The Precious Metals Week in Review – October 1st, 2021

1. It was a volatile month in all markets they closed out the third quarter of 2021. Supply chain disruptions and labor shortages continue, driving prices even higher as the Federal Reserve and other central banks around the world seek ways to moderate inflation, which has now gone well beyond their intended 2% target. Reports that two Federal Reserve Presidents would be stepping down in the wake of the stock trading scandal that was revealed earlier in the month also rattled U.S. markets this week.

2. For the week ending September 25, the seasonally adjusted number of Americans filing initial claims for unemployment increased from the previous week’s unrevised level by 11,000 claims to reach a new level of 362,000. The 4-week moving average of claims was 340,000, an increase of 4,250 from the previous week’s unrevised moving average.

3. The U.S. Congress managed to beat a midnight Thursday deadline to strike a deal to avoid yet another government shutdown due to lack of funding. President Joe Biden signed a temporary deal that passed the Senate and will fund the federal government through December 3. The short-term appropriations bill “meets critical and urgent needs of the nation”, according to Biden, who followed that remark with “there’s so much more to do.” The passage of the bill gives lawmakers more time to hash out a more comprehensive full-year funding plan and includes money for hurricane relief and resettlement of refugees from Afghanistan.

4. Despite passage of the funding bill on Thursday, Congress has yet another immediate crisis brewing. Democrats tried, and failed, to extend the so-called “debt ceiling” as part of the continuing resolution to fund the government through December. If the debt ceiling is not raised by October 18, the U.S. could default on its debt payments. The House of Representatives passed a bill on Wednesday that would have suspended the debt ceiling, but it is likely doomed in the Senate, as Republicans are expected to unanimously reject any increase or suspension of the debt limit. If the limit is not increased, Treasury Secretary Janet Yellen warned this week that spending for certain programs, including Social Security, could be halted.

5. Both the Dallas and Boston Fed Presidents announced that they were retiring early in the wake of the stock trading controversy that came to light last week. Dallas Fed President Robert Kaplan said “The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy. Unfortunately, the recent focus on my financial disclosure risks is becoming a distraction to the Federal Reserve’s execution of that vital work.” Kaplan’s retirement takes effect on October 8. Boston Fed President Eric Rosengren said his departure was due to recent health concerns and not over any issue with the activity in his investment portfolio.

6. China is suffering through an energy crisis that could have wide-ranging implications for markets as a whole. Coal supply shortages, tightening emissions standards and a surge in power demand from manufacturers and industry have sent coal prices to record highs and forced widespread curbs on power usage. Power rationing has been implemented during peak usage hours in much of northeastern China and manufacturing facilities have been asked to scale back production to conserve power reserves. The cut to production across many of China’s industries has led to lowering its economic growth outlook further, in a time when the world’s second-largest economy was already showing the signs that it is slowing.

7. The U.S. Trade Representative is expected to announce on Monday that China is not complying with Phase 1 of the trade deal that was signed by President Trump in 2019. According to reports, the Trade Representative is considering potential actions against China for failure to comply, including possible new tariffs. Under the agreement, China was supposed to purchase an additional $200 billion worth of U.S. goods over a two-year period, but has failed to do so. According to recent data, China’s purchases of U.S. exports through the month of August are at roughly 62% of the trade deal’s targets.

8. Oil prices maintained their levels near three-year highs this week as supplies continued to be tight. OPEC+, as the cartel and its partners have become known, continues to curb supplies even though demand appears to be recovering and U.S. supplies continue to struggle back to full capacity in the wake of two back-to-back hurricanes in the country’s prime drilling and refining Gulf Coast region. Brent Crude rose 1% to trade near $80 per barrel – its fourth straight weekly rise, while West Texas Intermediate climbed just 0.9% to reach $75.71 per barrel – its sixth week of such gains.

