The Precious Metals Week in Review – February 25th, 2022

1. Market volatility surged this week as the tensions between Ukraine and Russia finally spilled over into actual conflict. Stock markets plunged as Russian tanks began to roll into Ukraine, sending investors fleeing into safer assets.

2. For the week ending February 19, the seasonally adjusted number of Americans filing initial claims for unemployment decreased by 17,000 from the previous week’s revised level to reach a new level of 232,000. The previous week’s level was revised higher by 1,000 claims. The 4-week moving average of claims was 236,250, a decrease of 7,250 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 250 claims.

3. Russia moved rapidly on Ukraine this week, with Russian President Vladimir Putin announcing that Russia was formally recognizing two breakaway regions in the eastern portion of Ukraine as “Independent Republics.” Russian troops, which have been on the border of Ukraine for weeks, immediately moved in and began fighting Ukrainian troops. Russia, however, did not stop with its invasion of the Donbas region, as the eastern portion of Ukraine is known. On Thursday, Russian troops moved into sovereign Ukrainian territory, attempting to take over the highly radioactive Chernobyl nuclear plant. Russian aircraft were also filmed firing missiles upon Ukraine’s capital of Kyiv.

4. Ukrainian officials warned residents of the capital’s northern district not to go outside on Friday due to “the approach of active hostilities” and the Ukrainian Ministry of Defense urged people in the area to take shelter or make “petrol bombs” that they could use to “neutralize the occupier.” Ukrainian officials also went so far as to blow up bridges leading into Kyiv to attempt to prevent Russian troops from being able to enter the capital by ground. Throughout all of this, Ukrainian President Volodymyr Zelenskyy says he intends to remain in Kyiv and proclaim his country’s sovereignty.

5. U.S. President Joe Bidenacted swiftly to announce new sanctions on Russia, including harsher sanctions on some of Vladimir Putin’s inner circle of advisors and oligarchs, after they launched their invasion of Ukraine. Biden was quick to point out to the American public that enacting such sanctions would almost certainly “have a cost here at home.” Given the goods that the U.S. imports from Russia, we can expect to see substantially higher prices for some commodities including crude oil, fuel, some agricultural products and precious metals in the near term.

6. European officials also moved swiftly to condemn Russia’s invasion of Ukraine and also announced their own series of sanctions on Russia. The North Atlantic Treaty Organization, NATO for short, announced on Friday that it had agreed to activate its NATO Response Force for the first time ever in a defensive capacity to respond to the invasion. This force is comprised of 40,000 soldiers from multiple NATO members, but Secretary General Jens Stoltenberg told reporters that only part of the force was being called into action. Late Friday, the U.S. announced that it intended to level sanctions against Vladimir Putin and Russian Foreign Minister Sergey Lavrov personally.

7. The Dow Jones Industrial Average plunged on Wednesday and plunged further on Thursday as news out of Ukraine spread. By late Thursday however, the DJIA had clawed back much of its losses, despite the news of continued skirmishes between Russian and Ukrainian forces. Friday saw more volatility and yet oddly, given the amount of geopolitical uncertainty ahead during the weekend, the DJIA finished the week out only down roughly 20 points.

8. Also on Friday, Russia “partially” restricted Facebook access, accusing the media giant of censoring some state-run media outlets. Russia’s media regulator said that four Russian media outlets had their accounts limited or otherwise restricted and that it had “recorded 23 cases of such censorship of Russian media and internet resources by Facebook” since October of 2020.

9. While China has remained largely silent on Russia’s invasion of Ukraine, even refusing to call the event an “invasion”, it is clearly watching, with an eye towards Taiwan and weighing how the world reacts to Russia’s actions. On Thursday, Taiwan scrambled its air force to warn away nine Chinese aircraft that had violated its air defense identification zone. Taiwan said that it has not noted any other unusual movements by Chinese forces yet, but the island’s government has raised its alert level and is closely monitoring the situation in Ukraine.

10. As the Federal Reserve ponders its options on monetary policy for its upcoming Federal Open Market Committee meeting in mid-March, its favorite inflation measure, the Personal Consumption Expenditures price index, surged to levels not seen since the early 1980s. For core PCE, which excludes food and energy prices, the gauge rose 5.2% from just one year ago. Including food and energy prices, the PCE index was up 6.1%.

