The Precious Metals Week in Review – November 26th, 2021

1. It was a shortened trading week due to the Thanksgiving holiday in the U.S. this week. On Thursday, the holiday saw U.S. markets closed for trading entirely while Friday saw a shortened trading day. Stocks took a beating on Friday as fears over a new variant of Covid-19 spread. European stocks closed down 3.7% as the DJIA fell over 1,000 points in early trading. The travel sector alone plummeted 8.7% on Friday. The plunge in the Dow was by far the worst day for the DJIA so far this year.

2. For the week ending November 20, the seasonally adjusted number of Americans filing initial claims for unemployment decreased from the previous week’s revised level by 71,000 claims to reach a new level of 199,000. This is the lowest level for initial claims since November 15, 1969. The previous week’s level was revised higher by 2,000 claims. The 4-week moving average of claims was 252,250, a decrease of 21,000 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 level for the 4-week moving average since March 14, 2020.

3. The World Health Organization announced on Thursday that a new Covid-19 variant has been detected in South Africa. Dubbed the “omicron” variant, the new strain contains many more mutations to the spike protein, which is the mechanism that allows the virus to bind to cells and cause full-blown infections in individuals. Fears are that the multiple new mutations, more than were found in the highly infections delta variant, may allow the novel variant to be more evasive to vaccines. The United Kingdom temporarily suspended air travel from six African countries after hearing the news. Israel banned travel to several nations after finding one confirmed case of the new variant in a traveler. Hong Kong identified two cases of the new variant and Belgium also confirmed that it had discovered a single case. Very little is known about the new variant so far, and a large number of mutations does not necessarily equate to a more deadly version of the disease.

4. Five U.S. lawmakers landed in Taiwan on Thursday to meet with government officials there, in direct defiance of Beijing’s request for the U.S. to stay out of its affairs. Representative Elissa Slotkin, a Democrat from Michigan, wrote on Twitter “When news of our trip broke yesterday, my office received a blunt message from the Chinese Embassy, telling me to call off the trip. The auto industry’s largest supplier of microchips is here in Taiwan, so supply chain issues will most definitely be on the agenda.” Rep. Slotkin’s office shared excerpts of a letter it said it had received from the Chinese embassy on Wednesday, which read “We strongly urge the Congresswoman immediately cancel the planned visit to Taiwan, and not to support and embolden separatist forces of ‘Taiwan independence,’ lest it cause huge damage to the China-US relations and the peace and stability of Taiwan Straits.” An earlier visit by members of Congress to Taiwan resulted in China launching military exercises near the hotly contested island. It remains to be seen whether a similar result will occur after this month’s visit.

5. Western Canada was bracing for additional rainfall, even as the embattled province of British Columbia continues to remain flooded more than a week after torrential rains triggered evacuations, mud slides, road and railway closures, and exacerbated supply shortages in the region. Railways were just beginning to open up again to bring goods such as lumber and grain into the port of Vancouver. Panic buying in some areas emptied grocery store shelves and the blockages preventing rail and truck travel have not allowed easy restocking of diminished supplies. Rob Fleming, British Columbia’s minister of transportation and infrastructure commented on the extra rainfall that is on the way, saying “We have extra crews and equipment ready to be mobilized. We have areas where we know the amount of precipitation that was part of the rain events has accumulated and poses a risk.” Fleming also said that highways are being monitored from both ground and air.

Rainfall is expected to douse the region again over the next nine to ten days, with British Columbia’s Public Safety Minister Mike Farnworth asking residents to pay close attention to weather forecasts in the coming days. Farnworth said, “The next 9 or 10 days could be quite challenging.” British Columbia Hydro released a warning on Wednesday that it was anticipating increased water flow into its South Coast and Vancouver Island reservoirs. The power company said that it expected a higher risk of power outages this week due to the incoming weather. In hard-hit Abbotsford, the city replaced its ongoing “boil water” advisory for some of its residents with a new “do not use water” advisory, citing uncontrolled water main breaches in the region that might allow contaminated surface water to enter drinking water supplies.

6. Ukraine’s foreign minister Dmytro Kuleba, in a televised briefing on Thursday, warned Russia that any attack on his country would be too costly for Moscow. Kuleba said “We are not trying to guess what is in Putin’s head. We are working to give him a clear understanding – a new attack on Ukraine will be too costly, so it is better not to do it.” He said that Kyiv’s main goal is to prevent Russia from taking “further aggressive actions.” Kuleba continued, saying “To do this, Moscow must clearly understand what political, economic and human losses it will incur in the event of a new stage of aggression.” NATO Secretary-General Jens Stoltenberg echoed the foreign minister’s comments, warning Russia on Friday that any attempt to invade Ukraine would have costs, when discussing the recent massive buildup of Russian troops near Ukraine’s borders. Moscow continues to deny that it is planning any incursion into Ukraine, but refuses to discuss details regarding troop movements that it performs within its own borders.

7. Crude oil took a beating this week as the complex dropped 13% on Friday alone, it’s worst day for all of 2021. As concerns grew over the new variant of Covid-19 discovered in South Africa, dubbed the omicron variant, analysts began to fear that crude demand could take yet another virus-triggered downward slide. Brent crude dropped to $73.45 per barrel while West Texas Intermediate (WTI) slid below $70 once more, hitting $68.15 per barrel. It is the fifth straight week of losses for both oil contracts, their longest weekly losing streak since March of 2020, when global economic shutdowns triggered a plunge in demand for oil.

