The Precious Metals Week in Review – July 29th, 2022

1. Market volatility continued this week as the U.S. Federal Reserve raised interest rates again, inflation surged further, GDP data for the second quarter disappointed and Russia continued its unprovoked aggression against Ukraine.

2. For the week ending July 23, the seasonally adjusted number of Americans filing initial claims for unemployment dropped by 5,000 from the previous week’s revised level to reach a new level of 256,000. The previous week’s level was revised higher by 10,000 claims. The 4-week moving average of claims was 249,250, an increase of 6,250 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 2,500 claims.

3. The U.S. Federal Reserve held its Federal Open Market Committee meeting to determine the near-term course of monetary policy this week and opted to raise interest rates by another 75 basis points. Some analysts had expected that the Fed may be even more aggressive and hike by a full percentage point, but Wednesday’s move fell largely within market expectations. The continued rise in rates will bring further pain to consumers as short-term borrowing costs, such as those associated with credit card balances go up yet again. Annual percentage rates on many consumer credit cards are already over 17% and may be near 19% or even 20% by the end of the year, according to some analysts. According to an analysis by WalletHub, consumers that maintain balances on their credit cards could spend an additional $4.8 billion on interest in 2022 alone.

4. Pending home sales plunged by 20% in June, compared to the same time period one year ago, according to data from the National Association of Realtors. Pending home sales also fell by 8.6% from May to June, which was wider than economists’ estimates for only a 1% drop from month to month. The National Association of Realtors is now forecasting total home sales for 2022 will be down by 13%, but still expect sales to begin rising again by early 2023. The data shows the slowest pace for home sales since September of 2011, excluding the first two months of the lockdowns triggered by the spread of Covid-19, which effectively brought real estate transactions to a complete halt.

5. With inflation surging to 40-year highs in June, nearly half of all Americans are struggling to keep up with rising prices as consumer costs continue to outpace wage gains. The increase in costs of consumer goods also means that many Americans are putting less money into savings for emergency use, or long-term financial goals. Several studies now show that Americans’ overall satisfaction with their financial condition is at 12-month lows, with 43% of consumers expecting to have to add to their debt during the second half of the year. According to the American Consumer Credit Counseling, nearly 40% of American consumers have lost the ability to put any money into savings at all, while another 19% said that they were forced to reduce their savings rate.

6. The Bureau of Economic Analysis reported the second quarter Gross Domestic Product (GDP) data for the U.S. on Thursday and the news was not good. For the second straight quarter, the U.S. economy continued to contract. GDP fell 0.9% at an annualized pace for the period from April to June, following on the heels of a 1.6% decline for January to March. The Dow Jones had anticipated meager growth of 0.3% for GDP during the second quarter but that obviously did not materialize. Typically, a recession is defined as two consecutive quarters of economic contraction but the official declaration on whether the U.S. economy is experiencing a recession will be made by the National Bureau of Economic Research, and they won’t likely make that call for months, if not longer than that, as statistics are frequently revised. The Biden administration took to the airwaves this week to try to redefine what a “recession” is, claiming that continued job growth, consumer spending habits, and business expansion refute the GDP data, but the rhetoric likely won’t fool Americans who are seeing their buying power erode away at a faster and faster pace.

7. Days after Russian state-owned gas giant Gazprom announced that it would resume movement of gas supplies into Europe through the Nord Stream 1 pipeline after a scheduled maintenance window, the firm announced on Monday that it would be reducing gas flows yet again due to “maintenance of a turbine” elsewhere along the pipeline. Europeans had breathed a sigh of relief after hearing that flows would resume, hoping to top up storage facilities ahead of winter on fears that Russia could cut Europe off completely. Now those fears have returned, with Germany now expected to receive just 20% of its normal supplies. Germany is Europe’s largest economy and is typically a growth driver for the region. It is heavily dependent on gas supplies from Russia for its economic growth. Germany is now wondering how it will keep its industry afloat through the winter and keep the lights and heat on for its citizens. Germany’s economy minister, Robert Habeck, said the maintenance excuse for the further supply cuts was a “farce” and said “we have a serious situation. It is time for everyone to understand that.” Habeck noted that if gas supplies continue to be low, gas for industrial use will be cut before private residences or critical infrastructure, such as hospitals. Habeck noted that cutting industrial supplies is “a big concern, which I also share, that this can happen. Then certain production chains in Germany or Europe would simply no longer be manufactured. We have to avoid that with all the strength we have.”

