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

1. Market volatility escalated further this week as more and more analysts began postulating that the U.S. economy was not just headed for a recession, but it may in fact have already fully entered one. It will be a shortened trading week next week due to the U.S. Independence Day holiday.

2. For the week ending June 25, the seasonally adjusted number of Americans filing initial claims for unemployment dipped by 2,000 from the previous week’s revised level to reach a new level of 231,000. The previous week’s level was revised higher by 4,000 claims. The 4-week moving average of claims was 231,750, an increase of 7,250 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 1,000 claims.

3. Bitcoin posted its worst quarter in more than a decade as June came to a close on Thursday. Overall, Bitcoin lost roughly 58% of its value during the second quarter of 2022, its worst quarterly performance since 2011. Surging inflation and rising interest rates seem to have triggered a sell-off in stocks, which has spilled over into other investment sectors, including cryptocurrencies. Inflation and interest rates alone are not the sole cause of the trouble in the crypto sector, however. The collapse of TerraUSD (UST) and its sister token “luna” which was supposed to be pegged on a one-to-one basis with the U.S. dollar sent shockwaves through the entire cryptocurrency system, even triggering the bankruptcy of one hedge fund, Three Arrows Capital, which had massive exposure to UST. Following the collapse, multiple cryptocurrency lenders have also halted the ability of their customers to make withdrawals, sending further panic through crypto investors.

4. The Institute for Supply Management said its index of U.S. national factory activity dropped to 53.0 last month, the lowest reading for that index in two years. The reading shows U.S. manufacturing activity slowed more than expected in June, lending strength to analysts’ growing fears that a recession in the U.S., if not across the world, may be unavoidable.

5. Russia continued its ruthless invasion of Ukraine this week, ramping up its long-range missile strikes and continuing to target its civilian population. Three days after EU leaders unanimously agreed to make Ukraine a candidate for EU membership, Russia targeted Ukraine’s capital, Kyiv, hitting an apartment building and killing at least 6 people. A day after the Kyiv attack, as G-7 leaders met in Germany to discuss further support for Ukraine during their annual summit, Russia fired missiles at a crowded shopping mall in Kremenchuk, killing at least 19 people. Retired Lt. General Ben Hodges, the former commanding general of U.S. Army forces in Europe, said of the events, “The Russians are humiliating the leaders of the West.” Russia continued its missile attacks this week, striking yet another apartment building near the Black Sea port of Odesa and killing at least 21 people.

6. As Russia continues its inexorable push to take Eastern Ukraine, its neighbors are increasingly afraid that NATO’s defense plans for them are no longer “fit for purpose” and that they could be quickly overrun if Russia decided to continue its aggression, taking the conflict outside of Ukraine. Estonia, Latvia, and Lithuania have been calling on NATO to substantially increase the number of foreign troops stationed in the region since Russia invaded Ukraine on February 24. Under NATO’s existing strategy, which uses a so-called “tripwire” approach, Estonia’s Prime Minister Kaja Kallas warns that his country would be “wiped off the map” in the event of a similar attack.

7. German Foreign Minister Annalena Baerbock said on Tuesday that Germany was in the midst of a “hybrid war” as Russia continued cutting gas supplies to Europe. Baerbock said that Germany was putting contingency plans in place in case its own gas supplies are cut off by Moscow. Germany gets the majority of its supplies from Russia via the Nord Stream 1 pipeline. Baerbock said those contingency plans may call for difficult decisions as to which institutions may have to suffer power cuts. She said, “We are faced now in Germany with the question now that if there’s no gas coming through Nord Stream 1… we have to decide which institutions may be cut off the grid.”

8. British Prime Minister Boris Johnson warned on Sunday that if Russia succeeds in its takeover efforts of Ukraine, the results could be “absolutely catastrophic” globally. Johnson said if Putin succeeds then “we’re legitimizing further acquisition by him by the violence of other parts of the [former] Soviet Union.”

9. Russia was due to pay interest payments totaling $100 million on May 27, which they failed to do. A so-called “grace period” then went into effect, which allowed them another 30 days to make their payment, which expired on Sunday night with no-such payment arriving. This is Russia’s first major foreign debt default in over a century, despite claims to the contrary by the Kremlin. Spokesperson Dmitry Peskov told a press conference this week that Russia had technically made the bond payments that were due in May, but Euroclear blocked their arrival due to Western sanctions which is “not [Russia’s] problem.”

10. NATO Secretary-General Jens Stoltenberg said that the alliance had reached a deal to admin Sweden and Finland after resolving Turkey’s concerns over allowing the two nations to become members. Turkey, Finland, and Sweden all signed a joint memorandum that confirms Turkey will back membership for the other two during a summit in Madrid. Finnish President Sauli Niinisto said, in a statement, “Our joint memorandum underscores the commitment of Finland, Sweden, and Turkey to extend their full support against threats to each other’s security. Us becoming NATO allies will further strengthen this commitment.”

