The Precious Metals Week in Review – May 20th, 2022

1. Market volatility continued to escalate this week as stocks plunged both Thursday and Friday. The selloff meant that the S&P 500 was headed towards bear market territory and the Dow Jones Industrial Average is on track for its eighth consecutive negative week. This would be the first 8-week losing streak for the DJIA since 1923. By the end of the day Friday, the S&P was off 20% from its all-time high in January and officially into bear market territory, though a last-minute rally could see it close just above that mark.

2. For the week ending May 14, the seasonally adjusted number of Americans filing initial claims for unemployment increased by 21,000 from the previous week’s revised level to reach a new level of 218,000. The previous week’s level was revised lower by 6,000 claims. The 4-week moving average of claims was 199,500, an increase of 8,250 from the previous week’s revised moving average. The previous week’s moving average was revised lower by 1,500 claims.

3. Kansas City Fed President Esther George said on Thursday that “we need higher interest rates,” but added that “Moving deliberately, making sure we stay on course to get some of those rate increases into the economy and then watch how that’s unfolding is going to be really the focus of my attention. I think we’re good at 50 basis points right now, and I’d have to see something very different to say we need to go further than that.” Ms. George was noting in her comments that she did not see the need for the Fed’s coming rate hikes to move to 75 basis points, not that the Fed would stop raising rates after its last 50 basis point hike. The next Federal Open Market Committee meeting will be held on June 14-15 and the Federal Reserve is widely expected to conduct another 50 basis point hike during that meeting and, in fact, continue to conduct such hikes throughout the rest of the year.

4. In a recent CNBC survey, 4 out of 5 U.S. adults, or 81%, say a recession is “very likely” this year with 89% of those stating that they are worried that rising prices will force them to rethink their financial goals in the coming month. The top money moves that people plan to make will be cutting back on dining out and eliminating unnecessary trips and expenditures. Larry Harris, former chief economist of the SEC and current Fred V. Keenan Chair in Finance at the University of Southern California Marshall School of Business, discussed the possibility of a recession, saying “Are we going to have a recession? It’s pretty likely. It’s very hard to stop inflation without a recession. Rising interest rates choke off spending by increasing the cost of financing.” Harris continued, saying “There have been huge things happening in the economy and enormous government spending. When balances get large, adjustments have to be large. There will be a day of reckoning, the question is how soon.” Mark Tepper, of Strategic Wealth Partners, apparently agrees. Joining CNBC’s The Exchange program, Mr. Tepper discussed why he believes that a recession is not only coming this year, but will be longer and deeper than the consensus currently foresees.

5. Former Federal Reserve Chairman Ben Bernanke, speaking with CNBC’s Squawk Box program, said that he believes the central bank has made an error in waiting to address inflation. Bernanke said “The question is why did they delay that. Why did they delay their responses? I think in retrospect, yes, it was a mistake. And I think they agree it was a mistake.” Clarifying that statement, Bernanke said “One of the reasons was that they wanted not to shock the market. Jay Powell was on my board during the Taper Tantrum in 2013, which was a very unpleasant experience. He wanted to avoid that kind of thing by giving people as much warning as possible. And so that gradualism was one of several reasons why the Fed didn’t respond more quickly to the inflationary pressure in the middle of 2021.”

6. There is growing speculation that China’s President Xi Jinping may be forced to step down as China’s leader over growing unrest regarding the forced Covid lockdowns and a growing economic slump. Social media has been the primary source of the rumors, so the likelihood of this happening remains slim. The Chinese Communist Party Congress will take place in the fall, so even if the discontent continues to grow it is unlikely that any change would take place prior to the fall.

7. Both Finland and Sweden have officially begun the formal process of applying to join NATO. U.S. President Joe Biden has pledged to give both countries the “full backing” of the United States. All 30 member nations of NATO must approve for a new country to be accepted into the organization however, and Turkey’s President Recep Tayyip Erdogan continues to state that he will not approve the NATO applications for either country. Russian President Vladimir Putin continues to make threats over NATO’s expansion, saying that any “expansion of military infrastructure into this territory will certainly cause our response.” The Russian Foreign Ministry doubled down on Putin’s statements on Monday, saying that Russia “will be forced to take retaliatory steps, both of a military-technical and other nature, in order to stop the threats to its national security arising in this regard.” It is becoming increasingly clear that Putin’s unstated goal of keeping NATO expansion from happening through his invasion of Ukraine has backfired.

8. Gas prices in the U.S. hit yet another record high this week, with apparently no gas station in the country selling gasoline for under $4.00 per gallon, a first according to data from AAA. The national average price for unleaded gas hit $4.59 per gallon on Thursday. Memorial Day, which will be arriving next weekend, kicks off the usual “summer driving season” in the U.S. and it is feared that surging gas prices will force many would-be travelers to alter their holiday plans. Patrick De Haan, head of petroleum analysis at GasBuddy, said “Against a backdrop of gas prices that have continue to set new records ahead of Memorial Day, Americans have been resilient in their desire to hit the road, but we’re certainly seeing increased hesitancy due to rising prices at the pump.” JP Morgan analysts forecast that the national average cost for a gallon of gas could reach $6.20 by August.

