The Precious Metals Week in Review – October 15th, 2021

1. Stocks rebounded this week, with the Dow Jones Industrial Average moving higher amid earnings beats and a surprise gain in retail sales. Inflation indicators are still showing worrying signs of further increase as the U.S. Fed contemplates how it should set the pace of its plan to taper off current stimulus packages.

2. For the week ending October 9, the seasonally adjusted number of Americans filing initial claims for unemployment decreased from the previous week’s revised level by 36,000 claims to reach a new level of 293,000. This again marks the lowest level for initial claims since March 14, 2020. The previous week’s level was revised higher by 3,000 claims. The 4-week moving average of claims was 334,250, a decrease of 10,500 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 750 claims. This also marks the lowest level for the 4-week moving average since March 14, 2020.

3. U.S. Retail sales unexpectedly rose in September as consumers continued to spend despite an end to extended unemployment benefits and the ongoing uncertainty over the threat of possible further shutdowns as the pandemic continues. Retail sales for September increased by 0.7%, going against the Dow Jones opposing estimate for a decline of 0.2%. When excluding auto-related sales, the number rises to 0.8%, far better than a forecast for a 0.5% gain. When comparing the data for the same time frame one year ago, sales were up nearly 14% on the headline number and over 15% when auto-related sales are again excluded.

4. The International Monetary Fund warned this week that central banks such as the U.S. Federal Reserve should be preparing to tighten monetary policy if inflation continues to show signs of becoming runaway. The international body went on to say that it largely agrees with many central bank assessments that inflation is currently “transitory” and should be expected to drop lower eventually, but noted that there is “high uncertainty” surrounding the timing of that drop. In the IMF’s executive summary, which accompanied the report, Gita Gopinath, an economic counselor, and director of research for the IMF cautioned “While monetary policy can generally look through transitory increases in inflation, central banks should be prepared to act quickly if the risks of rising inflation expectations become more material in this uncharted recovery. Central banks should chart contingent actions, announce clear triggers, and act in line with that communication.”

5. Richmond Fed President Thomas Barkin told CNBC on Friday that he stands behind the Fed’s decision to begin tapering off the amount of stimulus that the central bank has been providing and that he sees “risk on the inflation side” that he will continue to monitor. The Fed has said that it could begin a “gradual tapering process” as soon as mid-November and indicated in their last meeting minutes that inflation may last longer “than they currently assumed.” When taken in conjunction with the IMF’s warning on inflation, the Fed might also be contemplating a return to using strategic rate hikes to try to rein in growing inflation. In the latest meeting minutes from the Fed, the so-called “dot plot” of individual members’ expectations for interest rates indicated that the committee might begin raising interest rates as soon as next year. Markets appear to be pricing the first possible rate hike to take place in years for September 2022.

6. Inflation indicators continue to be on the rise, with a reading on Wednesday showing that consumer prices are up 5.4% in the U.S. over the last year – their fastest climb in decades. The Consumer Price Index for all items rose 0.4% for the month of September, compared with a Dow Jones estimate for a 0.3% climb. On a year-over-year basis, overall prices increased 5.4% versus an estimate for 5.3%. This is the fastest pace of increase since January 1991. When excluding volatile food and energy prices, where most of the recent increases have taken hold, overall prices are still up 4% on the year. Reports showed gasoline prices were up another 1.2% for the month, making the annual increase in the cost of fuel over 40%. Bob Doll, chief investment officer at Crossmark Global Investments, said “Food and energy are more variable, but that’s where the problem is. Hopefully we start solving our supply shortage problem, but when the dust settles, inflation is not going back to zero [or] to 2 [percent] where it was for the last decade.” Doll continued, saying “This is one more data point to say, ‘Fed, your trying to convince us that inflation is transitory is just not believable,’ If you know anybody who doesn’t have to live somewhere, doesn’t eat any food, and doesn’t use energy, then inflation is maybe not a particular problem. But come on!”

