The Precious Metals Week in Review – January 28th, 2022

1. Market volatility remained elevated this week as the Federal Reserve conducted its first monetary policy meeting of the new year.

2. For the week ending January 22, the seasonally adjusted number of Americans filing initial claims for unemployment decreased by 30,000 from the previous week’s revised level to reach a new level of 260,000. The previous week’s level was revised higher by 4,000 claims. The 4-week moving average of claims was 247,000, an increase of 15,000 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 1,000 claims.

3. The U.S. Federal Reserve held its first Federal Open Market Committee meeting of 2022 this week and opted to leave interest rates unchanged for now. Fed chair Jerome Powell hinted in his statements at the conclusion of the meeting that the first interest rate hike will likely be conducted in March and will likely be 25 basis points. In the Fed’s statement following the meeting, they said “With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.” At his usual post-meeting press conference, chair Powell said that there was “quite a bit of room” to conduct rate hikes before they would potentially damage the labor market, perhaps hinting that more than the expected 3 or 4 rate hikes may be on the table for later in the year.

4. The world continues to watch as tensions elevate further between Russia and Ukraine. Top Pentagon officials this week warned of a “horrific” aftermath that would likely result if Russia does invade its neighbor. Chairman of the Joint Chiefs of Staff, U.S. Army General Mark Milly said “Given the type of forces that are arrayed, the ground maneuver forces, the artillery, the ballistic missiles, the air forces, all of it packaged together. If that was unleashed on Ukraine, it would be significant, very significant, and it would result in a significant amount of casualties and you can imagine what that might look like in dense urban areas, all along roads, and so on and so forth. It would be horrific.” The U.S. drafted a set of diplomatic and security proposals that America’s ambassador to Russia, John Sullivan, hand delivered to Russia’s government this week. The U.S. State Department recommended this week that all U.S. citizens in Ukraine depart the country immediately and ordered eligible family members of personnel at the embassy in Kiev to leave.

5. Winter storm warnings blanketed the east coast of the U.S. this week as it prepares for a “nor’easter” that could drop as much as 2 feet of snow on New England and affect cities from Virginia to Maine. Winter alerts stretched from South Carolina to New England and included blizzard warnings the likes of which have not been seen in four years. Airlines have already been canceling flights over weather concerns and the disruption to the transport infrastructure of the U.S. will likely further exacerbate ongoing supply chain issues.

6. Crude oil marked its sixth straight weekly gain as supply concerns continued to trouble traders. Brent crude futures settled at $90.03 per barrel while West Texas Intermediate settled at $86.82 per barrel. Prices for Brent were their highest since October of 2014, while WTI prices touched a seven-year high earlier in the trading session on Friday. Oil prices are on track for a gain of roughly 15% for the year on increased geopolitical tensions.

7. The euro moved briefly higher against the U.S. dollar to start the week, but quickly began a downward trend that lasted throughout most of the week. The euro began a steady move to the downside starting late on Tuesday, and had dropped near its lows for the week by Thursday afternoon. The euro dipped briefly lower again on Friday and will finish out the week to the downside against the U.S. dollar.

8. The Japanese yen saw a similar pattern to the euro this week, drifting sideways through Wednesday before dropping steadily throughout the rest of the week. The yen touched its lows for the week on Friday also before bouncing somewhat higher just prior to the close. Despite the shallow bounce, the yen will also close out the week lower against the U.S. dollar..

The world continues to watch and wait to see if Russia will choose to deescalate the tensions along its border with Ukraine. President Biden said this week that if Russia were to conduct a full scale invasion of Ukraine that it would radically change the security for all of Europe. Biden said “If he were to move in with all those forces, it’d be the largest invasion since World War II. It would change the world.” Russia continues to deny that its troop and equipment buildup along the border are anything more than a “military exercise” but every Western nation now agrees that such a buildup is larger than anything seen in decades. President Biden has not committed to sending troops to Ukraine, but American forces will likely be deployed in neighboring NATO member countries. Ukraine shares borders with four other NATO members and is considered an ally of those. NATO’s “Article 5” clause states that “an attack against one NATO ally is an attack against all NATO” and the Chairman of the U.S. Joint Chiefs of Staff noted that the U.S. is “ready, capable and prepared to uphold our obligation under treaty to NATO.”

Inflation, geopolitical uncertainty, and economic uncertainty remain the primary drivers for market volatility in the near term. Russia’s reception of America’s security proposals for deescalating tensions with Ukraine were described as “chilly” and are not likely to sway the Kremlin into standing down. Inflation continues to surge as supply chain issues remain unresolved. The powerful winter weather headed to the U.S.’ eastern coast will likely make the supply chain situation even worse as roads and airports close due to the weather.

The recent increase in market volatility continues to push savvy investors to make sure that their portfolios are sufficiently diversified to survive a collapse in any one market sector. Many of these investors have continued to seek out buying opportunities in the form of temporary price dips to add additional physical precious metals to their portfolios. Precious metals have a long history as a hedge against inflation and times of uncertainty and many investors have chosen to increase their holdings of physical precious metals within their portfolios for that purpose. 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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