9. Stephen Roach, former chairman of Morgan Stanley Asia, warned this week that the U.S. is headed for slower growth and continued higher prices. Mr. Roach told CNBC’s Fast Money this week that “This inflation problem is widespread, it’s persistent and likely to be protracted. The markets are not even close discounting the full extent of what’s going to be required to bring the demand side under control… that just underscores the deep hole Jerome Powell is in right now.” Roach went on, saying that he expects inflation to remain above 5% through the end of the year. Commenting on the Fed’s plans for interest rate hikes, Roach said “50 basis points doesn’t cut it. And, by ruling out something larger than that he just sends a signal that his hands are tied. The markets are uncomfortable with that conclusion.” Back in September, Mr. Roach said he believed the U.S. was “one supply chain glitch away from stagflation.” He apparently now sees the likelihood of that outcome increasing, saying “I would add to that zero-Covid in China along with the repercussions of the war in the Ukraine. That will keep the supply side well-extended in terms of clogging price discovery through the next several years.”

10. Oil prices edged slightly higher this week as supply fears, primarily driven by a planned European Union ban on Russian oil and the perceived easing of ongoing Covid-19 lockdowns in China worked to offset fears that slowing global economic growth might reduce demand further. Brent crude futures settled at $112.55 per barrel while U.S. West Texas Intermediate (WTI) crude settled at $113.23 per barrel.

11. The euro edged higher against the U.S. dollar at the start of the trading week but had dipped into negative territory as Monday got under way. The euro began attempting to climb back into positive territory late Monday morning, accelerating the move overnight into Tuesday. On Tuesday, the euro accelerated its climb, moving near vertically higher but quickly hit a stall point and began moving sideways and then slightly lower throughout the rest of the day. The decline continued into Wednesday trading, but by late Wednesday night the euro had reversed and attempted to resume its upward trend. The euro continued climbing on Thursday, hitting its highs for the week late Thursday before drifting back to the downside again overnight. Despite a slight acceleration to the downside on Friday, the euro managed to retain positive territory and will close out the week to the upside against the U.S. dollar.

12. The Japanese yen drifted slightly lower against the U.S. dollar as trading began for the week, then bounced slightly into positive territory and traded in a very narrow band through much of the week. On Wednesday the yen began staging a climb higher into positive territory, which reversed on Thursday and sent it back near opening levels. Late Thursday morning the yen shifted back to climbing higher and touched its highs for the week by mid-afternoon. The yen only briefly touched its highs, then drifted slightly lower throughout the rest of Thursday. The yen bounced along mostly sideways in a narrow band again for much of Friday but managed to hang on to positive territory and will close out the week to the upside against the U.S. dollar.

Market volatility remains the primary concern as geopolitical and macroeconomic events continue to trigger fear and uncertainty across all sectors. Xi Jinping, President of China, and head of its Communist Party, faced with mounting discontent and unrest as Covid-19 lockdowns continue to be in force may finally be considering easing some of the stifling restrictions that have kept China virtually shut down and essentially a non-participant in global markets over the last month. The global supply chain, which was already strained by the economic shutdowns that were triggered by the original outbreak of Covid, now faces even greater challenges due to China’s secondary shutdowns and the ongoing war in Ukraine.

The war in Ukraine that began when Russia conducted an unprovoked invasion on February 24th continues to rage on. Russian President Vladimir Putin has reportedly now fired as many as eight of his top generals as the invasion drags on. The performance of Russia’s military forces, despite causing widespread destruction and devastation across much of Ukraine, has come under scrutiny as the war has slowly gone on. By all accounts, Russia vastly outnumbered and outgunned Ukraine’s military, but they have seemingly failed time and again in achieving their objectives. They have lost a staggering amount of military hardware, so much so, that the Ukrainian authorities have apparently declared that anyone who took possession of any salvageable equipment did not need to declare it for tax purposes.

Stock markets tumbled this week, with the S&P 500 dipping briefly into “bear” territory before rallying slightly back above the mark just prior to the close. The Dow Jones Industrial Average also rallied just prior to closing for the week but did gain back enough to evade an 8th straight losing week, something that has not happened in the DJIA since 1923. Analysts are now openly discussing recession in terms of certainty, rather than conjecture, with many apparently feeling that the Federal Reserve may not have enough tools in its box to avoid the dreaded “hard landing” while trying to rein inflation in off of its multi-decade highs over 8%. The Fed is widely expected to conduct a minimum of another 50 basis point hike when it meets in June, and many analysts feel that the Fed may even be forced into conducting a 75 basis point hike eventually. Gasoline prices are through the roof in the U.S., with the national average well over $4.00 per gallon and climbing. Food and energy costs are also on the rise, exacerbated by the ongoing conflict in Ukraine.

As markets whipsaw, savvy investors continue looking for ways to ensure the diversification of their investment portfolios. As geopolitical and economic turmoil continue to surge, many investors have returned to the view that holding some physical precious metals in their portfolios might offer them some additional diversification. Precious metals have a long and storied history of maintaining a store of value during times of geopolitical and economic turmoil. Investors that maintain this view have continued to look for buying opportunities, in the form of temporary price dips, that will allow them to add additional physical precious metals to their portfolios at a relative discount to other assets. Always remember however, 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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