The Precious Metals Week in Review – October 22nd, 2021

1. Stocks continued their rebound this week amid multiple earnings surprises and continued easing in U.S. unemployment numbers. The gains were made despite ongoing gridlock in Washington, D.C. over the details of President Biden’s economic plan and hints that the U.K. might be considering additional economic shutdown measures if Covid cases spike over the winter.

2. For the week ending October 16, the seasonally adjusted number of Americans filing initial claims for unemployment decreased from the previous week’s revised level by 6,000 claims to reach a new level of 290,000. This continues to mark 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 319,750, a decrease of 15,250 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 750 claims. This also continues to mark the lowest level for the 4-week moving average since March 14, 2020.

3. The U.S. 10-year Treasury yield hit 1.68% on Friday after a better-than-expected weekly jobless report was released on Thursday. The Federal Reserve has been closely monitoring employment data as part of its analysis to determine the timing of its upcoming “tapering” of stimulus programs which were put in place to combat the economic devastation wrought by the ongoing pandemic. In meeting minutes released last week, the Fed indicated that conditions were nearing its economic goals and that it would begin the process of “normalizing” its monetary policy. Atlanta Fed President Raphael Bostic told CNBC on Thursday that, as part of that normalization process, he could see an interest rate hike possibly taking place in the “late third, maybe early fourth” quarter of 2022. Some analysts feel that the Fed may be misinterpreting inflationary pressures. Paul Gambles, co-founder and managing director at MBMG Group, told CNBC’s Squawk Box Europe program on Friday that he thought that there was a “huge misunderstanding, particularly by policymakers, as to what’s really happening out there” regarding ongoing supply chain issues and their impact on inflation. Gambles continued, saying “There’s no indication of genuine demand-driven inflation, this is all still a protracted supply shock.” Gamble further continued, referring to Raphael Bostic’s comments, saying that if the Fed was “determined to tighten” monetary policy that the effects could be “disastrous for capital markets” since central bank stimulus is apparently still the primary support for capital markets.

4. Embattled Chinese property developer Evergrande has apparently managed to stave off defaulting on its debts by making a key interest payment that was due on September 23 prior to the end of its 30-day grace period, which was set to expire tomorrow. The $83.5 million interest payment will allow the world’s most indebted property developer to avoid a default, at least for the near-term. The developer missed at least four other coupon payments in September and October and will also owe other interest payments on its U.S. dollar denominated bonds in November and December. According to Reuters, Evergrande has missed payments of at least $279 million since September, including the missed Sept. 23rd payment. Fears remain that Evergrande’s woes may lead to further contagion in China’s heavily indebted real estate sector.

5. The Fed announced an extensive set of new rules for its governing officials on Thursday which will ban them from trading in individual stocks and bonds. The new rules are a result of an ongoing ethics controversy over stock trades made by central bank officials in some sectors where their monetary policy decisions had direct effect on moves of those stocks. Fed officials and some senior staff will no longer be able to hold shares of particular companies and individual bonds. The rules also forbid them from holding agency securities or derivative contracts. Fed Chair Jerome Powell said, “These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve.”

6. Sales of existing homes increased by 7% in the U.S. in September on a brief dip in mortgage rates, according to the National Association of Realtors. Mortgage rates dropped below 3% in August but have since returned to higher levels. Supplies of homes for sale are still down 13% from the previous year, and low supplies are continuing to drive real estate prices higher. The median price for an existing home in the U.S. was $352,800 in September, over 13% higher than September of 2020. Prices for new homes were up over 20% as builders continue to battle supply chain issues and higher costs for land, labor and materials.

7. As the debate over what is to be included in President Biden’s economic plan rages on in Congress, just 41% of the public appear to approve of the President’s job performance, compared to 52% who disapprove, according to a new CNBC survey. Inflation fears now tie with the ongoing pandemic as the biggest concern for Americans for the near term. The survey also showed that 66% of the participants have noticed labor shortages that caused them to experience stores that were closed on odd days or were operating at reduced hours due to a distinct lack of workers.

8. Senate Majority Leader Chuck Schumer, (D) – NY, said that he is moving forward in attempts to pass a bipartisan infrastructure bill as well as a broader bill that would expand investment in social programs such as childcare, paid leave, health care, education, and climate change. Democrats are facing internal strife on the social investment bill as progressives argue that the initial $3.5 trillion in spending was too small, while centrists among the Democrats have tagged that figure as too high. Schumer said “Not every member will get everything he or she wanted but at the end of the day, we will pass legislation that will dramatically improve the lives of the American people. I believe we are going to do just that in the month of October.” When asked this week if he would accept a $2 trillion package in lieu of the current proposal, President Biden said “We’re in the process of continuing to talk to all the parties. We’ll see what we get.”

