The Precious Metals Week in Review – July 15th, 2022

1. Market volatility continued to be extreme this week as new consumer inflation data and retail sales data were released. Russia’s ongoing invasion of Ukraine continues to put strong inflationary pressure on food and agricultural supplies.

2. For the week ending July 9, the seasonally adjusted number of Americans filing initial claims for unemployment surged by 9,000 from the previous week’s unrevised level to reach a new level of 244,000. This is the highest reading for jobless claims since November of 2021. The 4-week moving average of claims was 235,750, an increase of 3,250 from the previous week’s unrevised moving average.

3. The U.S. Bureau of Labor Statistics (BLS) released its late inflation data on Wednesday and the Consumer Price Index (CPI) came in much higher than expected. CPI surged by 9.1% from the same time period in June, above the 8.8% projected by Dow Jones and the fastest pace for inflation growth since November of 1981. Excluding food and energy prices, which tend to be highly volatile, the so-called core CPI increased by 5.9%, also higher than the 5.7% estimate. On a monthly basis, headline CPI rose by 1.3% and core CPI was up 0.7%, estimates for the monthly figures had been for a 1.1% and 0.5% gain. Robert Frick, corporate economist at Navy Federal Credit Union said, “CPI delivered another shock, and as painful as June’s higher number is, equally as bad is the broadening sources of inflation. Though CPI’s spike is led by energy and food prices, which are largely global problems, prices continue to mount for domestic goods and services, from shelter to autos to apparel.” The higher-than-expected reading on CPI means that real wages for workers continue to fall at an accelerating rate. Workers’ real incomes, when adjusted for the new 9.1% inflation reading, fell another 1% for the month, and are down 3.6% from just one year ago, according to a separate release by the BLS.

4. Many analysts took Wednesday’s CPI reading to mean that the U.S. Federal Reserve may be even more aggressive with its interest rate hikes than it has already been. Some traders believe that a full percentage point rate hike has a better than 50 percent chance of happening when the Fed holds its next Federal Open Market Committee meeting to determine the near-term course of monetary policy. Fed Governor Christopher Waller said this week that he expects the Fed to raise interest rates a minimum of 75 basis points again this month, but did not rule out that a larger increase is also on the table if the central bank determines it is a necessity. Waller said “I support another 75-basis point increase. However, my base case for July depends on incoming data. We have important data releases on retail sales and housing coming in before the July meeting. If that data comes in materially stronger than expected, it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down.”

5. In the U.S., the federal minimum wage has been $7.25 per hour since 2009. Many companies pay higher than that, depending on the region of the country, but the federally mandated minimum remains the same. According to the Economic policy Institute, as inflation has surged, a worker earning only the minimum mandated wage makes 27.4% less than they would have in July of 2009 when their earnings are adjusted for current inflation levels. This puts the real value of the federal minimum wage down at its lowest level in over six decades – 66 years to be exact. For comparison, the federal minimum wage in 1956 was just 75 cents, which is now equivalent to $7.19 in June 2022 U.S. dollars.

6. On Thursday, following the heels of the CPI release, the Producer Price Index (PPI) data was released. In June, the PPI rose by 11.3% from just one year ago, just a hair off March’s record 11.6% reading. Excluding volatile food and energy costs, the so-called core PPI was up 6.4% for the year. On a monthly basis, the gain in the PPI was 0.3%, which was below market expectations for a 0.5% increase.

7. According to recent data, there is over $31 billion in trade either “rail-landlocked” or stuck riding at anchor off U.S. coasts. There is also a potential rail strike brewing that could begin as early as Monday if the Biden administration does not intervene. According to MarineTraffic, which monitors shipping for U.S. port cities, there are around 460,000 twenty-foot “container equivalent units” (TEUs) loaded on vessels that are still anchored off the East Coast of the U.S., and 180,000 TEUs on ships off of West Coast ports, as of July 13. A rail strike in the U.S. could mean that those shipping containers will remain moored off the coasts since many of them leave U.S. port cities by rail after they are unloaded from their host container ships.

