The Precious Metals Week in Review – January 21st, 2022

1. Markets remained volatile this week, with the Nasdaq heading towards its worst week since 2020, dropping sharply on Friday as Netflix, the first major tech stock to report its earnings this season, plummeted over 20% after releasing a disappointing quarterly earnings report. Cryptocurrencies also had a rough week, wiping out nearly $150 billion from the crypto market as multiple crypto currency formats saw their values plunge.

2. For the week ending January 15, the seasonally adjusted number of Americans filing initial claims for unemployment increased by 55,000 from the previous week’s revised level to reach a new level of 286,000. The previous week’s level was revised higher by 1,000 claims. The 4-week moving average of claims was 231,000, an increase of 20,000 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 250 claims.

3. As the U.S. Federal Reserve ponders the implementation of its plan to taper off asset and bond purchases and embark on the first new series of interest rate hikes in years, global leaders are beginning to express their uncertainty over the timing of the Fed’s moves. Brazil’s economic minister Paulo Guedes, speaking via videoconference to CNBC’s Geoff Cutmore at The Davos Agenda, said “My fear is that the beast is out of the bottle. I think the central banks are sleeping at the driving wheel. They should be aware, and I think inflation will be a problem, a real problem very soon for the Western world.” Guedes continued, saying “I don’t think inflation will be transitory at all. I think these supply adverse shocks will fade away gradually, but there’s no arbitrage anymore to be exploited by the Western sides.”

4. The International Monetary Fund also appears to be concerned over the U.S. Federal Reserve’s plans for 2022 as well. Speaking at The Davos Agenda, Kristalina Georgieva – the managing director of the IMF – said that the interest rate hikes currently being pondered by the Fed could “throw cold water” on economic recoveries that remain weak in certain countries. Georgieva said “2022 is like navigating an obstacle course” and warned that inflation is “country specific.” She said “That country specificity is what makes 2022, in a way, even more difficult than 2020. In 2020, we had similar policies everywhere because we were fighting the same problem – an economy in standstill. In 2022, conditions in countries are very different, so we cannot anymore have the same policy everywhere. It has to be country specific and that makes our job in 2022 so much more complicated.”

5. China leveled heavy criticism at the U.S. on Friday for what it called “hegemonic” sanctions on Chinese companies that the U.S. accused of assisting “missile technology proliferation.” On Friday, the State Department published a Federal Register notice announcing sanctions against the China Aerospace Science and Technology Corporation First Academy, the China Aerospace Science and Technology Corporation Fourth Academy and Poly Technologies Incorporated. The sanctions apply to the specific companies mentioned, and all their subsidiaries, and will block those entities from contracting with the U.S. government and prevent their technology from being imported into the U.S. The sanctions also prevent these same companies from obtaining any U.S. technology. China’s Foreign Ministry spokesperson Zhao Lijian told reporters following the revelation that “This is a typical hegemonic action. China strongly deplores and firmly opposes it. China urges the United States to immediately correct its mistakes, revoke the relevant sanctions and stop suppressing Chinese enterprises and smearing China.” Zhao went on further to say that China strictly controls its exports of missiles and that “normal cooperation between China and relevant countries doesn’t violate any international law and doesn’t involve proliferation.”

6. Tensions between Russia and the Western nations continue to escalate over the buildup of Russian troops at the border with Ukraine. Moscow continues to deny that it has any plans to invade Ukraine, but much of Europe is now fearing that President Vladimir Putin may be considering another play similar to what he carried out in 2014 when Russian troops annexed the Crimean Peninsula and provided military support to a separatist, pro-Russian insurgency that was under way in the Donbas region of eastern Ukraine at the time. During a press conference on Wednesday, U.S. President Joe Biden noted that Russia had moved additional military equipment, including tanks and rocket launchers, into the region over the past week. Biden said that any military move by Russia would be met in a calibrated way, but that Western nations were not in sync over how to respond to what he described as a “minor incursion” into Ukraine. Ukrainian leaders were quick to call out the White House over its terming the potential violation of its sovereignty as a “minor incursion”, forcing the White House press secretary to attempt some damage control, indicating that Biden’s remarks had been misunderstood.

