The Precious Metals Week in Review – January 7th, 2022

1. We opened the new year under continued volatility in all markets. Omicron continues to surge across the planet and, despite milder symptoms as compared to other variants, many nations have continued to implement renewed restrictions on their populations and businesses. Stocks fell on Friday, potentially setting the stage for the first week of 2022 to start off at a loss.

2. For the week ending January 1, the seasonally adjusted number of Americans filing initial claims for unemployment increased by 7,000 from the previous week’s revised level to reach a new level of 207,000. The previous week’s level was revised higher by 2,000 claims. The 4-week moving average of claims was 204,500, an increase of 4,750 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 500 claims.

3. On Friday, the final Non-Farm Payrolls Report for 2021 was released and the data was far below market expectations. Hiring fell in December, with Non-farm payrolls only adding 199,000 new positions, compared to economists’ expectations for a reading of 422,000. Despite the worse-than-expected number of new jobs, the unemployment rate dropped to 3.9%, which was better than the estimate of 4.1%. Nick Bunker, economic research director at Indeed, a job placement service, said “The new year is off to a rocky start. These less than stellar numbers were recorded before the omicron variant started to spread significantly in the United States. Hopefully the current wave of the pandemic will lead to limited labor market damage. The labor market is still recovering, but a more sustainable comeback is only possible in a post-pandemic environment.”

4. The U.S. Federal Reserve released their Federal Open Market Committee meeting minutes for December this week and they showed that the Fed not only expects to raise rates, in addition to its plans to taper its asset purchases but may also be setting itself up for a balance sheet reduction. The Fed currently holds nearly $9 trillion in assets and most investors felt that a reduction in those assets would not take place at the same time as the Fed was choosing to raise rates and reduce, or taper, its asset purchases. The effect of conducting all three things at once, could mean a drastic reduction in market liquidity. Lindsey Bell, chief market strategist at Ally Financial, commented on the stock market’s plunge in reaction to the revelations by saying “The reason the market had a knee-jerk reaction yesterday was it sounds like the Fed is going to come fast and furious and take liquidity out of the market. If they do it in a steady and gradual manner, the market can perform well in that environment. If they come fast and furious, then it’s going to be a different story.” The meeting minutes did reflect that Fed officials remain data-dependent and will be sure to communicate their monetary policy intentions clearly to the public.

5. As the U.S. marks the one-year anniversary of the riot that took place on Capitol Hill on January 6, 2021, President Biden appeared to use the opportunity to try to angle potential voters away from choosing to vote Republican in this year’s mid-term elections. Democrats, who currently control the presidency and both houses of Congress, are facing massive backlash for their failures on the pandemic, inflation, migration, and the U.S. economy overall. In a broadcast speech marking the anniversary of the January 6 riot, Biden blamed former President Donald Trump for spreading a “web of lies” and criticized disgruntled Republican voters, saying “You can’t love your country only when you win. You can’t obey the law only when it’s convenient. You can’t be patriotic when you embrace and enable lies. The lies that drove the anger and madness we saw in this place, they have not abated. So, we have to be firm, resolute and unyielding in our defense of the right to vote and have that vote counted.” As campaign ads begin to roll out in support of 2022 mid-term elections, Democrats will likely continue to attempt to shift focus away from what appears to be a growing list of legislative failures and plunging approval ratings by leveling further criticism at their Republican counterparts.

6. In a new poll by CNBC, President Joe Biden’s overall approval ratings continue to plummet. In a CNBC/Change Research poll conducted in December, 60% of respondents said that they now disapprove of Biden’s handling of the U.S. economy, while 55% disapprove of his leadership during the ongoing pandemic. These are the worst such readings of Biden’s one-year presidency. 84% of survey respondents noted that the prices they now pay for everyday goods are higher than they were a year ago, with only 19% reporting that their incomes increased over the same period. Only 23% of survey respondents said that they believed inflation is beginning to come down or will begin to come down in the near future.

7. On Sunday, January 2nd, President Joe Biden spoke to Ukrainian President Volodymyr Zelenskyy by phone and reaffirmed his administration’s support for Ukraine as it continues to face increased aggression from Russia. Russia continues to deny that it has any plans to attack Ukraine, but the U.S. and its Western allies say that they are still prepared for the possibility. During the call, Biden told Zelenskyy that the U.S. and its allies will “respond decisively” if Russia carries out incursions into Ukraine. White House Press Secretary Jen Psaki said, “Biden underscored the commitment of the United States and its allies and partners to the principle of ‘nothing about you without you.’ He also expressed support for confidence-building measures to de-escalate tensions in Donbas and active diplomacy to advance the implementation of the Minsk Agreements, in support of the Normandy Format.”

