The Precious Metals Week in Review – November 5th, 2021

1. Stocks continued to make gains this week as October’s Non-Farm Payrolls report blew past expectations and the Federal Reserve’s monetary policy moves remained in line with market projections. Inflation indicators remain at elevated levels across the world as supply chain issues continue and food and energy prices surge.

2. For the week ending October 30, the seasonally adjusted number of Americans filing initial claims for unemployment decreased from the previous week’s revised level by 14,000 claims to reach a new level of 269,000. The previous week’s level was revised higher by 2,000 claims. The 4-week moving average of claims was 284,750, a decrease of 15,000 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 500 claims. This continues to mark the lowest levels for both initial claims and the 4-week moving average since March 14, 2020.

3. The Non-Farm Payrolls report for October was released on Friday and the numbers blew away economists’ expectations. Non-Farm payrolls increased by 531,000 in October, far surpassing economists’ estimates for the addition of 450,000 jobs. The official unemployment rate fell to 4.6%, a new low during the pandemic and beating expectations there as well. Wages continued to climb, up 0.4% for the month and up 4.9% from a year earlier, which could add further fuel to growing calls that inflation could be much “stickier” than the Federal Reserve is anticipating. Labor force participation remains low, holding steady at 61.6% which is down 1.7% from its level in February of 2020, just before the economic shutdowns began in what was a futile effort to slow the spread of the pandemic around the globe. Michael Pearce, senior U.S. economist at Capital Economics described the labor participation figure in the report by saying “While the strength of employment was an encouraging sign that labor demand remains strong, labor supply remains very weak. The labor force rose by a muted 104,000, which is not even enough to even keep pace with population growth.”

4. The U.S. Federal Reserve held its latest Federal Open Market Committee meeting this week and opted to keep overnight lending rates steady at near zero for now. Despite the news that rate hikes may still be distant, mortgage rates have already begun to creep higher in anticipation. On Wednesday, at the conclusion of the FOMC meeting, the Fed announced that it will indeed begin tapering the pace of its asset purchases, as previously announced, beginning later in November. The reduction will amount to roughly $10 billion less in Treasury purchases and $5 billion less in mortgage-backed securities purchased by the Fed during November. In its post-meeting statement, the Fed continues to use the word “transitory” to describe inflation levels despite price increases that are at a near 30-year high. The Fed did concede that it’s “transitory” view on inflation could be reversed at some point by saying that inflationary pressures are “expected to” be temporary. Chairman Powell, speaking at the conclusion of the meeting, said that he expects inflationary conditions to last “well into next year.” Powell also further outlined the Fed’s future steps to taper off more stimulus, saying “The committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”

5. President Joe Biden met with current Federal Reserve Chairman Jerome Powell and Fed Governor Lael Brainard this week, sparking speculation that these are his top two choices for leading the Fed after Powell’s current term expires this year. Most think that Biden will likely choose to reappoint Powell, rather than replace him, but the scandal that broke earlier this year surrounding stock trades made by some Fed officials may overshadow the accomplishments the Fed has made under Powell’s leadership. This could mean Biden might choose to bring in “new blood”, possibly appointing Brainard in Powell’s place. Brainard is likely the top candidate for the vice chair post if Biden does not choose to appoint her to lead the Fed in place of a repeat term for Powell.

6. Republican Glenn Youngkin shocked the Democratic party this week by winning the hotly contested gubernatorial election in Virginia, beating former Democratic Governor Terry McAuliffe. Victories for Republicans in the Attorney General and Lieutenant Governor races in Virginia means that leadership of the historically Blue state has suddenly “flipped to Red”. President Biden won Virginia by ten points in last year’s election and was shocked at the outcome in this week’s contests. This week’s losses are widely being blamed on Biden’s low approval ratings, and President Biden said the defeat showed that his party needs to pass some of his legislative agenda before the midterm elections arrive, likely meaning he fears that Democrats may lose control of the House, the Senate, or both. Biden said, when asked about the election results, “People want us to get things done. They want us to get things done. And that’s why I’m continuing to push very hard for the Democratic Party to move along and pass my infrastructure bill and my Build Back Better bill.” Biden refuses to acknowledge that the election results may have been a referendum on what the general populace actually thinks of his legislative agendas.

7. OPEC+ producers this week essentially chastised the U.S. for its call to boost output and raise global crude supplies in order to reduce the ongoing surge in oil prices. These producers announced that they plan to stick to gradually increasing their outputs, only slowly reversing the cuts that they made to production as the pandemic gained momentum. Despite touching 7-year highs recently, oil retreated slightly this week with Brent hitting $82.98 on Friday and West Texas Intermediate trading at $81.53 per barrel.

