The Precious Metals Week in Review – January 14th, 2022

1. It was a volatile week, particularly in equity markets, as a continued surge in inflation indicators sent interest rates even higher. Bond yields continued moving higher, a likely sign that equity traders now appear certain that the Federal Reserve will soon begin hiking interest rates.

2. For the week ending January 8, the seasonally adjusted number of Americans filing initial claims for unemployment increased by 23,000 from the previous week’s unrevised level to reach a new level of 230,000. The 4-week moving average of claims was 210,750, an increase of 6,250 from the previous week’s unrevised moving average.

3. The U.S. Senate appears set to delay voting on a pair of voting rights bills known as the Freedom to Vote Act and the John Lewis Voting Rights Advancement Act. Republicans have threatened to block the bills and, should that happen, Democrats say that they will consider ways to bypass the filibuster and push the proposals through anyway with nothing more than a simple majority without Republican support. Senate Majority Leader Chuck Schumer said “Make no mistake, the United States Senate will – for the first time this Congress – debate voting rights legislation beginning on Tuesday. Members of this chamber were elected to debate and to vote, particularly on an issue as vital to the beating heart of our democracy as this one. And we will proceed.” While all Senate Democrats have signed on to support the elections legislation, two of them, Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, have said that they will not support any changes to the filibuster rule in order to pass the legislation. Under current Senate rules, at least 10 Republicans must vote to support the legislation.

4. The Supreme Court blocked the Biden administration from enforcing its “vaccine or test” mandate for large private companies on Thursday. While the Court ruled that the OSHA mandate that required workers at businesses with 100 or more employees to either get vaccinated or test negative on a weekly basis and wear masks was not enforceable, it maintained that the vaccine mandate for workers at medical facilities that take Medicare or Medicaid payments should stand. In an unsigned opinion, the Court said “Although Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly. Requiring the vaccination of 84 million Americans, selected simply because they work for employers with more than 100 employees, certainly falls in the latter category.” Despite the Supreme Court’s decision, President Biden called on businesses to continue to require vaccines for its employees on their own, aside from the government mandate. Biden said, “The Court has ruled that my administration cannot use the authority granted to it by Congress to require this measure, but that does not stop me from using my voice as President to advocate for employers to do the right thing to protect Americans’ health and economy.”

5. U.S. Retail sales in December dropped 1.9% as higher prices and uncertainty over the direction of the U.S. economy lowered the willingness among consumers to let go of their hard-earned cash. Excluding autos, sales fell over 2%. November’s numbers were revised downward as well, falling to just 0.2% versus the originally reported increase of 0.3%. The Consumer Price Index (CPI) rose 0.5% in December, bringing the year-over-year gain to a staggering 7%, its highest level since June of 1982. Even excluding volatile food and energy costs, core CPI was still up 5.5% on the year, the largest such climb since February of 1991. Wholesale prices rose as well, surging 9.7% year-over-year, their biggest calendar year rise in data going back to 2010.

6. U.S. Treasury yields continued to climb on Friday following “hawkish” comments from various Fed members during the week. On Thursday, Philadelphia Fed President Patrick Harker told CNBC’s “Closing Bell” that he believed interest rates might be raised up to four times this year. Earlier the same day, Chicago Fed President Charles Evans said that he saw at least 3 rate hikes occurring this year and that he was open to even more. The Fed intends to taper off the level of its ongoing asset purchases in an effort to begin reducing the amount of stimulus it injected into the U.S. economy as the country strove to overcome the effects of the pandemic, but stubborn inflation levels have made interest rate hikes, in addition to the plans for tapering asset purchases, a near certainty. The Fed may begin raising rates possibly as early as March of this year.

7. U.S. representatives and other NATO members held discussions in Europe with top Russian officials over their intentions toward Ukraine this week. Russia still has massive amounts of troops stationed at the eastern border of Ukraine with the Kremlin continually denying that it is preparing to invade that country. On Thursday, after the talks were completed, all sides were no closer to coming to a resolution. U.S. diplomatic official Michael Carpenter said “There are close to 100,000 troops on the Russian side of its border with Ukraine. Their presence and the live-fire measures being carried out are raising many questions about Moscow’s intention.” Noting that the U.S. had also seen advanced weapons, artillery systems, electronic warfare systems and large stores of ammunition staged along Ukraine’s border, Mr. Carpenter said “That begs a lot of questions about what Russia’s intentions are. So we have to take this very seriously and we have to prepare for the eventualities that there could be an escalation.” U.S. national security advisor Jake Sullivan said that U.S. intelligence agencies have determined that Russia is “laying the groundwork to have the option of fabricating a pretext for an invasion – including through sabotage activities and information operations – by accusing Ukraine of preparing an imminent attack on Russian troops in Eastern Ukraine.”

