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

1. The Russia-Ukraine war has now entered its fifth week, continuing to stoke market volatility across multiple sectors. World leaders met this week in Brussels, Belgium to hold further talks over how to deal with the conflict.

2. For the week ending March 19, the seasonally adjusted number of Americans filing initial claims for unemployment decreased by 28,000 from the previous week’s revised level to reach a new level of 187,000. The previous week’s level was revised higher by 1,000 claims. This is the lowest level for initial claims since September 6, 1969. The 4-week moving average of claims was 211,750, a decrease of 11,500 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 250 claims.

3. After the Fed’s interest rate hike last week, real interest rates have begun to surge. As a result, mortgage refinance demand has plunged 14%. Applications to refinance home loans are down 54% from the same week one year ago. Markets appear to be pricing in a much faster pace of future rate hikes, driven by some Fed official comments that in the near future one, or more, 50 basis-point rate hikes could be on the table. Pending home sales also fell in February, which could be signaling that the housing market may be facing lean times as it enters what would typically be its busiest season.

4. The European Union struck a historic deal with the U.S. this week on natural gas as it seeks to further distance itself from dependency on energy out of Russia. U.S. President Joe Biden and European Commission President Ursula von der Leyen announced they were forming a joint task force to help bolster energy security for Ukraine and the European Union for next winter and the following winter as well. According to a joint statement released by the U.S. and the EU, the goal of the task force is to “diversify LNG supplies in alignment with climate objectives and reduce demand for natural gas.” The U.S. said on Friday that it intends to work with international partners to provide at least 15 billion cubic meters more of liquified natural gas (LNG) to Europe this year. Speaking alongside EC President Ursula von der Leyen, Biden said “I know that eliminating Russian gas will have costs for Europe. But it’s not only the right thing to do from a moral standpoint, it’s going to put us on a much stronger strategic footing. All of this is bringing the European Union and the United States even closer together, and that’s a win for all of us.”

5. GM announced this week that it would be halting pickup truck production at a factory in Indiana from April 4 to April 11 due to the ongoing shortage of semiconductor chips that are required to produce the vehicles. Auto makers have taken to prioritizing chips for their most high-demand and profitable models – typically pickup trucks and larger SUVs. In a statement released on Friday, General Motors said “Overall, we have seen better consistency in semiconductor supply through the first quarter compared to last year as a whole. This has translated into improvement in our production and deliveries during the first three months of the year. However, there is still uncertainty and unpredictability in the semiconductor supply base, and we are actively working with our suppliers to mitigate potential issues moving forward.”

6. Treasury Secretary Janet Yellen said on Friday that she does not believe that the U.S. should impose sanctions on China at this time, despite its apparent partnership with Russia. Speaking to CNBC’s “Squawk Box” Friday morning, Ms. Yellen said “I don’t think that that’s necessary or appropriate. Senior officials are talking privately and quietly with China to make sure that they understand our position. We would be very concerned if they were to supply weapons to Russia, or to try to evade the sanctions that we’ve put in place on the Russian financial system and the central bank. We don’t see that happening at this point.”

7. On Friday, Russia released statistics on how many of its forces have died during their month-long invasion of Ukraine. The release was to counter NATO estimates earlier in the week that estimated between 7,000 to 15,000 Russian troops have died during the fighting. Russia stated that only 1,300 of its troops have been killed, far fewer than the NATO estimates. Later on Friday, Kyiv released its own estimate and said it believes over 16,000 Russian troops have lost their lives as a result of Vladimir Putin’s invasion. Russian state news deleted a post earlier in the week that suggested troop deaths were close to 10,000, saying that the article was published during a cyberattack.

8. Speaking at NATO headquarters in Brussels on Thursday, U.S. President Joe Biden seemed to shift to a more aggressive posture towards Russia than he has used previously. Biden told reporters that if Russian President Vladimir Putin were to use chemical weapons in Ukraine then NATO would have to respond “in kind”. Asked by ABC News’ Cecilia Vega if the use of chemical weapons in Ukraine would “trigger a military response from NATO”, Biden said “It would trigger a response in kind, whether or not you’re asking whether NATO would cross – we’d make that decision at the time.” Ukraine is not in NATO and therefore does not fall under its protection.