9. The euro drifted mostly sideways against the U.S. dollar at the start of the trading week, but quickly began a shallow move to the downside that lasted through Wednesday morning. Late Wednesday morning, the euro took a sharp move to the downside, but paused and slightly reversed its course late on Wednesday evening. The euro continued drifting lower in relatively pronounced spikes and drops until Friday morning when it once again reversed and began to move higher again. The euro only managed a minor recovery Friday before the market closed and will close out the week lower against the U.S. dollar.

10. The Japanese yen drifted sideways as the trading week began, jumped briefly higher, and then began a fairly steady moved to the downside against the U.S. dollar that saw it touch its lows for the week by Thursday. The yen moved sharply higher around mid-day on Thursday and the upward momentum nearly managed to take it back to its opening levels before the market closed for the week. The yen did not quite manage to regain its opening levels and will close out the week slightly to the downside against the U.S. dollar.

China’s power crisis has taken the spotlight away from its growing debt crisis which is being fueled by the potential collapse of property development giant Evergrande. The nationwide shortage of power is forcing industry and manufacturers to scale back on production, adding more drag to an already slowing economy. Factories across the country have been forced to implement reduced schedules or have been outright asked to bring operations to a halt, particularly in Northern China, where temperatures are plunging and power is desperately needed to ensure that homes remain warm enough for the population to survive the winter. The power crunch, combined with the debt crisis triggered by Evergrande, has apparently led to growing discord among China’s middle class.

Eurozone inflation hit its highest level in 13 years as it faces its own energy crisis amid soaring prices. Headline inflation came in at 3.4% in September, according to preliminary data from Eurostat. This is the highest headline number since September of 2008. German consumer prices rose by 4.1% in September, the highest surge for prices in Germany in close to 30 years. The surge in inflation has largely been driven by dramatically higher energy prices, which are not expected to drop any time soon. Energy analysts are warning that high prices can be expected to persist throughout the winter months. Italy, Greece, Spain and France have all taken steps to try to prevent further natural gas price increases. Central banks around the world continue to view current inflation levels as “transitory”, but many analysts are beginning to question whether these central banks are on the cusp of making major monetary policy errors as inflation shows signs of becoming entrenched for the long-term.

In the U.K., a weekend of massive panic buying has left many gas stations across the nation completely out of fuel. Britain’s government is trying to implement emergency measures to keep gasoline flowing, but an ongoing lack of truck drivers to ensure deliveries will run smoothly has continued to exacerbate the problem. U.K. Business Minister Kwasi Kwarteng said on Sunday that thousands of truck drivers are set to be granted temporary U.K. visas and that he had exempted the fuel industry from U.K. competition laws which he said would allow companies to “share information and prioritize the delivery of fuel to areas most in need.” Many gas stations around the U.K. have implemented rationing in an attempt to keep consumers from hoarding much-needed fuel supplies.

The U.S. government managed to avoid yet another shutdown at the last minute this week when the Senate passed a continuing resolution bill that would keep the government funded until December. The bill did nothing to address the upcoming deadline on October 18, when the government’s spending is projected to surpass the so-called “debt ceiling”, which could trigger massive defaults on U.S. debt. Democrats and Republicans are polarized in their approach to U.S. debt levels, with most Democrats, and even Treasury Secretary Janet Yellen backing plans to eliminate the debt ceiling altogether while Republicans steadfastly refuse to support the idea of suspending, increasing, or eliminating the debt ceiling in any way. A default on the U.S. debt, for the first time ever, would be catastrophic for the country’s credibility.

Ongoing supply chain disruptions and surges in energy prices across the globe continue to add growing pressure on consumers as prices swell around the world. A multitude of events rattled markets, including precious metals, this week. The power crisis in China has led to many manufacturers, including precious metals miners and refineries, to scale back production.

Stocks and precious metals both saw high volatility in their respective markets this week as analysts and investors alike tried to assess the impact China’s ongoing woes might have for the long term.

Savvy investors, continuing to seek to diversify their portfolios to prevent overexposure to equity markets, or any one specific sector, were presented with yet another buying opportunity to acquire additional physical precious metals for their investment portfolios at what might be viewed as a discount, if supply shortages result from China’s scaled back production. Remember, 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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