The Precious Metals Week in Review – April 1st, 2022

1. The Russia-Ukraine war has entered its sixth week, though the two nations are now apparently in discussions over how each side might take steps to resolve the conflict. Market volatility, particularly in commodities such as oil and precious metals, remains high as world leaders continue to apply pressure on Russia for its actions. Russia is a key exporter of both oil and precious metals.

2. For the week ending March 26, the seasonally adjusted number of Americans filing initial claims for unemployment increased by 14,000 from the previous week’s revised level to reach a new level of 202,000. The previous week’s level was revised higher by 1,000 claims. The 4-week moving average of claims was 208,500, a decrease of 3,500 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 March was released and came in below economists’ expectations. Payrolls grew by 431,000, below the 490,000 estimates and far below February’s upwardly revised figure of 750,000. The unemployment rate dropped to 3.6%, which was lower than an expected drop to 3.7%. The Leisure and Hospitality industry led the job gains, followed up by Professional and Business Services and then Retail Trade. The labor force participation rate increased to 62.4%, just shy of its pre-pandemic level in February of 2020 just before the U.S. economy was brought to a screeching halt by forced shutdowns to attempt to slow the spread of Covid-19.

4. Russian troops handed control of the Chernobyl nuclear power plant back to Ukrainian personnel this week, according to a statement from the International Atomic Energy Agency and corroborative information from Ukraine. The agency said however that it “has not been able to confirm [Ukraine’s] reports of Russian forces receiving high doses of radiation while being in the Chernobyl Exclusion Zone.” The statement noted that “In addition, Ukraine reported that there are still some Russian forces on the Chornobyl NPP site but presumed that those forces are preparing to leave.” Multiple convoys of Russian troops have apparently moved out of the area and back towards Belarus, which has been allied with Russia in the ongoing invasion of Ukraine.

5. European leaders met with top officials from China on Friday for a virtual summit. In two separate meetings, EU leaders pressed Premier Li Keqiang and President Xi Jinping to reconsider their support for Russia amid its invasion of Ukraine. European Council President Charles Michel told reporters in Brussels after the meeting that they had “called on China to end the war in Ukraine. China cannot turn a blind eye to Russia’s violation of international law.” For China’s part, they seemed more interested in keeping the meeting topics on areas of China-EU cooperation. A brief report from China’s Xinhua news agency, which is under the control of the Communist Party, barely mentioned Russia at all.

6. U.S. deputy national security adviser Daleep Singh warned India on Thursday that if India tries to evade Western sanctions on Moscow imposed as a result of the war in Ukraine, there would be “consequences.” The warning was issued ahead of Russian foreign minister Sergey Lavrov’s meeting with officials following a two-day visit to China. India has a long history of working with Russia during the so-called “Cold War” and is reportedly working with Moscow on a payment solution that would allow it to work around Western sanctions.

7. Financial analysts are beginning to sound warning bells over the Federal Reserve’s ability to handle surging inflation while managing to keep the U.S. economy from tipping over into a recession. The benchmark 10-year Treasury note was at 2.382% while the 2-year U.S. government bond rose to 2.448%. Such yield curve inversions are typically pointing to a recession on the horizon, though in recent years, such events have come and gone without triggering a recession. Other parts of the yield curve have also inverted recently, with the 5-year Treasury rising to 2.559% while the rate on 30-year bonds dipped to 2.433% this week. This is the first time since 2006 that 5-year and 30-year bonds have inverted.

8. European Union analysts, while not yet sounding the same warning bells over a Recession as U.S. analysts, are nonetheless projecting a period of much lower growth in the near term as a result of the Russia-Ukraine war. European Commissioner for economics and taxation, Paolo Gentiloni, said on Saturday that the crisis in Ukraine will likely lead to lower growth. Gentiloni said “The good thing is that we entered this crisis five weeks ago on a good footing, and we were estimating this year 4% growth. This will slow down, for sure, but the carryover of the previous situation of how our economy went in 2021 will stay. And I think we are not running a risk of entering negative territory overall in 2022.”

9. The International Energy Agency is holding an emergency meeting on Friday, according to a “person familiar with the matter” that discussed the meeting with CNN. The U.S. announced a record release of 180 million barrels of oil from its Strategic Petroleum Reserve this week in an effort to bring prices lower. The meeting could set the stage for other member nations to release additional oil from their own reserves. Fatih Birol, the executive director of the IEA said on Thursday in a Twitter Spaces conversation that was hosted by the New York Times that IEA member governments are “coming together in an extraordinary meeting on Friday to discuss what kind of steps we can take in order to provide stability to the oil markets.”

