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

1. Market volatility continued to surge this week as Russia’s all-out invasion of Ukraine spilled into its second week. Russian stock markets are plummeting as nations around the world level sanction after sanction upon the country and its leaders for their actions.

2. For the week ending February 26, the seasonally adjusted number of Americans filing initial claims for unemployment decreased by 18,000 from the previous week’s revised level to reach a new level of 215,000. The previous week’s level was revised higher by 1,000 claims. The 4-week moving average of claims was 230,500, a decrease of 6,000 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 250 claims.

3. On Friday, the U.S. Non-Farm Payrolls report for February was released and the numbers were better than economist’s expectations. Wall Street had been looking for the addition of 440,000 jobs and an unemployment rate of 3.9%, while the report showed non-Farm payrolls rose by 658,000 in February while the unemployment rate fell to 3.8%. Leisure and hospitality led the job gains, followed by professional and business service, and then health care. These are the biggest monthly job gains since July.

4. Gasoline prices in the U.S. surged this week, with the national average reaching $3.83 per gallon, its highest level since 2012 and 41 cents more on average than just one month ago. Increasingly harsh sanctions on Russia for its outright invasion of Ukraine have sparked fears in the oil industry of possible supply shortages. In some locations, like California, prices surpassed $5.00 per gallon. The surge in gasoline prices comes on the heels of U.S. oil hitting its highest price level since 2008. Consumers, already feeling the sharp pinch of growing inflation in food and energy costs hitting their take-home pay will almost certainly begin closely watching their spending now that they cannot predict what it will cost them to fuel up their vehicles at the pump from week to week, if not day to day.

5. Russian military forces bombed, then seized control of the Zaporizhzhia nuclear power plant in Ukraine, the largest such plant in Europe. The move prompted an emergency meeting of the United Nations Security Council, where the U.S. ambassador to the UN, Linda Thomas-Greenfield, noted that the world had narrowly escaped a full-blown nuclear catastrophe due to Russian shelling of the facility. The foreign ministers of the G-7 group of developed economies issued a new joint statement condemning Russia’s invasion of Ukraine and all pledged to impose additional sanctions on Moscow and also on its ally Belarus, which has been allowing Russian troops to enter Ukraine from inside its borders, unless they immediately halt the unprovoked attack.

6. Ford announced yet another cut in its production of trucks and SUV’s due to the ongoing shortage of semiconductor chips that are used in vehicle production. Further supply chain impacts are expected as a result of Russia’s invasion of Ukraine, which could exacerbate the semiconductor shortage by limiting supplies of neon gas and palladium, both of which are used ion the production of semiconductors. Palladium has also become heavily used in the auto industry as an important ingredient in catalytic converters.

7. Cleveland Fed President Loretta Mester said this week that the Ukraine war has intensified the need for the Fed to boost interest rates to combat inflation. Noting that Russia’s invasion of Ukraine has pushed commodity prices like oil, grains and precious metals even higher, at a time when U.S. consumer prices were already rising at their fastest annual rate in nearly 40 years, Mester said that “The uncertainty about the outlook doesn’t change the need to get inflation under control in the U.S. In fact, it actually adds upside risk that high inflation might continue, and that makes it more important to take action.” Mester closed out her interview with CNBC by saying “We have to take action. We can’t just say, oh, inflation is going to come down on its own. We’ve seen that isn’t going to happen.”

8. Chicago Fed President Charles Evans said on Friday, in an interview with CNBC, that small businesses will be facing increasing challenges from inflation and the costs associated with higher wages. Evans said, “I think there are a lot of business models, especially for small businesses, that are going to be challenged for the future. They’re going to be asked to pay higher wages, and you know if inflation is going up, it’s the real wage that’s going to equate demand and supply.” Evans continued, saying “Obviously, we need to be moving toward a more neutral monetary policy certainly by the end of the year, so that we’re within striking distance of taking a position that would deal more forcefully with inflation. I have said [we’ve been] ‘wrong-footed’ [on policy], and I think that’s the right term. It happened very quickly.” Currently, markets expect the Fed to conduct at least 6 25 basis point rate hikes this year, however Evans noted that he is unsure if the Fed needs to be that aggressive, and that the central bank will have a better idea of where it needs to be by the end of the year.

9. The Russian invasion of Ukraine has also acted to drive up air cargo costs as carriers actively avoid Russian air space for their operations and Russian aircraft are banned from airports around the world. This likely means that consumer goods around the world will become even costlier than they already have. Rising fuel costs and the barring of Russian aircraft from the airspace of the U.S., Canada, and most of Europe has made the costs of shipping goods around the world surge. Air cargo rates from China to Europe skyrocketed 80% alone just this week.