11. Oil, which had been showing some signs of weakness in recent weeks, jumped nearly 3% on Friday as supply outages in Libya and potential shutdowns due to striking oil and gas workers in Norway outweighed fears that a global recession could put a further dent in oil demand. Brent crude futures settled up 2.5% at $111.74 per barrel while U.S. West Texas Intermediate settled up 2.7% at $108.57 per barrel. Both oil contracts ended at a loss for the month of June on Thursday however, which is the first such monthly loss since November.

12. Also happening on Thursday, as June came to a close, the S&P logged its worst six-month start to a year since 1970. Overall, the S&P is down more than 20% year to date. The Dow Jones Industrial Average and the Nasdaq Composite are also both down significantly, dropping more than 15% and almost 30% respectively. 68% of Chief Financial Officers now expect a recession to occur during the first half of 2023, according to a survey by CNBC.

13. The euro crept higher at the start of the trading week, but quickly leveled off and began moving sideways into Tuesday’s trading. The euro dropped relatively steeply into negative territory late on Tuesday afternoon, but the decline quickly stopped, and the euro moved sideways again into Wednesday. Late Wednesday afternoon, the euro resumed its downward move, dropped sharply lower late on Thursday, but quickly returned to Wednesday’s levels, then drifted sideways into Friday trading. Late on Friday, just before the close, the euro dipped sharply lower again, touching its lows for the week before rebounding slightly. The euro will close out the week to the downside against the U.S. dollar.

14. The Japanese yen blipped higher at the start of the trading week, then began a fairly steady decline that lasted through late Tuesday afternoon. On Tuesday, the yen paused its decline and began drifting slightly higher. The reversal didn’t last long, however, and the yen resumed its downward slide late on Wednesday when it touched its lows for the week. The yen began a recovery after touching its lows, returning into positive territory overnight on Friday. The yen moved slightly lower just prior to the close, but rebounded and appears set to close out the week slightly higher to flat against the U.S. dollar.

Recession, brought on by the world’s central banks all reacting to surging inflation by attempting to tamp down demand through monetary policy, specifically the raising of interest rates across the world, has become the primary concern for investors. Skyrocketing food and energy costs have begun to impact the spending habits of the world’s consumers and the world’s governments. Europe, long dependent on energy exports out of Russia, is scrambling to try to secure additional supplies in the event that Russia continues to “turn off the taps” and shut off or further curtail incoming gas supplies into Europe. Germany is already attempting to come up with contingency plans in the event that Russia shuts off its Nord Stream 1 pipeline, which is vital to Germany’s energy needs. These plans appear to include forcibly shutting down portions of its power grid to reduce demand, which could leave the country’s manufacturing sector in short supply of the energy it needs to generate its output since it is highly unlikely that they will allow their citizens to grow cold during the coming winter months.

Russia’s continued onslaught against Ukraine, combined with droughts across much of the rest of the world’s food-producing lands has triggered massive shortages in grain and other agricultural commodities that are now being felt around the world. Skyrocketing food and agricultural prices across the globe have left developing nations and poorer parts of the world in dire need of assistance to meet the nutritional needs of their citizens. Even in the U.S., shortages appear to be growing rampant. Near catastrophic drought conditions have triggered shortfalls in the production of cotton, peppers, corn, and other agricultural products that have led to increasingly empty shelves in supermarkets across the world and increasingly higher prices for those goods that do actually manage to make it onto shelves.

As Western nations watch Russia’s increasing aggression in Ukraine, where it began targeting civilian structures that are miles from the front lines, or any military installations, their resolve to stand up against the oppression seems to grow stronger and stronger. Turkey, which only weeks ago said it would never allow Sweden or Finland to gain NATO membership, has now agreed to back both countries as they begin the process of applying to the alliance. Russia, which has long been against any further expansion of NATO, has already made thinly veiled threats to both nations if they continue their pursuit of full NATO membership. Investors, watching as geopolitical tensions escalate and uncertainty rises, continue to seek out ways to ensure that their portfolios are diversified against a downturn in any one market sector. The recent selloff in stocks, combined with cryptocurrency exchanges freezing the ability of their customers to withdraw their assets or funds, appears to have led to liquidations of other assets in order to meet margin calls. Many alternative assets, including precious metals, suffered in the wake of such liquidations. Savvy investors that had not overextended their exposure to equities and cryptocurrencies appeared to have been waiting on the sidelines, however, utilizing the price dips as just another opportunity to add additional physical precious metals to their investment portfolios for the purpose of increasing their diversification. These well-diversified investors were not only able to maintain ownership of their existing physical precious metals but were able to acquire more products for their portfolios at a relative discount. Always remember, however, that one of the keys to profitability through the ownership of physical precious metals is to acquire the physical product and hold on to 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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