The Precious Metals Week in Review – February 4th, 2022

1. Market volatility remained elevated this week as better-than-expected employment data triggered fears that the Federal Reserve may become more aggressive in its attempts to battle inflation.

2. For the week ending January 29, the seasonally adjusted number of Americans filing initial claims for unemployment decreased by 23,000 from the previous week’s revised level to reach a new level of 238,000. The previous week’s level was revised higher by 1,000 claims. The 4-week moving average of claims was 255,000, an increase of 7,750 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 250 claims.

3. On Friday, the first Non-Farm Payrolls report of the new year was released and beat Wall Street and economist’s expectations by a large margin. In January, Non-Farm payrolls rose by 467,000 according to the report, sailing past the 150,000 job additions that had been projected by Wall Street. The leisure and hospitality sectors led the gains, but professional and business services and retail also saw significant growth. Wages rose by 0.7% for the month of January, a move of 5.7% year-on-year. November and December’s numbers were also revised in the report, with November moving from an initial report of 249,000 to a revised number of 647,000 and December, which was initially reported as 199,000 surging up to 510,000. Much of the gains were due to a revision in the way that the Bureau of Labor Statistics performs its calculations, removing some of the “seasonal factors” from the equation.

4. The better-than-expected Non-Farm Payrolls report this week immediately sparked fears that the U.S. Federal Reserve may become far more aggressive in its attempts to battle skyrocketing inflation. One poll undertaken by CNBC put the probability of a rate hike occurring in February at 50% and the chances that the Fed would undertake 6 rate hikes in 2022 rose to 51%. Some analysts are even projecting that the Fed might be even more aggressive, possibly undertaking up to 7 rate hikes in 2022.

5. Tensions between Russia and Ukraine remain elevated. Ukraine Foreign Minister Dmytro Kuleba told CNBC’s Hadley Gamble on Friday “If you ask me if there is anything Russia couldn’t do in order to provoke the war, my answer would be no. Everything is possible and we should take every risk into account.” His response was regarding the news announced by the White House on Thursday that it had intelligence that Russia is considering using a staged video of a Ukrainian attack, which would involve actors, as a “false flag” operation to establish a reason for it to invade Ukraine. Kuleba said “We haven’t seen the video itself, but I can tell you the United States briefed us shortly before the official announcement by Ned Price that they possess this piece of intelligence.” The Kremlin continues to deny that it is undertaking any such “false flag” operation, maintaining that its massive military presence on the border with Ukraine is there strictly for military drills set to take place next week in Belarus.

6. The U.S. announced this week that it had killed Abu Ibrahim al-Hashimi al-Qurayshi, the leader of the terrorist group ISIS, during a raid that was conducted in Syria on Thursday. Al-Qurayshi chose to detonate a device rather than be captured during the raid and the Biden administration said that the military was still compiling a report on the raid and was unable to give an exact number of any civilian deaths that may have resulted from the blast. During the raid, a U.S. military helicopter was deliberately destroyed on site due to a maintenance issue that left it unsafe to fly.

7. Winter storm warnings continued to blanket the east coast of the U.S. this week. Thousands were without power on Thursday after ice coated power lines gave out in Tennessee, Arkansas, and Texas. Heavy snow continued to be expected from the southern Rocky Mountains into northern New England. Forecasters were calling for heavy ice buildup from Texas to as far as Pennsylvania. In Texas, just one year since subfreezing weather crippled the states power grid for days, Governor Greg Abbott said that the state’s power grid appeared to be holding up to the icy weather and that he expected the state to have more than enough power available to get through the storm.

8. In Canada, frustration and rage over the pandemic has finally boiled over into the streets. The nation has one of the developed world’s best vaccination rates and has undergone some of North America’s longest lockdowns, curfews, quarantines and restrictions. In Ottawa, the nation’s capital, hundreds, if not thousands of truckers and other protesters have taken to the streets to oppose vaccine mandates and strict Covid-related restrictions. The protests appear to be spreading to other Canadian cities and there is a very real danger that they could spread outside of Canada itself. As Omicron has proven to be far less lethal, and studies have begun to note that lockdowns and other strict measures that attempted to halt the spread of the disease were largely ineffective, the world’s population is beginning to let their leaders know that they have had enough. Some political leaders in Canada are beginning to agree. Saskatchewan Premier Scott Mode said on Thursday “Eradicating Covid is not realistic and Covid zero is not achievable. Have dinner with your friends. Go to the movies. Go to your kids’ games, most importantly. You should do all of these things without constantly assessing if your every activity is absolutely necessary.”

