The Precious Metals Week in Review – December 17th, 2021

1. Market volatility remained in the equity markets this week, with stocks plunging on Thursday and Friday. Bond yields also declined following the conclusion of the Federal Reserve’s Federal Open Market Committee meeting this week.

2. For the week ending December 11, the seasonally adjusted number of Americans filing initial claims for unemployment increased from the previous week’s revised level by 18,000 claims to reach a new level of 206,000. The previous week’s level was revised higher by 4,000 claims. The 4-week moving average of claims was 203,750, a decrease of 16,000 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 1,000 claims. This marks the lowest level for the 4-week moving average since November 15, 1969.

3. The Federal Reserve held its Federal Open Market Committee meeting this week to determine the course of monetary policy for the near term. In its post-meeting statement, the Fed said that it would work to battle growing inflation by accelerating the reduction, or tapering, of its monthly bond purchases. The central bank also noted that it will likely begin raising interest rates in 2022 and may conduct as many as three different rate hikes next year. On Thursday, stocks and bonds both plunged as they absorbed the Fed’s stance. Following Thursday’s market action Kathy Jones, the chief fixed income strategist at Charles Schwab, said “The bigger challenge for the Fed and for the markets is that they may not have the scope to raise rates as much as they say they do without inverting the yield curve and slowing down the economy more than they want. What the market’s telling you is the Fed doesn’t have much scope to go beyond two or three hikes.” The majority of Fed members appear to be of the opinion that the Fed may approve three quarter point rate hikes next year, followed by three in 2023 and two more in 2024. Some members indicated that they may even support up to four rate hikes next year.

4. On the heels of the Labor Department’s announcement that the consumer price index rose 6.8% in November from just one year ago, and as the Fed was preparing to undergo the latest FOMC meeting, Allianz Chief Economic Advisor Mohamed El-Erian called out the central bank on its stance that inflation was “transitory.” El-Erian told CNBC’s Face The Nation program that “The characterization of inflation as transitory is probably the worst inflation call in the history of the Federal Reserve, and it results in a high probability of a policy mistake.” El-Erian continued, saying “So, the Fed must quickly, starting this week, regain control of the inflation narrative and regain its own credibility. Otherwise, it will become a driver of higher inflation expectations that feed onto themselves.” He added, “If they catch up now, if they’re honest about their mistake and take steps now, they can still regain control of it.”

5. On Wednesday, the House of Representatives voted to raise the debt ceiling, just prior to the December 15 deadline that would have triggered the first U.S. default on its debt in history. The bill then headed to President Biden’s desk for signature into law on the very day that Treasury Secretary Janet Yellen had forecast that the U.S. would run out of any remaining tools to pay its bills under the existing debt ceiling. The President signed it into law the following day. Only one Republican in the Democratic-held House voted for the increase. The measure will increase the debt ceiling by $2.5 trillion, a level described by Senate Majority Leader Chuck Schumer as “commensurate with funding necessary to get into 2023.” Raising the debt ceiling limit does not authorize new spending by the U.S. government. Congress still must draft a new appropriations bill at some point in 2022 that would authorize further spending by the government or it must face being forced to raise the debt ceiling even further next year.

6. In Arkansas, Illinois, Kentucky, Missouri, Mississippi and Tennessee over the weekend, a series of dangerous storms spawned massive tornadoes that devastated towns and killed well over one hundred people. One of the storms crossed four states, carving a 220-mile swath of damage that may make it one of the longest tornadoes in the history of the U.S. if the twister stayed in contact with the ground through the entirety of the event. The Federal Emergency Management Agency has been dispatched to all states involved, and many of those have already declared a state of emergency. President Biden’s administration has said it will do “whatever is needed” to assist those impacted, approving Kentucky’s state of emergency declaration, and standing ready to approve any that come in from the other states.

7. The U.S. placed 34 Chinese entities on a so-called “blacklist” this week, citing human rights abuses and, oddly enough, “brain control weaponry.” The trade restrictions were placed on various research institutions and other entities and are reportedly based on the accusations by the Commerce Department that China’s Academy of Military Medical Sciences and 11 of its research institutes were using biotechnology “to support Chinese military end uses and end users, to include purported brain-control weaponry.” Other companies made the list due to their roles in “acquiring or attempting to acquire technology from the United States to help modernize the People’s Liberation Army.” As usual, the Chinese Embassy in Washington, D.C., called the U.S. moves “unwarranted suppression” of Chinese entities. In a statement provided to CNBC, embassy spokesperson Liu Pengyu said “The facts and truth on Xinjiang-related issues are very clear. China’s development of biotechnology has always been for the well-being of mankind. The relevant claims of the US side are totally groundless.”