8. Russian-led troops that had been sent to Kazakhstan last week to help put down violent protests that erupted there due to the expiry of fuel price caps have apparently begun leaving the country, according to Russia’s defense minister. In Almaty, Kazakhstan’s largest city, the government forcibly ended the protests, killing over 100 individuals when it used live fire to clear the streets. President Kassym-Jomart Tokayev said this week that the foreign troops had completed their mission and could leave now that the situation in the country was “stable.”

9. Crude oil prices continued to make gains this week, with Brent Crude futures settling at $86.06 per barrel, up 5.4% for the week and West Texas Intermediate crude settling at $83.82 per barrel, up 6.3% for the week. Ongoing tensions between Russia and Ukraine, ahead of a long weekend in the U.S. for Martin Luther King Day, both seemed to lend support to prices as we closed out the week.

10. The euro saw a fairly steady climb higher against the U.S. dollar throughout the first part of the week, then moved steeply higher late on Thursday. The euro traded sideways through Thursday night, then resumed its climb, touching its highs for the week on Friday morning. The euro reversed course late Friday morning, sharply declining as the day wore on. The euro managed to rebound slightly just prior to the market close, and will finish out the week slightly to the upside against the U.S. dollar.

11. The Japanese yen drifted mostly sideways in a narrow range against the U.S. dollar for the first half of the week. By late Wednesday, the yen had begun climbing higher, and maintained that upward trend for much of the rest of the week. The yen touched its highs against the U.S. dollar late on Friday but reversed course just prior to market close and will not end the week at its highs. Despite the slight drop before the close, the yen will still end the week slightly to the upside against the U.S. dollar.

Inflation remains of primary concern as we approach the first Federal Open Market Committee meeting of the new year. Next week the Federal Reserve will enter its “blackout” period and will refrain from further commentary on its monetary policy moves until after the FOMC meeting is concluded. Of late, multiple Fed presidents have been making hawkish commentary regarding upcoming interest rate hikes that are expected to begin taking place this year, perhaps as early as March. It seems that there is a general consensus that there will be at least three rate hikes this year, and possibly even more. Equity markets have reacted poorly to the news, with the DJIA, the S&P, and the Nasdaq all down since the start of the year. The Nasdaq alone is already down over 5%. Final inflation data for 2020 showed an increase of over 7% in consumer prices and a surge of over 9.7% in producer prices. Supply chain shortages and disruptions continue to push prices higher, if not having completely cut off sources for some goods and components.

Geopolitical unrest also continues to be a concern as Russia remains at odds with much of NATO and its Western members. The troops that Russia has built up at its border with Ukraine remain, and there are apparently stockpiles of advanced weaponry, artillery and ammunition ready at hand near that border as well. Ukraine was also the victim of a cyber-attack this week which most believe can be laid at Russia’s feet as well. Russian President Vladimir Putin has been nothing short of belligerent, demanding that NATO refuse Ukraine membership all while dismissing NATO’s concerns that Russia may be seeking to carry out yet another incursion into that country’s sovereign territory. Discussions that took place this week in Europe between top Russian officials, U.S. representatives, and NATO members ended with no progress on any sort of resolution to the growing tension.

The spread of the Omicron variant of Covid-19 continues and the potential for further economic damage as world governments take drastic measures to try to limit that spread remains highly likely. In the current economic and geopolitical environment, savvy investors have continued efforts to ensure that their investment portfolios are sufficiently diversified against the effects of inflation, economic uncertainty, and geopolitical tensions. Many of these investors have chosen to continue adding physical precious metals to their portfolios, keeping in mind their long history of being considered a hedge against inflation as well as wise choices to own in times of both economic and geopolitical uncertainty. Those investors who maintain this view on physical precious metals have continued to add product to their portfolios whenever buying opportunities have presented them with the opportunity to do so at what many consider to be 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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