8. The euro began the week with a brief pop higher against the U.S. dollar, before beginning a shallow downward move that reversed course and moved back near opening levels by late Tuesday afternoon. The euro reversed again late Tuesday evening, moving lower and accelerating the decline into Wednesday’s trading. By late Wednesday evening, the euro had touched its lows for the week, but reversed course yet again, attempting a shallow climb that lasted through mid-day on Thursday. Overnight on Thursday, the euro suddenly took a surge to the upside, sending it back into positive territory for the week. The euro managed to maintain its momentum during Friday trading and will close out at its highest point for the week against the U.S. dollar.

9. 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.

Inflation worries seemed to take a back seat during this holiday-shortened week as the new omicron variant of Covid-19 was announced. The new variant, which features many more mutations to the spike protein that gives the virus its ability to infect cells than the previous delta variant, was immediately named a “variant of concern” by the World Health Organization, skipping over the “variant of interest” stage due to the number of new mutations. South Africa’s Gauteng province was where the new variant was discovered and it is feared that a sharp increase in the number of Covid cases there could mean that the new variant may have capabilities to evade prior immunity to the virus, whether that comes from naturally from previous exposure or is vaccination-based, than other variants had previously. The WHO cautions that it could take weeks to understand how, or even if, the new variant responds to current diagnostics, therapeutic treatments, natural immunity, and vaccines. Maria Van Kerkhove, the WHO’s technical lead on the disease, posted a video to Twitter saying, “This variant has a large number of mutations, and some of these mutations have some worrying characteristics.” Sharon Peacock, professor of public health and microbiology at the University of Cambridge, said “There are two approaches to what happens next: wait for more scientific evidence – or act now and row back later if it wasn’t required. I believe that it is better to ‘go hard, go early, and go fast’ and apologise if mistaken, than to take an academic view that we need to reach a tipping point in evidence before action is taken. Rapid spread in South Africa could be due to super-spreader events or other factors. But there are sufficient red flags to assume the worst rather than hope for the best – and take a precautionary approach.” The U.S., the U.K, the EU, Israel and Singapore are all among countries that have taken steps to impose travel restrictions against South Africa as a result of the new variant. The U.S. announced that it would also restrict travel for non-U.S. citizens from seven other countries starting on Monday due to the new omicron variant. Markets across the globe plunged as more than one country announced that they had already discovered the new, heavily mutated, variant within their borders.

As the world awaits the research on the transmissibility and results on the efficacy of natural or vaccine-based immunity against the new variant, inflation indicators continue to surge. Crude oil prices plunged this week as fear over the new variant made analysts question current demand data. This may sound like a bright spot in the war against surging gasoline prices, but that could turn out to be even more damaging in the long-term. The U.S. has pledged to make a release from its Strategic Petroleum Reserves (SPR) to offset gasoline prices which have been surging in the U.S. since President Biden took office and began to enact measures that once again make drilling for and refining crude oil in the U.S. economically difficult. If the U.S. follows through on its SPR withdrawal at current price levels and is forced to replenish the amount it withdraws at a later date at higher prices, then any short-term price savings at the pump will likely be offset by the difference between the two.at a future date. Prices for core personal consumption expenditures increased by 4.1% in October from just one year ago in the U.S., their highest levels since January of 1991. Traders appear to be pricing in three interest rate hikes by the U.S. Federal Reserve in 2022 which they will likely make in an effort to fight off inflation.

Price dips took place this week in nearly all markets, particularly on Friday after the omicron variant of Covid-19 was announced the previous day. If the world enters yet another global shutdown in response to the more heavily mutated variant, supply chain shortages can be expected to escalate, despite manufacturer assurances that they are beginning to get a handle on backlogs at ports and transportation outlets. Supply chains in Canada have already had a major setback on that country’s west coast as a result of massive amounts of recent rainfall, with more on the way. Any further setbacks to the overall supply chain of the world will surely do nothing more than send inflation surging to even higher levels than we are already seeing. Equity markets took a particularly hard tumble this week after the new variant was discovered, especially in those sectors that were hardest hit during the global shutdowns that took place in 2020 as Covid-19 was first spreading around the world.

Savvy investors who long ago took steps to ensure that their portfolios are diversified enough to protect against such downturns brought about by economic shocks watched and waited for buying opportunities as markets tumbled in response to the news. Many of those investors that had not already taken steps to ensure that their portfolios are sufficiently diversified panicked as they watched the Dow Jones Industrial Average plummet by over 1,000 points at one point on Friday. As inflation indicators have continued to climb, many investors have returned to acquiring physical precious metals whenever buying opportunities in the form of temporary price dips present themselves. Physical precious metals have a long history of retaining their store of value in inflationary and geopolitically unstable environments. Many investors seem to feel that this long history for precious metals remains just as relevant in today’s environment where inflation is surging, Russia is massing troops along Ukraine’s border and China seems to be continually chastising the U.S. for its policies towards both Taiwan and mainland China as the latter continues boasting of its military advancements.

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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