The Precious Metals Week in Review – November 19th, 2021

1. Stocks paused their seemingly inexorable climb this week as inflation indicators continued to surge and confusion surrounded the fate of U.S. President Joe Biden’s “Build Back Better” legislation.

2. For the week ending November 13, the seasonally adjusted number of Americans filing initial claims for unemployment decreased from the previous week’s revised level by 1,000 claims to reach a new level of 268,000. The previous week’s level was revised higher by 2,000 claims. The 4-week moving average of claims was 272,750, a decrease of 5,750 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 500 claims. These continue to mark the lowest levels for both initial claims and the 4-week moving average since March 14, 2020.

3. The House of Representatives passed President Joe Biden’s so-called “Build Back Better” plan, a $1.75 trillion combination social safety net and climate change bill this week. The bill earmarks $555 billion in climate programs, mostly in the form of tax incentives for low emission energy sources and vehicles. The bill targets 2030 as the year that the U.S. would cut its emissions in half and supposedly will allow the country to reach net-zero emissions by 2050. The plan still needs to be approved by the Senate, which could be a challenge due to the fact that enacting it will add even more to the already massive U.S. deficit. Two key Democratic senators remain on the fence and have not endorsed the legislation. Democrats cannot afford to lose any of their 50 votes in the Senate or the legislation will likely be doomed. Senate Democrats are pushing to pass the legislation before Christmas in hopes that they can push the rest of their legislative agenda through before midterm elections in 2022. If the Senate revises the bill at any point however, the House of Representatives will be forced to hold another vote on the revised package.

4. Over the past few months, Americans have been quitting their jobs in what has come to be known as the “Great Resignation.” In September alone, over 4.4 million individuals submitted their resignations. The reasons for the “Big Quit” as it has also been called, are not entirely understood. Barclays deputy chief U.S. economist Jonathan Millar, along with others, wrote in an analysis that they “believe that this resignation dynamic is mostly a symptom of other underlying forces that are affecting labor market participation, rather than a cause. Indeed, the high quit rate is a red herring for understanding the sluggish return of workers to the US labor market following the COVID-19 pandemic, in our view. Instead, the true cause is a hesitation of workers to return to the labor force, due to influences tied to the pandemic such as infection risks, infection-related illness, and a lack of affordable childcare.”

Other analysts believe that the rising number of quits may be a sign of an empowered workforce demanding higher pay to take on the risk of exposure to COVID-19. Wages have been rising sharply of late, up 4.9% year over year in October, and appear to still be climbing as companies try to find a workforce that is willing to show up. There could be a downside to the labor shortage however, as many companies have begun to explore ways to use automation to fill in for the shortage in their labor force. DataTrek co-founder Jessica Rabe wrote, in a recent report discussing the ongoing labor issues, “With this backdrop, we expect continued growth in automating roles both to take the place of workers [that] companies cannot find and to offset rising wage pressures. This will be an important trend to watch as it will shape labor markets over the long-term given that automation, once installed, is simply never reversed.”

5. British Columbia was forced to declare a state of emergency this week as record-breaking rainfall that occurred over the last few days triggered massive floods and landslides along its Pacific coast. The disaster has triggered yet another disruption to supply chains and forced Canada’s government to deploy its air force to the area to assist with evacuations and attempt to alleviate the disruption to supply chains. All rail access to Canada’s largest port in Vancouver has been cut off and the floods have also cut off overland transportation routes between the lower mainland of British Columbia and the interior of the province.

6. President Biden said this week that he is considering a U.S. diplomatic boycott of the 2022 Winter Olympic games, due to be held in Beijing, in protest of China’s treatment of its Uyghur Muslim minority population. A diplomatic boycott would still allow U.S. athletes to compete in their various events, but no American officials would attend the event. The Washington Post had reported earlier in the week that an announcement of a diplomatic boycott could occur before the end of the month, but Biden apparently let slip that it was being considered while answering questions from reporters at a press conference.

7. Russia continues to be closely watched on the world stage as it has amassed tens of thousands of troops on its border with Ukraine. The move has sparked fears that Russia may be seeking a repeat of its 2014 invasion into Ukraine, which saw it annex the peninsula of Crimea under the guise that it was simply acting to protect native Russian speakers in the region. When asked whether Russia is planning a military invasion into Ukraine, Russian President Vladimir Putin called the notion “alarmist.” Timothy Ash, an expert on Russia and senior emerging markets sovereign strategist at BlueBay Asset Management said on Tuesday that he feels that Putin “is bracing for war with Ukraine. He has the motive, opportunity and weapon.” Ash said the motive was that Putin “wants Ukraine, as he never accepted its loss in 1991 with the collapse of the USSR, and sees Ukraine as central to his vision of Greater Russia.” As for opportunity, Ash said “The West is weak, divided and lacks focus. Biden is focused on China, Europe on gas, migrants and the Balkans, Ukraine is politically weak.” As for Putin’s weapon, Ash said “Well, an invasion force of several hundred thousand in/around Ukraine, including forces already in Donbas and Crimea. Add in gas, migrants, political intrigue, cyber, space…”

8. Just days after the conclusion of the COP26 global climate summit, the Biden administration announced that it was opening more than 80 million acres in the Gulf of Mexico up for auction for oil and gas drilling. The move marks a direct reversal of Biden’s campaign promise to shut down new oil and natural gas leases on public lands and waters and sets a record for acreage to be leased.