8. The ink was barely dry on the deal between Ukraine and Russia to allow both countries to resume badly needed grain exports via the Black Sea when Russia launched yet another attack on Odesa, one of Ukraine’s largest and most crucial ports for exporting that grain. World leaders were quick to condemn Vladimir Putin for the attack, which Russia claims did not target any of the facilities that are used for the storage and exporting of grain. Mykhailo Podolyak, an adviser to Ukrainian President Volodymyr Zelenskyy, wrote on Twitter: “RF [the Russian Federation] is predictably worthless. The ink has not had time to dry out, yet there are two vile provocations: an attack on a seaport in Odesa and a statement by Russian Defense Ministry that Ukrainian ports are ‘dangerous for shipping. A reminder to the world of what ru [Russia’s] – ‘pursuit of peace’ is worth.”

9. The International Monetary Fund revised its global economic outlook this week, saying that it now expects the world economy to grow at just 3.2% in 2022, before slowing to 2.9% in 2023. The IMF called the new economic outlook “gloomy and more uncertain” in its latest report, saying “Several shocks have it a world economy already weakened by the pandemic: higher-than-expected inflation worldwide – especially in the United States and major European economies – triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID19 outbreaks and lockdowns; and further negative spillovers from the war in Ukraine.”

10. China rattled its sabers yet again this week, warning House Speaker Nancy Pelosi not to visit Taiwan and announcing that it would be holding a “military exercise” in the region. Pelosi has already left for a trip through Asia but has not yet confirmed whether or not she intends to visit Taiwan. On Saturday the People’s Liberation Army conducted “live-fire exercises” near the Pingtan islands, opposite the coast of Taiwan. Such exercises usually involve live artillery shells at a minimum, and sometimes might include fighter planes, missile tests, and other military units.

11. Oil prices saw some reprieve this week as analysts expect next week’s OPEC+ meeting to fail to agree on a supply boost. Brent crude futures settled at $110.03 per barrel while U.S. West Texas Intermediate (WTI) futures settled at $99.67 per barrel. Both futures contracts expired on Friday and saw their second monthly losses.

12. The euro came closer to parity with the U.S. dollar this week, trading in a very narrow range between 1.01 and 1.025. The narrow range meant that the euro moved mostly sideways for the entire week, touching its highs on Friday, then dipping lower before returning back to levels over 1.02 just prior to market close.

13. The Japanese yen moved mostly sideways against the U.S. dollar for the week, dipping slightly lower on Wednesday and then starting a climb that took it to its highs for the week by late Friday. The yen did decline just prior to the market close on Friday, but the drop was short-lived and the yen closed out the week to the upside against the U.S. dollar.

Geopolitical turmoil and runaway inflation continue to be the primary concerns for investors. As central banks around the world continue hiking interest rates in their attempts to tame inflation, global consumers are watching both their buying and saving power erode at unprecedented rates. Short-term lending rates, such as credit cards, auto loans, and student loans continue to skyrocket and mortgage rates are also on the rise. Housing prices have not come down, and with the higher lending rates, fewer and fewer homes are making it to closing, if sale contracts on those homes are even signed in the first place. Falling home sales have also led to higher rent costs, which have just exacerbated the declining saving rates for consumers and lightened their wallets even further.

Russia’s invasion of Ukraine continues unabated, and Russia didn’t even make it 24 full hours past the signing of an agreement to allow Ukraine to resume grain exports before it launched yet another attack on the Ukrainian port city of Odesa. China also sparked concerns this week, warning U.S. House of Representatives speaker Nancy Pelosi not to visit Taiwan and holding live-fire military drills off China’s coast that is nearest Taiwan.

Diversification remains key to protecting an investment portfolio from corrections across multiple market sectors. Geopolitical and economic uncertainty continue to trigger market volatility, leading to drastic swings in markets as news headlines emerge. Many analysts continue to advise their clients to consider adding alternative investments into their portfolios to diversify them away from overexposure to equity markets. Many investors have continued to consider physical precious metals as one of those “alternative” investments and have used recent price dips as buying opportunities to acquire more physical 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. Also, remember that you should never overextend your ability to maintain ownership of your precious metals over the long term.

Trading Department – Precious Metals International, Ltd.

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