10. Russia’s media regulator said on Friday that it will completely block access to Facebook within the country after it refused to comply with Russia’s request to stop labeling or fact-checking Russia’s state-affiliated media. Last week the media regulator had announced partial restrictions on Facebook but said this week that it was increasing the restrictions because the company had violated federal law by restricting access to the accounts of multiple state-affiliated media outlets.

11. Oil prices continued to soar this week as Russia’s unprovoked invasion of Ukraine remained under way and rumors began to circulate that Moldova may also be a target for invasion. Oil jumped 7% on Friday alone, with Brent futures rising $7.65 to settle at $118.11 per barrel while West Texas Intermediate crude rose $8.01 to settle at $115.68 per barrel. Oil prices can be expected to remain volatile, despite reassurances from the U.S. Department of Treasury that Russia’s energy sector is not yet “subject to comprehensive sanctions” until likely sometime in June.

12. The euro dipped lower against the U.S. dollar to start the week, attempted a brief recovery, and then traded in a near straight line lower through early Thursday morning trading. On Thursday, the euro continued its move to the downside, sliding lower overnight and then accelerating to the downside in Friday trading. The euro touched its lows for the week just before the market close on Friday and then bounced slightly higher. The euro will finish out the week to the downside against the U.S. dollar.

13. The Japanese yen dipped lower at the start of trading for the week, then bounced sharply higher before dipping back near the opening levels. The yen then slid slightly lower through Thursday trading, dipped even lower around mid-day Thursday and then climbed its way into positive territory from there. In Friday trading the yen spiked higher, touching its highs for the week just prior to market close before dipping slightly lower. The yen will close out the week to the upside against the U.S. dollar.

As Russia continues its aggressive and unprovoked invasion of Ukraine, Western nations have begun to implement harsher and harsher sanctions against the country, Vladimir Putin himself, and many of the wealthy Russian oligarchs that orbit within his sphere of influence. The Biden administration announced a new round of sanctions targeting those oligarchs who are supporting Vladimir Putin, and those sanctions include their families. The new sanctions are on eight Russian elite oligarchs and 47 of their family members and close associates. An hour after the U.S. made its announcement, the United Kingdom revealed that it had issued its own set of sanctions and that “in coordination with the U.S. and other allies, these measures amount to the largest set of financial sanctions in history.” The U.S. Treasury Department also announced that it will be designating “disinformation targets,” which include seven Russian entities and 26 Russia and Ukraine-based individuals. In a fact sheet that detailed the sanctions, the White House said, “These individuals and their family members will be cut off from the U.S. financial system, their assets in the United States will be frozen and their property will be blocked from use.”

EU foreign affairs ministers were to meet on Friday in Brussels to discuss their next steps as Moscow continued its assault on Ukraine. Three separate officials, who declined to reveal their names due to the sensitivity of the discussions, told CNBC that those ministers are looking at imposing energy sanctions on Russia, which is a crucial source of energy for all of the European Union. In 2021, the EU imported roughly 45% of its natural gas from Russia, according to the International Energy Agency. Despite this fact, ministers are still willing to levy sanctions against Russia’s energy sector for its attack on Europe’s largest nuclear plant in Zaporizhzhia, Ukraine. Russian forces shelled, then subsequently seized control of the plant, a risky plan which could have led to one of the, if not the, largest nuclear accidents in the planet’s history. Last Saturday, France seized a Russian vessel in the English Channel accordingly in line with new EU sanctions against Moscow. The vessel was transporting cars to St. Petersburg from Rouen but was redirected due to the fact that it is “suspected of belonging to a Russian company that is currently on a sanctions list by the EU.”

Geopolitical and economic uncertainty should be expected to increase as the ramifications of Russia’s invasion of Ukraine begin to be felt throughout the world. As Western nations place additional sanctions upon Moscow, expect the costs of goods around the world to soar even higher. Russia has retaliated against the sanctions being placed upon it by restricting its exports, preventing them from reaching the U.S., Canada, and Europe. Russia is directly responsible for supplying roughly 45% of Europe’s energy demands, and nearly all of the U.S.’ neon and palladium demands, which are both required for the manufacture of semiconductors and automotive catalytic converters. Equity markets around the world have swung violently as Russia has continued its advance into Ukraine.

Many investors have chosen to exit equities in favor of safer havens. Many of these investors have turned to physical precious metals, given their long history of acting as a hedge against inflation, economic uncertainty, and times of geopolitical uncertainty. Many of these same investors began acquiring physical precious metals as part of their plans to ensure portfolio diversification long before such uncertainty reared its head. 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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