7. On Thursday, the U.S. Federal Reserve released a study on the creation of a “digital dollar.” The study, originally expected to be released in the summer of 2021, has been in the works for well over a year. The 40-page paper essentially came to no conclusions regarding a central bank supported digital currency, but strove to examine the benefits, such as speeding up electronic payments, and also to explore the downside issues, such as financial stability risks, privacy protection, and difficulty guarding against fraud and other illegal issues. The paper identified 22 different items for which the Fed is soliciting public feedback. There will be a 120-day comment period, but the report identified no timetable on when, or if, the Fed will take a position on the creation of a digital dollar, saying that it “is not intended to advance a specific policy outcome and takes no position on the ultimate desirability of” a digital dollar.

8. Despite sliding on Friday due to an unexpected rise in U.S. crude oil and fuel inventories, Brent Crude and West Texas Intermediate both managed to log a fifth straight week of gains. Brent crude settled at $87.89 per barrel while WTI settled at $85.14 per barrel. Earlier in the week, both benchmarks marked their highest levels since October of 2014.

9. The euro moved sideways against the U.S. dollar in a narrow range to start the trading week but dropped sharply lower on Tuesday around mid-day. The euro’s decline had stabilized by Tuesday evening, and it attempted a recovery, moving higher in a shallow slope, through most of Wednesday. The euro took another downward turn beginning mid-day on Thursday and touched its lows for the week in early trading on Friday morning. The euro did not spend much time at its lows however, moving higher again through much of Friday’s trading. Despite the upward move, the euro will close out the week to the downside against the U.S. dollar.

10. The Japanese yen drifted slightly lower against the U.S. dollar to start the trading week, a move which lasted through Tuesday morning. On Tuesday, in early trading, the yen dropped lower, in a relatively steep fashion, and touched its lows for the week. From there then yen began marching higher, in a series of short peaks and valleys, crossing into positive territory by late Thursday afternoon. The yen continued its trend higher through Friday, still following that peak and valley pattern that governed it through the latter part of the week and will close out the week to the upside against the U.S. dollar.

Next week will mark the first Federal Open Market Committee meeting of 2022 for the U.S. Federal Reserve. The market declines during the latter part of this week may put some pressure on the Fed to take a more cautious approach toward implementing its first interest rate hike in years. Inflation remains a primary concern for the Fed, having topped 7% by the end of December last year. Treasury Secretary Janet Yellen, herself a former Chair of the Federal Reserve, optimistically said this week that she expects “inflation throughout much of the year – 12-month changes – to remain above 2%. But if we’re successful in controlling the pandemic, I expect inflation to diminish over the course of the year and hopefully revert to normal levels by the end of the year around 2%.” Yellen also remarked on comments made by President Biden on Wednesday, when he said he thinks that it is time for Fed Chair Jerome Powell to “recalibrate” monetary policy to tame runaway prices. She also defended the Biden administration’s handling of the U.S. economy, despite continued poll numbers that show the majority of everyday Americans are highly dissatisfied with Biden’s performance there.

Cryptocurrencies saw a massive selloff this week, with Bitcoin plunging 10% and ether down 13%. Since November, when Bitcoin was at a record high of $69,000, the digital currency has lost more than 40% of its value. Some experts are beginning to warn that there may be further pain ahead in cryptos as increasing regulation and highly volatile price fluctuations dampen investor interest in the sector. The plunges in the cryptocurrency sector this week were echoed in equities as the Nasdaq Composite lost 7.6% for the week and the S&P lost 5.7% – its third straight weekly decline. The Dow Jones Industrial Average was down 4.58% on the week.

In contrast to cryptocurrency and equity markets this week, precious metals had a positive week. Increasing tensions between Russia, Ukraine, and Ukraine’s western allies heightened geopolitical uncertainty. Moscow continues to deny that it plans to invade Ukraine, all the while adding to its troop and equipment buildup on the border. Intelligence reports have surfaced that Russia may have already posted troops across the border in preparation for what is called a “false flag” operation – one in which a country’s own troops stage an attack on themselves while blaming another nation for it. The U.S. and Russia are reportedly slated to hold another meeting on how best to deescalate the situation and ease tensions in the area.

Inflation, geopolitical uncertainty, and economic uncertainty have frequently driven prices for precious metals higher in the past. The fact that all three are being experienced at the same time as the global pandemic continues to rage on, has the potential to do so again, should they continue to do so, remaining virtually in sync with each other. Investors continue to strive to maintain a diversified portfolio that can hopefully stand up to corrections across multiple investment sectors. Many of these investors continue to view precious metals as a hedge against both inflation and times of uncertainty, given their long history of holding that very role amid such times. 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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