10. Oil prices plunged after the U.S. announced its massive stockpile release on Thursday. Oil continued dropping, headed for its biggest weekly loss since 2020 after the International Energy Agency members also agreed to meet on whether they would join the U.S. and tap their own reserves on Friday. Brent Crude futures settled at $104.39 while West Texas Intermediate futures settled at $99.27 per barrel.

11. The euro began the week trending slightly lower against the U.S. dollar, but then jumped sharply into positive territory even before trading got underway on Monday. The euro drifted slightly higher through Monday and climbed steeply higher around mid-day on Tuesday. The euro saw a slight reversal, but quickly resumed its climb and had touched its highs for the week in the early morning hours on Thursday. From there, the euro drifted lower through Friday’s trading but did not decline steeply enough to send it into negative territory. The euro will close out the week slightly to the upside against the U.S. dollar.

12. The Japanese yen drifted slightly higher against the U.S. dollar at the start of trading for the week, but took a relatively steep dive on Monday, touching its lows for the week around mid-day. The yen struggled to climb higher through Wednesday, when it turned slightly positive for the week and took a prolonged pause, drifting mostly sideways through overnight trading on Thursday. The yen moved slightly back into negative territory on Friday and will close out the week only slightly to the downside against the U.S. dollar.

Market volatility should still be expected to continue due to the uncertainty brought about by Russia’s ongoing invasion of Ukraine. The two nations are reportedly in discussions on ceasing the hostilities, but so far Russia shows very little sign of backing off. Ukraine’s Ministry of Foreign Affairs claimed on Saturday that since the start of the invasion, roughly 18,000 Russian military troops have lost their lives – a claim that Moscow disputes. NATO, which Ukraine is not a member of, estimates that somewhere between 7,000 and 15,000 Russian troops have lost their lives in the conflict, with that figure also disputed by Moscow. On Friday, the International Committee of the Red Cross sent a team of humanitarian workers to attempt to lead a convoy out of the port city of Mariupol, which has been surrounded by Russian troops since the early days of the conflict. The ICRC team was forced to turn back once again, however, saying that conditions on the ground had made it “impossible to proceed” and called on parties on both sides of the conflict to issue the necessary security guarantees that would allow them to safely conduct an evacuation of those trapped inside the city.

New York Federal Reserve Chair John Williams said on Saturday during an event hosted by Princeton University that the Federal Reserve could start trimming its balance sheet as early as next month. Williams said that inflation, currently at 6.5% by his measure, remains the central bank’s “greatest challenge” and that inflation could be driven even higher by factors such as the ongoing pandemic, the war in Ukraine, ongoing supply shortages, and a shortage of labor. Williams said, “uncertainty about the economic outlook remains extraordinarily high, and risks to the inflation outlook are particularly acute.” Williams went on to say that he expected the upcoming rate increases by the Fed and balance sheet reductions to bring inflation under control and possibly get it as low as 4% by the end of the year. He said, “These actions should enable us to manage the proverbial soft landing in a way that maintains a sustained strong economy and labor market. Both are well-positioned to withstand tighter monetary policy.”

As geopolitical uncertainty, and the accompanying economic uncertainty that inevitably goes along with it, continues to surge, investors continue to make strides to ensure that their portfolios are sufficiently diversified to survive corrections across multiple sectors. The Real Estate sector is facing slowing sales due to supply shortages for building materials and skyrocketing costs of land; Equity markets have suffered severe volatility amid both panic selling, and then panic buying as unsophisticated investors suffer from the proverbial “Fear Of Missing Out” when the correction appears short-lived; Oil markets have suffered from severe volatility, first as a result of Russia’s actions in Ukraine, then as a result of the world’s leaders releasing reserves to try to combat spiraling prices. Inflation is surging in most of the world’s economies, made worse by the conflict raging in Ukraine. The world’s central banks appear to all be trying to reassure their various constituents that they can get control of inflation and bring it down without triggering recessions across the globe.

Many investors in this environment have continued to acquire physical precious metals, when buying opportunities allow them to do so at a discount, as part of their long-term diversification strategy for their investment portfolios. These investors believe that the long history that physical precious metals have of representing a store of value amid times of both geopolitical and economic uncertainty still holds true today. 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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