The Precious Metals Week in Review – June 17th, 2022

1. Market volatility escalated further this week as central banks around the world became much more aggressive with their monetary policy. The war between Russia and Ukraine continues to rage on with no end in sight. Russian President Vladimir Putin lashed out at Western nations this week, placing the blame for Russia’s “special military operation” in Ukraine on the West. The S&P was on track to log its worst losing week since March of 2020. The Dow Jones logged a historic 11th weekly loss in the last 12 weeks – the first time that has ever occurred.

2. For the week ending June 11, the seasonally adjusted number of Americans filing initial claims for unemployment dipped by 3,000 from the previous week’s revised level to reach a new level of 229,000. The previous week’s level was revised higher by 3,000 claims, essentially leaving claims unchanged from the previous week’s reported numbers. The 4-week moving average of claims was 218,500, an increase of 2,750 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 750 claims.

3. Fed watchers had begun to speculate that the Federal Reserve’s likelihood of raising interest rates by 75 basis points had increased significantly ahead of this month’s Federal Open Market Committee meeting to set monetary policy. Despite the Fed’s apparent insistence that it was considering “only” another 50 basis-point hike every time its members spoke publicly, on Wednesday, the Fed opted to abandon its previous stance and instead did exactly as markets had been expecting – it raised rates by 75 basis points. This is the largest rate hike by the Fed in 28 years and Fed Chair Jerome Powell hinted that another 75-point hike could be on the table for next month. Chair Powell also noted that the Fed’s revised economic projections show an expected rise in unemployment in coming years as it continues to hike rates. Powell said “If you were to get inflation on its way down to 2% and unemployment go up to 4.1%, that’s still a historically low level. 3.6% is historically low in the last century, so a 4.1% unemployment rate, with inflation well on its way to 2%, I think that would be a successful outcome.”

4. Other central banks around the world jumped on the rate hike bandwagon this week as well. The Swiss National Bank caught markets by surprise on Thursday when it announced that it would undertake its first rate hike in 15 years. Central banks in England, Taiwan, and Brazil also all hiked rates as inflation around the globe continues to surge.

5. Cryptocurrencies continued their plummet this week, with Bitcoin tracking for its worst week since March of 2020 at the outbreak of the Covid-19 pandemic. Crypto exchange platform Coinbase saw its shares close down over 11% on Monday alone. Its stock is now down 76% year to date. On Monday, Crypto lender Celsius said that it would be pausing all withdrawals, swaps, and transfers between accounts due to “extreme market conditions” and Binance also paused withdrawals the same day, though it said the decision was made due to a “stuck transaction causing a backlog.”

6. There appear to be growing signs of a broader economic slowdown in the U.S., leading many analysts to openly comment that the U.S. may already be in an outright recession. On Wednesday, retail sales data for May was released by the U.S. Commerce Department and the data showed a decline in retail and food service spending of 0.3%. Overall spending for the month also declined in spite of a 4% increase in spending at gasoline stations, driven entirely by inflationary price pressure in the energy sector.

7. As mortgage demand in the U.S. has dried up amid rising rates, the real estate and housing industries are beginning to feel some pain. The average rate for a 30-year fixed mortgage rose by 10 basis points to 6.28% on Tuesday, ahead of the Fed’s rate hike. Real estate data released on Thursday for May showed a 14.4% monthly decline in housing starts despite an ongoing shortage of homes available for purchase. Home sales have fallen for six straight months as rates have begun to increase. For those homes that actually do manage to close on a contract, buyers are now paying roughly 20% more than they were just one year ago.

8. John Boyd Jr., President of the U.S. National Black Farmers Association, issued a stark warning in an interview with News Nation this week. Boyd said, “People are going to see the rising cost of food in their local grocery stores in the coming month.” Boyd continued, saying “Farmers are feeling the pinch from the high cost of diesel fuel and fertilizer, truckers are feeling the pinch and you have a certain region in the world that’s not planting crops at this time in Ukraine, so there’s going to be a shortage of wheat and commodities that they’ve been producing there as well. For so long, we’ve enjoyed lots of food in this country, so we’ve never ever faced a food shortage and I think that’s coming in the coming months.”

9. The European Central Bank held an emergency meeting on Wednesday to “discuss market conditions” as borrowing costs for many of the EU’s members have begun to climb. Concern over financial fragmentation in the eurozone has been rising. Although the members of the euro area each have their own separate fiscal capacity but share the euro as their currency. In consequence, instability in the members with higher debt loads can spill over into the greater euro area. Isabel Schnabel, a member of the ECB’s executive board said in Paris on Tuesday: “Our commitment to the euro is our anti-fragmentation tool. This commitment has no limits and our track record of stepping in when needed backs up this commitment.” Schnabel continued, saying “We will react to new emergencies with existing and potentially new tools. These tools might again look different, with different conditions, duration, and safeguards to remain firmly within our mandate. But there can be no doubt that, if and when needed, we can and will design and deploy new instruments to secure monetary policy transmission and hence our primary mandate of price stability.”