9. Crude oil hit seven-year highs this week as massive winter storms blanketed much of the U.S. from Texas all the way up to Pennsylvania. The storms, bringing heavy snowfall and ice, sparked fears of supply disruptions in the U.S. as its transportation infrastructure struggled to deal with the weather. Brent crude surged to $93.05 at one point before settling for the week at $92.67. U.S. West Texas Intermediate rose by 1.9% to trade at $92.02 per barrel. Craig Erlam, senior market analyst at OANDA, said “It may just be a matter of time until we’re closing in on triple figures.” OPEC and its allies, known as OPEC+, agreed to a moderate output increase of 400,000 barrels per day this week, but the group is still struggling to meet its existing demand targets.

10. The euro saw a fairly steady increase against the U.S. dollar for much of the week, steadily climbing from the open until plateauing on Wednesday. The euro moved sideways overnight Wednesday but surged higher on Thursday around the mid-afternoon. The euro resumed its upward trend late Thursday and touched its highs for the week late Friday morning. The euro saw a brief dip just before the market closed but will still close out the week to the upside against the U.S. dollar.

11. The Japanese yen dipped at the start of trading for the week but soon began its own upward climb against the U.S. dollar. The yen touched its highs for the week around mid-day on Wednesday, and then began a fairly steady downward slide that took it just below opening levels for the week late on Friday. A slight bounce just prior to market close will mean the yen will also close out the week slightly to the upside against the U.S. dollar.

Russia and China undertook a display of solidarity as the 2022 Winter Olympics opened in Beijing this week this week. Presidents Vladimir Putin and Xi Jinping announced a “deep strategic partnership” between their two countries to help counter what they describe as the malign global influence of the United States. In a joint statement, the two leaders said “Friendship between the two States has no limits, there are no ‘forbidden’ areas of cooperation.” In the lengthy statement, Russia professed its support for China’s stance that Taiwan is not independent of China and both countries voiced for an end to NATO enlargement and supported Russia’s demand for security guarantees from the West – all of which are at the heart of Russia’s current tensions with Ukraine. Essentially, the two countries detailed their plans to work together, against the United States, to build a new international order.

In Canada, truckers have gone on strike against vaccine mandates and ultra-restrictive Covid policies and many in the general population have chosen to join them in their protests, taking to the streets as well. In Ottawa, more than 200 trucks and other vehicles have blockaded the downtown area triggering talk that the famous Mounties may be sent in to deal with the situation. The Covid-based protests may soon spread beyond Canada, as much of the world’s population appears to be growing more and more dissatisfied with the way their various governments have handled the ongoing pandemic.

Inflation, geopolitical uncertainty, and economic uncertainty remain the primary drivers for market volatility in the near term. Russia and China have announced their intentions to work together against U.S. interests, strengthening the ties between the two countries and agreeing that no areas of cooperation will be “forbidden.” A better-than-expected Non-Farm Payrolls in the U.S. for January has stock analysts worried that the Federal Reserve may be far more aggressive in taking steps to combat inflation than previously thought. Some analysts are even projecting as many as 7 rate hikes in 2022, not to mention a tightening of the Fed’s balance sheet that is also under contemplation in addition to tapering off its ongoing asset purchases. Fearing that the Fed may misstep, or even be ineffective, in its efforts to combat inflation, savvy investors continue to make sure that their portfolios are sufficiently diversified to survive a collapse in any one market sector. Many of these investors, considering the long history that precious metals have held as a hedge against inflation and times of uncertainty, have chosen to increase their holdings of physical precious metals within their portfolios to aid in their diversification efforts. 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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