The Precious Metals Week in Review – November 12th, 2021

1. Stocks continued to make meager gains for most of this week despite plummeting consumer sentiment data and ongoing indications that inflation may be far more entrenched than the Federal Reserve is accounting for. By week’s end, the DJIA had drifted lower and appears set to close to the downside for the week.

2. For the week ending November 6, the seasonally adjusted number of Americans filing initial claims for unemployment decreased from the previous week’s revised level by 4,000 claims to reach a new level of 267,000. The previous week’s level was revised higher by 2,000 claims. The 4-week moving average of claims was 278,000, a decrease of 7,250 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. Wholesale prices skyrocketed 8.6% year-over-year in October, their highest annual pace in records that date back eleven years, according to the most recent data from the U.S. Department of Labor that was released on Monday. The producer price index (PPI), which is used as a gauge of final demand prices from goods producers, rose by 0.6% in October. One-third of the increase in goods prices was due to increases in gasoline costs. On the services side, roughly 80% of the increases were in autos and auto parts, which increased by 8.9% overall.

4. U.S. consumer prices surged 6.2% in October according to data released by the U.S. Labor Department on Wednesday. The jump was even worse than expected and marks the highest price surge in over 30 years. The consumer price index measures the cost of a wide variety of consumer products including gasoline, health care, groceries and rents. Even stripping out food and energy prices, which are frequently volatile, the so called core CPI was up 0.6% for the month. Annual core inflation now stands at 4.6%, its highest level since August of 1991. Fuel oil prices surged 12.3% for the month, while energy prices overall rose 4.8%.

5. Rising prices have pushed U.S. household debt levels past $15 trillion for the first time ever. Third quarter data showed a 1.9% increase in household debt over the previous quarter and an overall 6.2% gain over the same time period from a year ago. Mortgages rose by 2.2% and made up nearly $10.7 trillion of the debt figure. Auto loans increased by $28 billion.

6. U.S. consumer sentiment, as measured by the University of Michigan Consumer Sentiment Index, tumbled to its lowest level in 10 years according to the most recent survey showing preliminary numbers for November. Consumer confidence came in at just 66.8% for the initial reading in November, with 1 in 4 people citing that they had scaled back their standards of living over fears about the direction in which the U.S. economy is heading. The early reading, if it holds through the end of November, would be a 6.8% drop over October’s reading of 71.7. Richard Curtin, the survey’s chief economist, said “Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation.” Curtin added that “rising prices for homes, vehicles, and durables were reported more frequently than any other time in more than half a century.”

7. The White House announced on Wednesday that President Joe Biden will sign the largest federal investment in infrastructure in more than a decade into law on Monday. The $1 trillion Infrastructure Investment and Jobs Act was designed to improve the roads, bridges and waterways of the United States. In its statement, the White House said, “The President will highlight how he is following through on his commitment to rebuild the middle class and the historic benefits that the bipartisan infrastructure deal will deliver for American families.” The infrastructure legislation finally passed the House of Representatives after Progressive Democrats secured promises of support for the separate Build Back Better social safety net and climate package when it comes up for a vote after review of the Congressional Budget Office’s estimates of that plan’s budgetary impact.

8. On Friday, after the U.S. demanded an explanation from Moscow about Russian troop movements close to Ukraine’s border, the European Union also said that it was alarmed by Russian military activities in the region. EU foreign affairs spokesman Peter Stano told journalists that the 27-nation bloc “continue[s] to watch the situation and the information we gathered so far is rather worrying.” U.S. Secretary of State Antony Blinken said on Wednesday that the U.S. had warned Russia against making another “serious mistake” regarding Ukraine. Blinken told reporters at a joint news conference that he held with Ukraine’s foreign minister that “we don’t have clarity into Moscow’s intentions, but we do know its playbook. Our concern is that Russia may make the serious mistake of attempting to rehash what it undertook back in 2014, when it amassed forces along the border, crossed into sovereign Ukrainian territory and did so claiming falsely that it was provoked.” Pentagon spokesman John Kirby said that the recent Russian troop movements were “unusual in its size and scope.”

9. Crude oil had a volatile week with both West Texas Intermediate and Brent crude heading for losses. Fears that the Federal Reserve might accelerate their timeline for interest rate hikes in order to tame inflation seemed to by the primary factor for the drops this week, though rumors are also circulating that President Joe Biden may be considering a release from the Strategic Petroleum Reserve to help cool off gasoline prices, which are now approaching $5.00 per gallon in some locations in the U.S. Brent crude fell to $82.00 per barrel while WTI fell to $80.69 per barrel.