10. In China, new mass quarantine measures went into place in Shanghai, including highway closures, which impact trucks carrying exports destined to the city’s port for shipping. Logistics company Orient Star Group said “Trucks loaded with cargoes and containers were unable to enter the Shanghai terminal. Many clients have no choice but to change the loading ports to Ningbo or other small ports along the Yangtze River.” Officials ordered people in 15 of Shanghai’s 16 districts were ordered to test themselves for the omicron variant of Covid-19 and five districts have re-implemented mandatory house confinement for their residents. Supply chains continue to be affected by China’s ongoing “Zero Covid” policy, particularly when its busiest ports cannot import and export goods and materials.

11. Oil snapped a 7-week winning streak as volatility in the energy sector sent prices tumbling. Oil prices fell roughly 6% on Friday, hitting a four-week low apparently on fears that the world’s central banks all deciding to hike rates could trigger a global economic slowdown that could see a sharp pullback in demand. Brent crude fell $6.69 on Friday to settle at $113.12 per barrel while U.S. West Texas Intermediate crude fell $8.03 to settle at $109.56 per barrel.

12. The euro spiked higher against the U.S. dollar at the start of trading for the week, but almost immediately plunged lower, crossing into negative territory overnight on Sunday. The decline in the euro continued into Tuesday when the battered currency paused and began moving mostly sideways in a narrow channel. The euro dipped briefly lower again late on Wednesday, attempted recovery in overnight trading, then dipped lower again around mid-day on Thursday. The euro traded around its lows for the week on Thursday, then immediately shot higher, reclaiming positive territory late Thursday night. The euro began sliding lower again almost immediately but managed to stay near its opening levels for the week and will close out the week only slightly to the downside against the U.S. dollar.

13. The Japanese yen saw a small spike higher against the U.S. dollar at the start of trading for the week, then dipped lower where it drifted mostly sideways in a narrow channel through Tuesday afternoon. The euro moved lower late on Tuesday, touching its lows for the week late in the evening and then drifting back into positive territory overnight and through nearly all of Wednesday. The yen dipped briefly lower overnight Wednesday, then shot to its highs for the week as it entered Thursday evening. The euro peaked late Thursday and then reversed course again, dipping slightly back into negative territory where it will close out the week slightly to the downside against the U.S. dollar.

Surging global inflation, increasing geopolitical uncertainty, and renewed supply chain issues due to another round of lockdowns in China are all vying to be the primary concern for markets in the near term. Central banks around the world have seemingly all embraced the U.S. Federal Reserve’s more aggressive stance towards monetary policy, with even the Swiss National Bank raising its interest rates this week, for the first time in 15 years. The Fed, after opting to raise interest rates by 75 basis points on Wednesday, doubled down on its pledge to tame inflation. In its annual report on monetary policy to Congress, the Fed said, “The Committee’s commitment to restoring price stability – which is necessary for sustaining a strong labor market – is unconditional.” The report comes ahead of a personal appearance in front of Congress by Fed Chair Jerome Powell next week. The statement did not elaborate on what the term “unconditional” meant so Mr. Powell will likely be fielding questions about that next week when he appears.

In China, renewed lockdowns in many of Shanghai’s districts are likely to further exacerbate supply chain problems. Many vehicle manufacturers have been affected by shortages of supplies to make their products, with some of them scaling back production due to the issue. Profits have also been eroding at many automakers as skyrocketing prices for the goods and materials that go into their product continue to climb. Tesla was recently forced to raise the cost of its vehicles by up to $6,000 to offset the surging costs of materials. In Europe, labor union issues threaten to shutter ports there as a union of port operators in Germany followed through with a “warning strike” which disrupted one of the afternoon shifts at multiple German ports. Andreas Braun, ocean product director EMEA at Crane Worldwide Logistics noted that any loss of manpower only increases congestion at ports that were already congested, to begin with. Braun said “Feeder operators see up to five days of delays waiting for berth to pick up their containers, and round trips between Rotterdam – Dublin – Rotterdam has increased from six to nine days. More vessels need to be injected by the feeder operators to keep the schedule somehow reliable.”

Equity markets have become particularly volatile as inflation continues to run away from all attempts to control it. The Dow Jones Industrial Average saw its 11th losing week out of the last 12 in the aftermath of the U.S. Federal Reserve’s decision to raise rates at their fastest pace in over two decades on Wednesday. The 75 basis point bump, with another possible 75 point bump being hinted at for next month, triggered a massive selloff in stocks on Thursday. Friday saw the DJIA claw back some of the losses, but it still finished the week down over 1500 points. As stocks tumble and the housing and real estate sector continues showing signs of increasing weakness, many investors that have been searching for alternative investments to add to their portfolio to ensure that they are sufficiently diversified against downturns across multiple asset classes have continued to add physical precious metals into their portfolios. These savvy investors seek out buying opportunities when temporary price dips allow them to acquire additional physical products for their portfolios at a relative discount. Many investors still view physical precious metals as a hedge against inflation, geopolitical, and economic uncertainty, choosing to maintain or even increase their percentage of ownership during today’s uncertain global environment. 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 and you should never overextend your ability to maintain ownership of your precious metals over the long run.

Trading Department – Precious Metals International, Ltd.

Friday to Friday Close (New York Closing Prices)

Previous year Comparison

Here are your Short Term Support and Resistance Levels for the upcoming week.

This is not a solicitation to purchase or sell.
© 2022, Precious Metals International, Ltd.