9. As the war in Ukraine rages on, food shortages across the world are becoming a very real possibility. On Thursday, President Joe Biden said “With regard to food shortage, yes we did talk about food shortages, and it’s gonna be real. The price of the sanctions is not just imposed upon Russia. It’s imposed upon an awful lot of countries as well, including European countries and our country as well.” Russia and Ukraine both have historically been called “the breadbaskets of Europe” due to massive wheat production. Combined, both countries account for nearly one third of the world’s wheat and barley exports. Wheat prices are already up 55% as ports in Ukraine were closed as a result of Russia’s invasion. Ukraine is also a major supplier of corn and sunflower oil.

10. Oil prices resumed their rises this week as the conflict between Russia and Ukraine entered its fifth week. Late on Friday, reports surfaced that Yemen’s Houthi rebels had carried out another attack against a Saudi Arabian oil facility near the city of Jeddah. The rebels also claimed to have used drones to strike two other oil refineries, but the additional strikes have not yet been confirmed by Saudi Arabia. Brent crude settled at $120.65 per barrel while West Texas Intermediate crude settled at $113.90 per barrel.

11. The euro began the week drifting lower against the U.S. dollar, but the decline accelerated on Monday. The euro took a steep dive throughout Monday and overnight into Tuesday’s trading. On Tuesday the euro touch its lows for the week and began a sharp reversal back towards positive territory. The euro did not maintain its upward momentum and had resumed its downward slide, nearing its lows again around mid-day on Wednesday. The euro attempted another reversal, but again could not maintain its momentum and bounced along mostly sideways through Thursday trading. Around mid-day on Thursday, the euro again attempted to recover, rising through the rest of the day and overnight into Friday. Late Friday morning, the euro reversed again, and continued declining through the rest of the day. The euro will finish out the week to the downside against the U.S. dollar.

12. The Japanese yen drifted sideways against the U.S. dollar at the start of the trading week, but soon began a downward slide that lasted nearly the entire week. The yen touched its lows for the week in the early morning trading hours of Friday, then reversed course, attempting a recovery that it could not maintain. The yen reversed and began moving lower again mid-morning on Friday and while it did not reach its lows again, will still finish out the week lower against the U.S. dollar.

Russia’s war with Ukraine can be expected to continue to drive market volatility. The conflict has entered its fifth week, and Ukraine shows no signs of intending to stop defending its sovereignty. The ongoing conflict continues to result in destruction throughout Ukraine and will no doubt have a negative effect on global food prices since both Russia and Ukraine are major producers of wheat and other agricultural products. Wheat prices alone are up 55% from just one week before Russia kicked off its invasion.

After the White House announced that President Biden would be visiting Poland this week, the Kremlin’s deputy head of its security council said that Polish leaders were a “vassal” of the United States, gripped by “pathological Russophobia,” and that their country was a “community of political imbeciles.” Poland’s Stanislaw Zaryn, director of the Department of National Security said, regarding the remarks, “This is further proof that the Russians treat Poland seriously and see its growing importance in the West.” On Wednesday, Poland said that it had identified 45 Russian diplomats as spies and ordered all of them to leave the country. The deputy foreign minister, Pawel Jablonski, said that Poland, who has taken in more than two million refugees fleeing the war in Ukraine, could not tolerate Russia’s abuse of its embassy in Warsaw when Moscow “is waging a barbaric war against Ukraine.” Jablonski said that spies disguised as diplomats not only “pose a threat to Poland’s security, but also to the security of Ukrainian citizens staying in Poland. Hence this decision.”

Diversification remains key in the current environment of geopolitical and economic uncertainty. As inflation surges, made worse by the ongoing conflict in Ukraine, economic uncertainty will likely increase. Geopolitical uncertainty also is likely to increase as Russia lashes out at those that have levied sanctions against it for its actions in Ukraine. While stocks seemed to shake off the ongoing bad news this week and resumed their upward climb, many investors have chosen to avoid what they feel to be nothing more than “panic buying” as some investors rush in to try to capture gains before the next correction. If Russia escalates its attacks in Ukraine or lashes out with more than words at those countries it now views as adversarial, then stocks could very well tumble again.

Gold and Silver continued to make gains this week and many investors have continued to accumulate these, and other physical precious metals, as part of their diversification strategy. Hoping to acquire them at a relative discount ahead of increasing geopolitical turmoil. 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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