10. The euro opened the trading week drifting sideways, trading in a narrow band that was almost flat through most of Monday. The euro began climbing higher late Monday but could not gain momentum and had touched it’s high for the week by Tuesday. The euro bounced lower a couple of times on Tuesday, and then began a steady downward slide that continued overnight and accelerated throughout the day on Wednesday. The euro slowed its descent, flattening back out and drifting to its lows for the week on Friday morning. The euro drifted sideways close to its lows throughout Friday and will close out the week to the downside against the U.S. dollar.

11. The Japanese yen dipped against the U.S. dollar at the start of the trading week but quickly reversed and moved into positive territory. By Tuesday, the yen was at its highs for the week and drifted sideways in a very narrow band through Wednesday. Late in the morning on Wednesday the yen plunged back into negative territory and remained there through Friday morning. A small spike just before market closing was not enough to send the yen back into positive territory and it appears set to close out the week to the downside against the U.S. dollar.

Inflation data in the U.S. continues to be worrisome for the Federal Reserve. Both Consumer and Wholesale prices are surging, with increasing food, energy and fuel costs leading them seemingly ever higher. Real wages in the U.S. are now showing signs that they cannot keep up with the increasing cost of living. Now that the Fed has announced that it will begin implement its plan to taper off bond purchases, some analysts believe that the central bank may also be pondering beginning interest rate increases in the not-to-distant future. Former Indian Central Bank Governor Raghuram Rajan noted that these cost of living surges are happening in many regions around the world. Rajan, who led India’s Reserve Bank of India between 2013 and 2016 noted that recently accommodative monetary policy by the world’s central banks has caused “bubble-like” conditions in certain assets and added that he believes that inflation has become “more than transitory.” Rajan said, speaking on the sidelines of the UBS Euro Conference on Wednesday, that “One of the problems of course, if the central banks move too fast, markets adjust too quickly then you’ve got a huge wealth shock in the economy and that frightens consumers and so on, and you can precipitate the recession that you didn’t want in the first place.” Rajan continued, warning that central banks must proceed with caution on raising rates but avoid doing nothing at all. He said “The longer they wait [to normalize monetary policy] the more this sort of feeds on itself and there’s a belief that central banks aren’t going to move, rates will stay low for long. Worst of all, is that the markets believe that central banks have their back. If things collapse they will come back again with really accommodative policy, and if that’s the case then the central banks are, in a sense, trapped by the markets.”

Tensions continue to grow between Russia, the U.S. and the EU, and other NATO member nations. Russia has apparently been building up a military presence on the border of Ukraine once again and the movements are sparking concerns that Russia may be considering yet another incursion into Ukraine. Ukraine’s Foreign Minister Dmytro Kuleba said on Friday “Over the past couple of weeks, there has been a lot of diplomacy, including shuttle diplomacy between Kyiv, Washington, key European capitals and Moscow. This is a political track in which certain positions are communicated with Russia and the consequences for Russia are discussed if it resorts to a new wave of aggression against our state.” Kuleba, who met with President Biden this week, is set to meet with NATO and European Union officials in Brussels on Monday. Along similar lines, the EU is accusing Belarus of engineering a crisis on its border through its encouragement of thousands of migrants from various war-torn areas of the world to come to Belarus and from there, move into other members of the EU. Belarus has denied that this is taking place and Russia also denies any involvement in the crisis. Discussing this recent development, Kuleba said “Let’s agree that there is now no migration crisis in Belarus – there is a hybrid war between Russia and Europe. Moscow’s desire is to create problems and force the rest of the world to solve them.”

Central banks that may be rushing responses to global inflation; growing tensions between Russia, China, and Western nations; and the ongoing supply chain disruptions around the world all remain causes for concern among cautious investors. Savvy investors have long-ago taken steps to diversify their portfolios so that they have a better chance of surviving any market corrections that may take place in equities or real estate, or economic shocks brought on by conflict. Many of these investors have chosen to accumulate physical precious metals as part of their diversification plans, using temporary price dips as buying opportunities to add more physical product to their portfolios. Precious metals have a long history of retaining their value during long-term economic shocks which has led many investors to maintain a long-term percentage of physical precious metals in their investment portfolios. 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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