8. The euro began the trading week drifting slightly lower against the U.S. dollar but had pushed its way into positive territory by late in the day on Monday. The euro drift mostly sideways, with a slight downward trend, through late Wednesday before dipping slightly and then surging back to touch its highs for the week. The euro could not keep up the momentum and began dropping as Thursday’s trading opened. The euro continued its downward trend, touching its lows for the week in Friday before surging back near opening levels just prior to the market close. The euro dipped slightly again ahead of market closing and will finish out the week slightly to the downside against the U.S. dollar.

9. The Japanese yen dipped against the U.S. dollar at the start of the trading week, but reversed course Monday morning and moved back into positive territory. The yen paused its upward trend on Tuesday and began drifting lower again through Thursday morning. Late Thursday morning, the yen reversed course and climbed back into positive territory again. A move higher on Friday just before market closing will ensure that the yen finishes out the week to the upside against the U.S. dollar.

October’s jobs data in the U.S. was far better than economists expected. Even though the labor force participation rate remains stubbornly low, the unemployment rate fell to a new pandemic low of 4.6%. The positive data, coming on the heels of the Federal Reserve’s decision to leave interest rates near zero for the time being while they begin tapering off the amount of stimulus that they are injecting into the U.S. economy may mean that interest rate hikes are coming sooner than previously expected if inflation continues to run hot. The Fed’s statement at the conclusion of its latest FOMC meeting also left it clear that we can expect further stimulus tapering moves to be conducted during the coming months. We should also find out in the coming weeks whether Jerome Powell will maintain his leadership role as Chairman of the Federal Reserve.

The US Congress was hoping to vote this week on both the infrastructure bill and a larger “Build Back Better” social spending bill, but those efforts were sabotaged by infighting among the different factions that now exist within the Democratic Party. The Liberal and Progressive factions within the party balked at passing the infrastructure bill on its own while negotiations continue on the final version of the social package. These groups insist that both bills be moved through the House of Representatives at the same time, a strategy they hope will give them more leverage in negotiations with Senate Democrats who take a more centrist view and are seeking to curtail some of the spending in the social package. Democratic Representative Pramila Jayapal, just moments after House Speaker Nancy Pelosi had announced a plan to hold a vote on the infrastructure bill, said in a statement “As we’ve consistently said, there are dozens of our members who want to vote both bills – the Build Back Better Act and the Infrastructure Investment and Jobs Act – out of the House together.” Pelosi does not have the number of votes needed to simply ignore the rebellion within her ranks and was forced to concede to their demands, holding off on a vote for the infrastructure package and thereby missing their self-imposed deadline.

Inflation indicators remain a primary concern for investors as we enter the holiday season. In September, the consumer price index (CPI) rose by 5.4% from one year ago, approaching a 30-year high according to the Bureau of Labor Statistics. Food costs alone rose 4.6%, primarily driven by surges in the prices for meat, poultry, fish and eggs. The USDA is projecting that food costs for consumers who cook at home will be up by as much as 3.5% for the entire 2021 year. As retailers begin to stock their shelves with the makings of Thanksgiving and Christmas meals, consumers are going to be paying up for their holiday gatherings. The fuel for family members to reach those holiday gatherings is also costing them more, with gasoline prices at the pump in the U.S. approaching close to $4.00 per gallon. As the weather continues to cool off as North America moves into winter, the cost to heat homes has steadily risen throughout 2021 as well. Supply chain shocks continue, and the ongoing semiconductor shortage means that shelves which would normally be stocked with every electronic gadget imaginable by this time of year are looking sparse. That shortage in supply is driving up prices for holiday gifts as many consumers look to complete their holiday shopping early.

In the face of climbing inflation, and equity markets that simply refuse to acknowledge anything resembling bad news, savvy investors continue to make an effort to ensure that their portfolios are diversified against overexposure to dramatic moves in any one investment area. As these investors watch the prices for real estate, stocks, energy, and consumer goods skyrocket, they seek out alternative investment opportunities that may be underpriced compared to everything else. Many of these investors long ago began accumulating physical precious metals as part of their efforts to keep their portfolios diversified. These investors have continued accumulating physical product whenever buying opportunities have arisen in the form of temporary price dips. Precious metals have long been viewed as a hedge against inflation and have frequently also been viewed as a safe haven in times of economic turmoil. 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.

Trading Department – Precious Metals International, Ltd.

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