8. Crude oil reversed course this week, giving up last week’s gains and heading for a weekly loss on further uncertainty over the implications that the omicron variant of Covid-19 might have on oil demand. Brent crude futures fell to $73.61 per barrel while U.S. West Texas Intermediate (WTI) fell to $70.90 per barrel. The moves amount to a 1.4% loss for the week.

9. Despite success in raising the debt ceiling, Democrats are highly unlikely to be able to pass President Biden’s social spending plan frequently called the “Build Back Better” plan before year-end. Democratic Senator Joe Manchin continues to withhold his support for the plan and his vote would be key in actually being able to pass the bill out of the Senate. Failure to pass the plan this year would mean that the enhanced child tax credit of up to $300 per month, per child, will expire at the end of the year unless Congress takes separate measures to extend the benefit. Under the Build Back Better plan, the benefits would be extended for another full year.

10. The euro began the trading week moving lower against the U.S. dollar. On Monday the euro reversed its decline but was trending lower again by late afternoon. The euro bounced into positive territory briefly on Tuesday, but quickly blunged lower and resumed its downward trend. The euro touched its lows for the week late on Wednesday but immediately bounced higher and clawed its way back into positive territory, touching its highs for the week late Thursday afternoon. The euro attempted to remain positive throughout the rest of Thursday and much of Friday, but just prior to close, a sharp decline sent the euro back near its lows for the week once again. The euro closed out the week to the downside against the U.S. dollar.

11. The Japanese yen spent most of the week drifting lower against the U.S. dollar in a shallow slope marked by minor peaks and valleys. By late Wednesday, the yen had reached its lows for the week and stayed there through Thursday afternoon. On Thursday, the yen moved near vertically higher, but not enough to regain positive territory. The yen drifted slowly higher through Friday, accelerating into Friday trading, when it touched its highs for the week. The yen tapered off just prior to the close, moving slightly lower into negative territory again and ended the week just slightly to the downside against the U.S. dollar.

Omicron continues to spark concern among the World Health Organization and world leaders alike, even though the majority of cases continue to show mostly mild effects among those who become infected with the new variant, particularly those that are fully vaccinated or have already survived earlier infection. On Wednesday the WHO warned against treating the omicron variant as nothing more than a mild strain of the disease and said that the new variant could still cause severe illness. Maria Van Kerkhove, the WHO’s technical lead on Covid-19, said at a question-and-answer session “We know that people infected with omicron can have the full spectrum of disease, from asymptomatic infection to mild disease, all the way to severe disease to death.” The previous day, the WHO said that omicron is spreading more quickly than any previous variant and Kerkhove warned that the increased transmission rate could result in more hospitalizations, which could over-burden already strained health care systems. She continued, saying “If a system is overburdened, then people will die. We have to be really careful that there isn’t a narrative out there that it’s just a mild disease.”

On Wednesday, the U.K. reported its highest number of Covid infections since the beginning of the pandemic. There were more than 78,000 new cases inside the country inside of 24 hours. Prime Minister Boris Johnson has said that the U.K. should expect a “tidal wave” of omicron infections in the coming days. The country is being monitored closely by Europe as well as the United States to determine if its booster shot deployment offers any additional protection against the new variant. The U.K. has issued roughly twice as many booster shots as the EU and more than twice as many as the U.S., according to Prime Minister Johnson.

Inflation continues to be of primary concern, perhaps even overshadowing the spread of the omicron variant of Covid-19. The U.S. Federal Reserve now apparently expects to begin raising interest rates again next year and may conduct as many as three or even four rate hikes in 2023. Some analysts fear that the Fed has already missed the proverbial boat with regard to inflation, and is already doing too little, too late. In addition to the rate hikes, the Fed also stated that it would be accelerating its plans to further reduce its bond purchases to dial back on the stimulus that it injected into the U.S. economy in the wake of the spread of Covid-19.

As volatility in equity markets and crypto markets continues to surge, savvy investors have taken steps to ensure that their portfolios are diversified in order to avoid overexposure to a downturn in any single market sector. Many investors have turned to the acquisition of physical precious metals as part of their plans for diversification in the belief that current prices for precious metals appear to be undervalued when compared to price gains in other sectors. Many of these investors have continued to seek opportunities to acquire additional physical precious metals for their portfolios as buying opportunities present themselves. 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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