8. U.S. retail sales data for June was also released this week and came in slightly better than expected. Sales rose 1% in June, which was slightly better than the 0.9% climb that markets expected. Despite the increase, when adjusted for inflation, which increased by 1.3% for the month, the net retail sales figure realistically came in negative. The largest contributors to retail sales were gas stations, online sales, and bars and restaurants – all of which have been steadily increasing their prices to try to keep up with inflation.

9. On Thursday, Italian Prime Minister Mario Draghi announced that he would tender his resignation after one of the political parties in his ruling coalition refused to participate in a confidence vote earlier in the day. Later that day, Italian President Sergio Mattarella refused to accept that resignation and asked Draghi to address Parliament to “get a clear picture” of the political situation. The move means that Draghi, the former head of the European Central Bank will have to go back to Italy’s Parliament to hold a vote of confidence in the coalition government itself.

10. Oil remained volatile this week but the overall trend was to the downward side. On Friday, after declining for the week, oil jumped 2.5% after a U.S. official told Reuters that no immediate output boost from Saudi Arabia was expected. The news led analysts and investors alike to speculate that OPEC, without the additional supplies from Russia, may not have the room to ramp up its crude production by any significant amount. Brent crude futures settled up 2.5% on Friday at $101.60 per barrel, while West Texas Intermediate crude also rose 2.5% on Friday to settle at $98.16.

11. The euro steadily declined against the U.S. dollar for the first full day of trading this week, but paused on Tuesday and drifted mostly sideways throughout much of the week. On Wednesday the euro blipped higher, but quickly lost momentum and returned back to the narrow band it had traded in most of the week. On Thursday the euro touched its lows for the week, but again quickly returned to its narrow trading band. Friday saw the euro start an upward climb, but it did not gain enough momentum to return to positive territory. The euro will finish out the week slightly to the downside against the U.S. dollar.

12. The Japanese yen dipped lower against the U.S. dollar at the start of trading for the week but reversed and surged briefly higher on Tuesday around mid-day. After popping higher, the yen began drifting lower, with the downward trend accelerating on Wednesday early in the day. The yen touched its lows for the week at mid-day on Wednesday and proceeded to drift sideways slightly edging higher for the rest of the week. The yen did not recover positive territory and will close out the week slightly to the downside against the U.S. dollar.

Geopolitical turmoil continues to escalate as Russia continues its aggression against Ukraine, and China continues to apparently test the world’s resolve on its aims towards Taiwan. Political leaders around the world continue to face mounting pressure to step down as their agendas no longer seem to meet those of their constituents. Mario Draghi was apparently to be the latest leader to step aside, following on the heels of the government of Sri Lanka essentially being overthrown this past weekend, and the resignation of U.K. Prime Minister Boris Johnson last week. The unrest appears to be growing across the globe, particularly as surging inflation inevitably reduces the purchasing power of fiat currencies around the world. In the U.S., the federal minimum wage, which has not been adjusted since 2009, essentially has no more purchasing power than it did in 1956. The Federal minimum wage in the U.S., at $7.25 per hour will buy you the same amount of goods that you could get in 1956 for just roughly 75 cents. Essentially, the value of the U.S. dollar has been eroding steadily since 1956. For those investors back in 1956, who bought one ounce of gold for 35 dollars, however, they could have sold that same ounce today for over $1700 – an increase of 4,757%. Yet another example of why investing in precious metals should be considered something investors should carry for the long term.

Investors and analysts alike continue to project a potential recession coming for not only the U.S., but China, Europe, and possibly the world itself. China’s GDP growth missed expectations in the second quarter, and housing demand in both China and the U.S. are beginning to drop as interest rates climb. The European Union has hiked its inflation forecast to 8.3% for 2022, which is likely to be well under reality. In May, the European Commission expected inflation in the euro area to hit no more than 6.1% in 2022 and then fall to 2.7% in 2023. Both forecasts have now been revised higher. Many economists are now pricing in a recession for the eurozone either late in 2022 or early in 2023, despite the fact that European officials seem to refuse to admit to the possibility.

As geopolitical and economic turmoil escalate around the world, and food prices continue to soar, investors continue to try to take steps to ensure that their portfolios are well-diversified against a decline across multiple market sectors. Many analysts continue to recommend holding precious metals in at least a portion of any well-diversified portfolio. Recent price dips have offered many investors who subscribe to the same views as these analysts a chance to add more physical precious metals to 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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