The Precious Metals Week in Review – December 31st, 2021

1. This week we close out another historic year. The pandemic that truly got started at the end of 2019 before it began wreaking economic havoc across the world in 2020, continued through the entirety of 2021. The economic destruction brought about by forced shutdowns of businesses and restrictive governmental policies because of the spread of Covid 19 during 2020 was never truly offset in 2021. Despite this, the usual end-of-year “Santa Claus Rally” in equities seemed to hold true once again this year as stocks pushed higher to close out the year despite continued uncertainty over the ongoing pandemic.

2. For the week ending December 25, the seasonally adjusted number of Americans filing initial claims for unemployment decreased by 8,000 from the previous week’s revised level to reach a new level of 198,000. The previous week’s level was revised higher by 1,000 claims. The 4-week moving average of claims was 199,250, a decrease of 7,250 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 250 claims. This is the lowest level for the 4-week moving average of claims since October 25, 1969, when it stood at 199,250.

3. 2022 is looking to be a critical year for the Democratic party in the U.S. Mid-term elections will be held in November, and it is appearing more and more that the American public is increasingly dissatisfied with the way that the Democrat-controlled government has been handling both the ongoing pandemic and the U.S. economy itself. If Democrats cannot turn the proverbial ship and convince the American people that they can do better, they may be shown the door come November, which could return control of the House, the Senate, or both to the Republicans. Congress has yet to pass a government funding bill, which must be completed by mid-February to avoid a government shutdown. President Biden’s “Build Back Better” social spending bill also was not passed in 2021, much to the chagrin of both the House of Representatives and the Senate. Senate Majority Leader Chuck Schumer has said that he will bring the bill up for a vote in January, but it is highly unlikely to pass in its current form.

4. Food costs have continued to soar as inflation seems to dig deeper into the world’s economies. In the U.S. the cost of steaks alone surged 25% in the one-year period between November 2020 and November 2021. On an overall basis over that period, meats as a group were up 16% while eggs, fish and other seafood were up 8%. Other food items all saw increases as well. Many consumers have begun scaling back on dishes that contain meat as their main ingredient, searching for cheaper forms of nutrition. Many consumers have begun scouring the internet and other sources for ways that they can make their grocery dollar go further amid surging prices for everything.

5. Furniture giant IKEA announced this week that its prices would be going up roughly 9% on average across its markets. Retail Operations Manager Tolga Öncü said “Unfortunately now, for the first time since higher costs have begun to affect the global economy, we have to pass parts of those increased costs onto our customers.” Ingka Group, which is the main franchisee the brand’s owner Inter IKEA, said in a statement “IKEA continues to face significant transport and raw material constraints driving up costs, with no anticipated break in the foreseeable future.” The group added that it expected such disruptions to continue “far into 2022” when justifying the coming cost increases. Ingka Group owns 392 IKEA stores.

6. On Thursday, U.S. President Joe Biden and Russian President Vladimir Putin spoke by phone regarding the rising tensions over Russia’s military buildup on the border of Ukraine. The call lasted nearly an hour and White House press secretary Jen Psaki said that Biden urged Putin to de-escalate the situation, saying that his administration was prepared to “respond decisively” alongside its allies if Russia carries out another incursion into Ukraine like its previous annexation of Crimea. A senior administration official, who asked to remain anonymous, said “Both leaders acknowledged that there were likely to be areas where we could make meaningful progress as well as areas where agreements may be impossible.” The official added that security talks that are slated to take place on January 10 will build upon what was discussed between Biden and Putin on Thursday.

7. As cases of the Omicron variant of Covid-19 continue to surge, South Africa – where the variant was first discovered – announced that its latest viral outbreak appears to have begun to decline and that it would be easing restrictions. South Africa had implemented a midnight to 4 a.m. curfew but has since lifted the mandate. A statement from a special cabinet meeting held on Thursday said, “All indicators suggest the country may have passed the peak of the fourth wave at a national level.” The cabinet statement continued, saying “While the Omicron variant is highly transmissible, there has been lower rates of hospitalization than in previous waves.” Despite lifting restrictions on public movement, gatherings are still to be restricted to no more than 1,000 individuals for indoor gatherings and no more than 2,000 people outdoors. The wearing of masks in public places remains mandatory and failure to do so is a criminal offense in South Africa.

8. In thin trading for the holiday-shortened week as we begin to enter 2022, Crude oil marked its first decline in the past eight trading sessions. Brent crude settled at $77.78 per barrel while West Texas Intermediate (WTI) settled at $75.21 per barrel. For the year, Brent appears set to close higher by 50% and WTI rallied more than 55%. For WTI, that is the steepest annual gain in the last 12 years.

9. The euro drifted sideways against the U.S. dollar through much of the trading week but began drifting lower late Tuesday. The drop was shallow however, with the euro touching its lows for the week by mid-day on Wednesday. The euro shot back into positive territory immediately after touching its lows but was quickly back near its opening levels by Thursday. The euro bounced sideways for much of the day on Friday but shot to its highs for the week just before the market closed. The euro will close out the week to the upside against the U.S. dollar.

10. The Japanese yen continued to trade in a narrow range against the U.S. dollar, spiking higher at the open, but quickly beginning a downward trend that began relatively sharply, but leveled out as the week continued. The yen continued its downward trend through the rest of the week, touching its lows around mid-day on Thursday before climbing only slightly higher late that evening. The yen bounced sideways throughout Friday trading and will close out the week slightly to the downside against the U.S. dollar.

As we close out 2021 and enter a New Year, we look back on a year that saw a massive surge in global inflation, continued economic uncertainty resulting from the ongoing pandemic, and continued geopolitical uncertainty brought about by the actions of Russia in Ukraine, and China’s increasingly hostile stance towards the U.S. and other Western nations over what it considers internal affairs. The world’s central banks spent most of the year trying to convince their various citizens that inflation was only “transitory”, brought about by the supply chain disruptions which were triggered by the pandemic that would surely be resolved quickly. As the year wore on, it became increasingly clear that inflation was not going away any time soon, and in fact shows signs of growing worse as those supply chain disruptions drag on. Many companies that held off on passing the increase in their manufacturing costs on to their customers, have now begun to do so. Furniture giant IKEA, who announced a 9% price increase for its customers this week, will likely not be the last company to do such, and said that it does not foresee its costs to manufacture and transport its goods coming down any time soon.

Energy costs have continued to soar and efforts to shift to “green energy” over fossil fuels are exacerbating that surge. Not one country that is attempting to curb its dependency on fossil fuel use seems to have invested the capital required to build an infrastructure to replace that dependency. In many cases, the methods to produce “green energy” are far costlier than those required to tap fossil fuels, so the attempt to accelerate the switchover is likely to result in even higher energy costs to consumers sooner rather than later. Food costs have surged right along with energy and the ongoing supply chain disruptions have affected the transport of foods in addition to other goods and finished products. Shortages of semiconductors have meant long lead times for even the smallest electronic goods as the components required for their production simply are not available.

As 2022 begins, the two key concerns that are likely to continue to affect markets and increase volatility remain the ongoing pandemic, and rampant inflation. Despite the surge in equity markets, which continue to seemingly ignore any semblance of bad news and blindly march higher, cautious investors have continued their efforts to ensure that their portfolios remain highly diversified. Many such investors have continued to view physical precious metals as a key part of their diversification strategy. Those that do have continued to seek out buying opportunities to acquire additional physical product for their portfolios whenever temporary price dips have allowed them to do so at a discount. These investors continue to view physical precious metals as a means to hedge against inflation, and also as a hedge against further geopolitical or economic uncertainty. 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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