9. Crude oil slipped to a six-week low after Austria announced a nationwide lockdown due to growing cases of Covid-19. Fears that further lockdowns could ensue sparked analyst concerns that demand for oil could plummet again. The Biden administration also announced that it was considering options to lower gas prices, which are close to seven-year highs, including tapping the U.S. Strategic Petroleum Reserve. Brent crude traded as low as $78.15 for the first time since October 1st while West Texas Intermediate sank over 4%, as low as $75.37 for the first time since October 7th.

10. The euro drifted sideways against the U.S. dollar as the market opened for trading this week, but quickly began a downward trend that lasted through Wednesday morning. The euro reversed course on Wednesday and began a shallow climb back towards positive territory but had lost momentum by Thursday night when the climb halted and the euro drifted sideways into Friday trading. On Friday, after news broke that Austria would be implementing nationwide lockdowns once more, the euro plunged to its lows for the week. While the embattled currency did see a small bounce higher just prior to market closing, it could not maintain momentum and will finish the week out to the downside against the U.S. dollar.

11. The Japanese yen began the week also drifting mostly sideways against the U.S. dollar, but it too began a downward slide that lasted through Wednesday morning before reversing course. The yen began a climb that halted just before reaching opening levels for the week, then slid lower in a shallow fall through Friday morning. On Friday, just before market closing, the yen shot back into positive territory, touching its highs for the week before drifting back near opening levels. The yen appears set to close the week out slightly higher, or somewhat flat, against the U.S. dollar.

While inflation remains of primary concern, the threat of additional lockdowns due to the ongoing Covid-19 pandemic became a reality this week as Austria became the first country in Western Europe to implement another nationwide lockdown as Covid cases have continued to surge there. Austria also announced that vaccines would become mandatory beginning February 1, 2022. Germany’s government is also rumored to be considering a full national lockdown with health minister Jens Spahn saying that the country is in a “national emergency” and adding that “we can’t rule anything out” when asked if a lockdown might even include those who have already been vaccinated. The southern German state of Bavaria cancelled all Christmas markets and imposed a mandatory lockdown on all districts that have a seven-day Covid case rate of over 1,000 per 100,000 people. Bavarian state Premier Markus Soder called for mandatory Covid vaccinations beginning next year.

Even as inflation hit 30-year peak levels, retail sales in the U.S. rose faster than expected in October, showing that consumers do not appear to be cutting back on their purchases due to inflation fears. Retail sales in the U.S. were up 1.7% in October, up from just 0.8% in September. On an overall basis, sales are up 16.3% year-over-year, though sales within the leisure-driven restaurant and bar industry were essentially flat for the month. Rent for single family homes in the U.S. has joined the ranks of items whose prices are surging. Rents rose nationally by 10.2% in September year-over-year, up from just an increase of 2.6% for the same time period last year. The surge seems to be primarily driven by continued sky-high prices for homes that are for sale. Analysts are growing increasingly concerned that surging prices for everything from basic housing needs to food and energy might soon outpace wages and significantly impact the ability for the general population to be able to afford the rising cost of living. Republicans on the Joint Economic Committee warned on Monday that inflation is having an “outsized effect” on those in the lowest income brackets, particularly given the rising cost of food, gasoline, and housing. Senator Mark Lee, a Republican out of Utah, said “Democrats’ reckless spending has driven inflation to a three decade high, and it’s making life harder for poor and middle class Americans. Inflation is eating into the livelihoods of American families. It’s causing them to fall further behind. The reckless spending must stop.” Inflation in the U.K. is also surging, with the Consumer Prices Index hitting a 10-year high of 4.2% and coming in worse than expected in October.

As Western Europe embarks on another series of seemingly futile lockdowns to try to control the spread of Covid-19, further disruptions to supply chains are highly likely and a reversal by European central banks on any plans to taper off economic stimulus measures may also occur. A growing disaster on Canada’s western coast is also threatening further supply disruptions in North America as floods inundate regions in British Columbia, shutting down its ports. These additional shocks to the supply chain are likely to drive inflation even higher. Investors continue to seek ways to ensure that their portfolios remain diversified against economic shocks such as supply disruptions and further lockdowns. Many savvy investors view physical precious metals as one such way to diversify, keeping in mind their long history as a hedge against inflation and economic hardship. 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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