11. As Russian troops rolled into Ukraine this week, oil prices soared. Both Brent Crude and West Texas Intermediate (WTI) touched their highs for the week, with Brent tapping $105 per barrel and WTI hitting $95.64. By Friday, both had dipped lower, with Brent futures settling at $97.93 per barrel and WTI settling at $91.59 per barrel. The sanctions being imposed on Russia by both the U.S. and Europe have sparked fears that there could be a global supply disruption in oil production.

12. The euro started the week moving slightly higher against the U.S. dollar, but by mid-morning on Monday had reversed course. The euro drifted lower through Tuesday, dipping into negative territory briefly by Tuesday afternoon before immediately returning to positive. The euro drifted lower again through overnight trading into Wednesday, then popped higher again late Wednesday morning before beginning a relatively sharp decline after news that Russia had moved on Ukraine broke Wednesday. The euro touched its lows for the week late on Wednesday, spiked slightly higher from there, and then traded mostly sideways into Friday morning. Friday, just prior to market close, the euro moved higher again, but could not build enough momentum to take it back positive for the week. The euro will close out the week to the downside against the U.S. dollar.

13. The Japanese yen drifted higher against the U.S. dollar at the start of trading, but by Tuesday morning had moved into negative territory. The yen bounced back to opening levels late on Tuesday and then traded mostly sideways through Wednesday. Overnight, the yen moved back into positive territory, but by mid-morning on Thursday had begun a move lower that took it into negative territory for the rest of the week. The yen touched its lows for the week during Friday trading and will finish the week to the downside against the U.S. dollar.

Now that the tensions between Russia and Ukraine have erupted into a full-blown confrontation, we can expect media outlets to be dominated by events there. Already social media is abuzz with rumors and hearsay regarding what is really taking place inside the country and there is evidence that many of the postings are fake, including some that appear to be nothing more than video game footage. It will be difficult to sift fact from fiction until the fight is either finished, or a cease-fire can be agreed upon. Ukraine, for its part, is obviously loath to cede any more of its sovereign territory to Russia after suffering through Russia’s annexation of the Crimean Peninsula in 2014, while Russia claims to have recognized the independence of two areas in the Donbas region of Ukraine have declared themselves to be independent Republics and that they are requesting Russian participation to defend themselves. NATO has, for the first time in its history, activated its NATO Response Force in a defensive move. Ukraine is not a member of NATO, but is surrounded by countries that are, and those countries are all taking defensive postures in response to Putin’s moves.

Vladimir Putin has made it clear that Russia is against the further expansion of NATO, and it is likely that Ukraine’s desire to become a member is one of the reasons behind his decision to invade. On Friday a spokeswoman for Russia’s Foreign Ministry, Maria Zakharova, held a press conference in which she said that if Sweden and Finland decided to join NATO, it would cause “serious military-political repercussions.” Zakharova said “Finland and Sweden should not base their security damaging the security of other countries. Clearly [the] accession of Finland and Sweden into NATO, which is first and foremost a military alliance, would have serious military-political repercussions that would demand a response from our country.” Her remarks appeared to be in response to Ukrainian President Volodymyr Zelenskyy confirming that his nation was receiving support from those two nations.

Volatility can be expected to increase while Russia remains in Ukrainian territory. It’s attacks on Ukraine’s capital, Kyiv, prove that Vladimir Putin’s intentions go far beyond simply recognizing two of Eastern Ukraine’s regions as independent republics. The geopolitical fallout from Putin’s maneuvers will be months, if not years, in making themselves known. Equity markets tumbled as the invasion got under way, then surprisingly saw two days of recovery despite heading into a weekend with no certainty over the situation in Ukraine. As stocks began to tumble, many investors looked to physical precious metals, hoping to acquire additional product to aid in the diversification of their portfolios before geopolitics and renewed economic uncertainty acted in concert to send prices higher. Many analysts have returned to the viewpoint that a well-diversified investment portfolio should include an allocation of physical precious metals. Remember that 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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