9. As winter sets in across the U.K., its National Health Service Confederation warned that some Covid restrictions should be reintroduced “without delay” if the government wishes to prevent hospitals from being overwhelmed with covid cases over the winter. The warning comes on the heels of U.K. Health Secretary Sajid Javid saying on Wednesday that the government would not be implementing its so-called “plan B” strategy of its fall-winter Covid plan, which would reimplement strict lockdowns in the country.

10. Oil prices continued to climb slightly this week, again hitting 3-year highs amid continued tightness in U.S. supply. U.S. West Texas Intermediate Crude hit $83.60 per barrel while Brent Crude rose to $85.47 per barrel. Data released by the U.S. Energy Information Administration this week showed that crude stocks at Cushing, the U.S. hub for West Texas Intermediate delivery, fell to 31.2 million barrels, which is their lowest level since October of 2018.

11. The euro dipped lower against the U.S. dollar as trading opened this week but had reversed course by mid-morning on Monday and surged back into positive territory, touching its high for the week on Tuesday. The euro drifted sideways in a narrow trading range through Thursday before drifting lower. The euro staged a brief recovery on Friday but moved lower again just prior to the market close. Despite the last-minute move to the downside, the euro will still finish out the week higher against the U.S. dollar.

12. The Japanese yen opened the week drifting to the upside against the U.S. dollar, then settled into more of a sideways motion that saw it trading in a narrow range through Tuesday, mid-day. The yen reversed course on Tuesday and had touched its lows for the week during the overnight hours early on Wednesday morning. The yen reversed course again and spent the rest of the week drifting mainly to the upside and appears set to close out the week higher against the U.S. dollar.

Inflation pressures remain the primary concern as central bankers around the world begin to implement their plans to reduce their various economic stimulus packages that they engaged in to try to nurse their various economies through the worst of the effects of the shutdowns caused by the spread of Covid-19. The U.S. Federal Reserve is already telegraphing potential interest rate hikes in 2022, which is generating unease among some stock analysts as they wonder whether the Fed may be moving to early with its monetary tightening. These analysts, though seemingly few in number thus far, question whether the Fed is misinterpreting the role that the ongoing supply chain disruptions are having on the very inflation indicators that the Fed is watching. Taken in isolation, this theory that supply chain disruptions are causing a temporary surge in inflation may seem to make sense, but when factoring in growing wage inflation across the world as companies are forced to pay up just to get a workforce that will even consider showing up for their assigned shifts; surging energy prices as the world tries to accelerate its move away from dependency on fossil fuels; and surging food prices combined with some outright shortages of product, there appears to be a deeper current at work.

As winter begins to set in across much of Europe, health officials are beginning to warn of another possible surge in Covid cases as populations once again are forced indoors into enclosed spaces where the disease is more likely to spread. Health experts are keeping an eye on the so-called “Delta Plus” subvariant of the disease as it appears to be making its way through the United Kingdom. The AY.4.2 subvariant, as “Delta Plus” is more formally known, features two new mutations to the spike protein that allows the virus to penetrate the human body’s defenses. Thus far, only 5 cases have been detected in the U.S. in Washington, D.C., California, North Carolina, Washington State and Massachusetts. In The U.K., it is a different story. Officials there appear to be facing a renewed health crisis as the “Delta Plus” subvariant has begun to spread there with “increasing frequency.” Despite the concerns, global health leaders are urging the public not to panic since the mew mutations to the disease are not enough to classify it as an entirely new variant.

Real estate prices are surging, stock prices are surging, food prices are surging, energy prices are surging, consumer goods prices are surging, labor prices are surging, yet precious metals prices appear to have been stuck in a tight range recently, in comparison to these other markets. Real estate and stock analysts alike have begun to question how much more room there is for either of those markets to run higher. Some stock analysts are urging caution regarding entering the equity markets at current levels, instead suggesting leaving some cash on the sidelines, or seeking alternate investments until stocks correct.

Savvy investors have continued to seek out ways to ensure that their portfolios remain diversified against unforeseen plunges in other markets and many of these investors have steadfastly continued accumulating physical precious metals as one part of their diversification plans. 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 and many investors seek out buying opportunities to add more physical precious metals to their portfolios when temporary price dips allow them to do so at a discount. 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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