening supplies. Brent futures rose 84 cents on Friday, climbing 1.1% to settle at $78.09 a barrel. West Texas Intermediate rose 68 cents, climbing 0.9% on Friday to settle at $73.98. For Brent, this is the highest close October of 2018 and for WTI, its highest close since July of 2021. Disruptions continue on the U.S. Gulf Coast in the wake of back-to-back hurricanes and analysts are expecting continued problems and even some likely drawdowns of oil supplies that are currently in storage.

8. The euro began the trading week drifting slightly higher against the U.S. dollar but quickly reversed course, dipping into negative territory by late Monday morning. The euro reversed course Monday afternoon and returned to positive territory, trading mostly sideways in a narrow band until late Wednesday night. Late on Wednesday, the euro plunged near vertically lower, falling to touch its lows of the week in the early morning hours of Thursday. The euro surged higher as Thursday went on, recovering enough to return to positive territory and even touching its highs for the week late in the day on Thursday. The euro drifted lower overnight and dipped sharply again late Friday and will close out the week slightly to the negative against the U.S. dollar.
9. The Japanese yen drifted higher against the U.S. dollar as the week began, touching its highs for the week in the early morning hours of Wednesday before reversing course and steadily declining for most of the rest of the week. The yen bounced slightly to the upside on Friday, but resumed its downward motion quickly thereafter, continuing its decline into the close. The yen will close out the week to the downside against the U.S. dollar.

It seemed that China couldn’t help but be in the news spotlight this week as concern over whether Evergrande would become its “Lehman Moment” continued. The debt-laden property developer still has not confirmed whether it made its $83 million interest payment this week and concern is growing that it has not – and that it will not. China also rocked the cryptocurrency world when it continued its assault against the sector. The People’s Bank of China announced this week that all cryptocurrency transactions are now considered to be illegal and are strictly prohibited, including transactions at overseas exchanges. Bitcoin and Ethereum, two of the most widely traded cryptos both tumbled on the news. China also continued to antagonize Taiwan this week, flying incursions into its air space on multiple occasions with military aircraft. China has long considered Taiwan to be nothing more than a renegade province of mainland China and refuses to recognize its sovereignty.

In spite of the concern over what the possible default of Evergrande might mean to the Chinese, and the global, economy, inflation continues to be of primary concern to the global economy. Costco, Nike and FedEx all warned this week that multiple factors, including rising shipping costs and ongoing supply chain disruptions, should be expected to continue and will likely last well through the upcoming holiday season. The cost of shipping containers overseas continues to be astronomical and many of the companies that depend on such methods have found themselves with no choice but to increase their own prices to their end customers. Many of these companies are testing the water to see how receptive their customers will be to take on higher prices.

The Federal Reserve announced this week that it has deemed that the time to begin tapering off the economic stimulus that has been in place throughout the pandemic, if not even before that, has come. While the Fed announced that it intends to begin tapering off on its ongoing bond purchases, it will likely be quite some time before they begin to raise interest rates. Cleveland Fed President Loretta Mester said in a speech on Friday that there may be “upside risks” to the central bank’s current inflation forecasts. Mester said “Many businesses report that cost pressures are intensifying and consumers seem to be willing to pay higher prices. The combination of strong demand and supply chain challenges could last longer than I anticipate and could lead people and businesses to raise their expectations for future inflation more than we have seen so far.”

In Europe, particularly in the United Kingdom, gasoline shortages and skyrocketing energy prices, combined with shortages at supermarkets are becoming increasingly concerning. A shortage of truck drivers has made fuel and goods deliveries erratic, at best. Paul Scully, the U.K.’s minister for small businesses, warned “this is going to be a really difficult winter for people. We know this is going to be a challenge and that’s why we don’t underestimate the situation we find ourselves in.” Despite his seeming warning, he urged people during his interview with Times Radio that there was “no need for people to go out and panic buy.” If the initial months of the pandemic are any form of reliable history, his suggestion will fall on deaf ears and supplies will continue to be short as people hoard goods for their own use.

In the U.S., the government appears to be facing another imminent shutdown if the legislature cannot work together to come up with a new appropriations bill that will fund the government beyond September 30. Democrats are once again attempting to suspend the so-called “debt ceiling” and effectively print money out of thin air to keep the government running until the next funding crisis comes up. Republicans are unanimously opposed to any further raising of the debt ceiling. Late in the day on Friday, the Treasury Department announced that it had just over $244 billion in funding to keep government offices operational.

Supply chain disruptions and the apparent desire for world governments to embark on endless spending sprees are keeping inflation concerns front and center for most investors. Savvy investors have continued to follow their long-term plan to acquire physical precious metals when buying opportunities have presented them with the chance to acquire them at a relative discount. Keeping the long-term nature of precious metals ownership foremost in their mind, these investors hope that the continued accumulation of precious metals will help them build a well-diversified investment portfolio that might help protect their capital, even under stressful market scenarios. 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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