7. The World Health Organization announced this week that Covid-related deaths in every region except Europe are declining, hitting their lowest level in a year during the previous week. The group stressed that vaccine inequities continue to be an issue throughout much of the developing world. WHO Director-General Tedros Adhanom Ghebreyesus said on Wednesday that 56 countries did not reach the WHO’s goal of vaccinating 10% of their populations against Covid by the end of September and noted that the highest number of deaths continue to be reported in those countries with the least access to the jabs. Tedros called for wealthy nations to halt their plans to distribute Covid booster shots in order to help meet the WHO’s goal of immunizing 40% of the populations of every country by the end of 2021.

8. Oil prices continued to climb again this week, hitting fresh 3-year highs on Friday. West Texas Intermediate Crude hit $82.15 per barrel while Brent Crude pushed its way to $84.76 per barrel. Both measures of crude prices were up over 3% for the week. Analysts pinned the price gains on a sharp drop in oil stockpiles, which were at their lowest levels since 2015.

9. The euro began the week drifting basically sideways in a narrow band against the U.S. dollar. The euro began a slow trend to the downside, which saw the battered currency touch its lows for the week late on Tuesday. The euro began a relatively sharp climb to the upside overnight Tuesday that remained steady through mid-day on Thursday when it touched its highs for the week. The euro reversed course late Thursday but had managed to recover some ground as Friday’s trading began. The euro saw a slight decline prior to the market close on Friday but will still finish the week out to the upside against the U.S. dollar.

10. The Japanese yen began the week bouncing slightly to the upside against the U.S. dollar as trading opened. As Monday’s trading day began, the yen began a steady drift to the downside that lasted through mid-day on Tuesday. The drift lower halted on Tuesday, but the yen only managed to move sideways against the dollar and by late Thursday had resumed its drift lower. The yen saw a slight bounce just prior to the market closing on Friday but will close out the week to the downside against the U.S. dollar.

Rising inflation indicators continue to be of primary concern, particularly as the International Monetary Fund begins to warn global central banks to be ready to act rapidly if further price surges warrant drastic steps to attempt to reverse it. Analysts appear to have moved beyond merely being skeptical of the Federal Reserve’s (and other central banks’) view on the transitory nature of current inflation levels, noting that manufacturers have already been passing price increases on to consumers and that consumers appear to be willing to pay them. Manufacturing costs have surged amid supply chain shortages, energy shortages, and labor shortages. Wage increases and surging health insurance costs have also raised the cost of the labor pool across corporations and manufacturers. These particular increases are highly unlikely to be reversed, especially under the Biden administration.

It appears that business insolvencies are set to increase on a global basis in 2022 which would be the first time since the pandemic began. Trade credit insurer Euler Hermes said in a report on Wednesday that it expects global business insolvencies to jump by as much as 15% in 2022 as governments withdraw stimulus measures that have helped them stay solvent during the pandemic. Maxime Lemerle, head of sector and insolvency research at the firm said, “Looking at insolvency levels, governments succeeded in helping companies face the crisis: massive state intervention prevented one out of two insolvencies in Western Europe and one out of three in the US in 2020. Their extension will keep insolvencies at a low level in 2021, but what happens next depends on how governments act in the coming months.”

Prices for consumer goods continue to surge amid rising energy prices, food costs, and ongoing supply chain issues. Even as Covid deaths appear to be on the decline, the market disruption brought about by the ongoing pandemic is still on the rise. In recent weeks, vaccine mandates in the U.S. have brought about yet another disruption in the travel industry as pilots, air traffic controllers and train operators all walked out in protest of the vaccines mandated by President Joe Biden’s Executive Orders. Even amid federal contractors, the backlash is growing as these same Executive Orders demanded that any federal contractor with more than 100 employees must show proof that their workforce has been vaccinated or face government refusal to allow them to bid on work. An unforeseen aspect of this demand will likely be massively increased costs to the U.S. government. The vaccine mandate amounts to a contract change order, which likely means these federal contractors will take the opportunity to renegotiate their current contracts at a higher cost.

Savvy investors, recognizing the growing “stickiness” of inflation due to the aforementioned factors have continued to seek out ways to ensure that their portfolios are well-diversified and also sufficiently protected against inflation. Seeking to avoid overexposure to any single sector of the equity markets, many investors have returned to acquiring physical precious metals as price dips have allowed them to do so at a relative discount. Physical precious metals have historically been viewed as a hedge against inflation when they are included as part of a well-balanced and well-diversified investment portfolio. 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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