8. In Kazakhstan, President Kassym-Jomart Tokayev issued orders for troops to “fire without warning” after demonstrations against the government became violent. Tokayev also said that those who failed to surrender would be “destroyed”, adding that up to 20,000 “bandits” had attacked government buildings in the business capital of Almaty and were destroying property. A Russia-led security alliance, called the Collective Security Treaty Organization, had reportedly deployed up to 2,500 troops to Kazakhstan on Thursday. White House Press Secretary Jen Psaki said at a news conference on Thursday that the U.S. had questions about whether those troops were legitimately invited into Kazakhstan and that the U.S. would be “watching very closely” for any human rights violations.

9. Crude oil prices appeared set to start the new year off with gains as unrest in Kazakhstan and outages in Libya sparked supply concerns. Brent crude on Friday was at $81.74 per barrel while West Texas Intermediate crude was at $78.93 per barrel. The moves would roughly reflect a 5% gain for both Brent and WTI. In Libya, production has fallen from a high of 1.3 million barrels per day (bpd) to just 729,000 bpd. Much of the shortage appears to be due to pipeline maintenance work, so Libya may be set to increase production as 2022 moves forward.

10. The euro spent much of the week trading up and down in a narrow range against the U.S. dollar. The euro’s steepest decline took place on Monday, late in the day, taking it near the lows for the week, where it drifted along mainly sideways until early Wednesday morning. The euro began an upward climb on Wednesday, but quickly peaked and reversed course, taking it back near the lows for the week again by Thursday. The euro continued drifting mostly sideways through Friday, but a surge just prior to market close took the euro back near its opening level for the week and it will close out the week only slightly lower against the U.S. dollar.

11. The Japanese yen began the week drifting sideways against the U.S. dollar, but had begun a downward move late Monday that took it to the lows for the week by Tuesday, mid-day. The yen attempted to stage a recovery, drifting higher through late Wednesday, but reversed course again, moving lower overnight through Thursday morning. The yen moved slightly higher Thursday, but by mid-day had leveled off and drifted sideways into Friday. A slight upward move on Friday just before the close was not enough to take the yen back into positive territory and it will close out the first week of 2022 slightly to the downside against the U.S. dollar.

2022 seemed to start off with a whimper, with relation to the U.S. economy. The final Non-Farm Payrolls Report for 2021 showed that the U.S. economy added just 199,000 jobs in December, a far cry from the 422,000 jobs that economists were expecting to be added to the economy. Despite the mediocre increase in payrolls, the Bureau of Labor Statistics still lowered the official unemployment rate to 3.9%. Taken in tandem with the NFP report, the release of the Federal Reserve’s meeting minutes from their last Federal Open Market Committee meeting to set monetary policy also combined to spark fears among investors that the Federal Reserve may move to quickly in its efforts to “normalize” monetary policy. The minutes appeared to show that, in addition to tapering off ongoing asset purchases and beginning to raise interest rates, the Fed may be considering reducing the size of its balance sheet at the same time. The net effect of carrying out all three of these steps at the same time could be a rapid reduction in market liquidity, the very lifeblood that has kept markets moving forward as the pandemic has continued to ravage global economies and societies. Many analysts now apparently fear that such a rapid reduction in liquidity could be the shock that could trigger a correction in equities.

Supply chain disruptions continue to drive inflation even higher around the world. Analysts continue to predict that the shortages and disruptions are coming close to “peaking”, but even in sectors where covid-related issues have been ameliorated, severe winter weather has provided yet another disruption that has only prolonged the problem. Consumers are finally feeling the bite in their wallets as corporations have begun passing on their rising costs to them, and they begin paying even more for everyday goods and supplies. The fact that these companies, who fought price increases through much of the early days of the pandemic, have now begun to embrace them, very likely means that their CEOs and other officers firmly believe that their input costs are not coming down any time soon.

Russia continues to rattle geopolitical cages in 2022. Western nations were already on edge by the massive troop buildup that Russia conducted on its border with Ukraine at the end of 2021, and it appears that the secretive nation may have broader territorial concerns in sight as well. Russian-backed forces were ostensibly “invited” into Kazakhstan by its president, Kassym-Jomart Tokayev to assist with putting down protestors that he calls “bandits”. Demonstrations broke out in the country after government-mandated fuel price caps were allowed to expire, thus rapidly increasing the cost of fuel across the board. Over 1,000 people have been injured since Sunday, according to Kazakhstan’s health ministry, and there are reports that dozens of police and protestors have also been killed.

As we begin a new year amid a continuing pandemic and escalating geopolitical tensions, volatility should be expected to remain high. Investors will be closely watching the Federal Reserve for hints on upcoming monetary policy direction, including the timing of rate increases and the acceleration of its tapering of asset purchases. As the Fed is apparently also considering reducing the size of its balance sheet, many investors have redoubled their efforts to ensure that their portfolios are sufficiently diversified in the hopes that they will be able to withstand corrections in multiple market sectors. Many of these investors have included physical precious metals as part of their diversification plans, given their long history as a hedge against both inflation and times of economic turmoil. Such investors have continued to acquire physical precious metals as a percentage of their investment portfolio whenever temporary price dips have provided them with the opportunity to do so at a discount. 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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