The Precious Metals Week in Review – August 12th, 2022

1. Inflation showed signs of easing in the U.S. this week according to the latest data for July that was released this week. Geopolitical turmoil continues however, as the Russia-Ukraine war grinds on and China continues acting aggressively towards its smaller neighbor, Taiwan. Inflation data out of Europe continues to be troubling, with the cost of living surging as those countries deal with skyrocketing energy prices due to Russia’s weaponization of its energy supplies.

2. For the week ending August 6, the seasonally adjusted number of Americans filing initial claims for unemployment jumped by 14,000 from the previous week’s revised level to reach a new level of 262,000. The previous week’s level was revised lower by 12,000 claims. The 4-week moving average of claims was 252,000, an increase of 4,500 from the previous week’s revised moving average. The previous week’s moving average was revised lower by 7,250 claims.

3. In a shock move this week, the Federal Bureau of Investigation raided former President Donald Trump’s Mar-a-Lago resort residence. Trump was not home at the time and leveled harsh criticism on the current administration for “weaponizing” the justice system in an effort to prevent Trump from seeking another term in office. According to the search warrant, which was unsealed Friday, the FBI seized multiple sets of documents that were marked “top secret.” The warrant had directed agents to seize all documents, “fruits of crime” and other items “illegally possessed” in violation of three laws that relate to the handling of government documents. All told, the agents removed at least 20 boxes of items. Mr. Trump and his attorneys stated that the president declassified all of the materials that were removed before he ended his term in office and in his public criticism of the raid said that he and his team had been cooperating with authorities and that the very public raid was done out of malice, not necessity. Trump’s office, in a statement about the incident, said “They didn’t need to ‘seize’ anything. They could have had it anytime they wanted without playing politics and breaking into Mar-a-Lago. It was in secured storage, with an additional lock put on as per their request.”

4. The House of Representatives passed a massive tax, health care and climate bill which it ironically dubbed the “Inflation Reduction Act.” The bill’s passage marks a major win for the Biden administration and the Democrats with just three months before mid-term elections. The $430 billion bill, which was backed solely by Democrats and passed by a 220-207 margin, now moves to President Joe Biden’s desk for signature into law. Republican opponents of the bill claim that the bill will increase inflation in the long run, not reduce it, and will also substantially increase the tax burden on the middle class.

5. U.S. inflation data released this week seemed to show optimistic signs of progress in the Federal Reserve’s effort to bring it back under control. Producer prices dipped by 0.5% in July, while consumer prices, including food and fuel were basically flat. The better-than-expected numbers were largely the result of a sharp slide in energy costs. Import prices also fell more than expected in July, potentially bringing U.S. consumers relief from surging goods prices. The Biden administration was quick to do a victory lap on the news, claiming that there was “0 percent inflation in July.” There is only one problem with this argument – while inflation did not “increase” in July, it still remained at 8.8% at the end of July, which is most certainly not “zero” and well above the Federal Reserve’s 2% target. Next week will see the release of further data on U.S. consumer spending. This week’s data alone is not expected to sway the Fed from its current path of interest rate hikes, as noted by Richmond Fed President Thomas Barkin on Friday when he said that more interest rate hikes will be needed until inflation is at or near 2% “for a period of time.”

6. The economy of the United Kingdom contracted in the second quarter with its gross domestic product (GDP) shrinking by 0.1% quarter on quarter. While this is less than the projected 0.3% contraction, it still represents an economy that continues to suffer as the cost of living across Europe skyrockets in the wake of the outbreak of war between Russia and Ukraine. The Bank of England warned last week that it expects the U.K. economy to enter its longest recession since the 2008 global financial crisis by the time it reaches the fourth quarter. Inflation is currently expected to peak at 13% in the U.K. by October.

7. Elsewhere in Europe, Germany continues to face energy shortages as a result of Russia’s ongoing reduction of flows of natural gas through its Nord Stream 1 pipeline. Michael Muller, the chief financial officer of German energy firm RWE, said on Thursday in an interview with CNBC that it plans to return to burning coal as a stopgap solution to dwindling natural gas supplies from Russia. Muller said “RWE is actively supporting the German government, or European governments, in managing the energy crisis, so we’re also bringing back additional coal capacity to manage that situation.” Muller noted however that “what is currently happening is… hopefully, a short term issue where we need to find the security of [energy] supply. And that’s why, just from a corporate citizen’s perspective, we feel it is our duty to support the German government in bringing back capacity in the short term. But to be very clear, it doesn’t change our strategy.”

8. On Tuesday, U.S. President Joe Biden signed ratification documents that bring Finland and Sweden one step closer to become members of the NATO alliance. All 30 current NATO members must approve of the admittance of Finland and Sweden in order for them to become fully participating members of the alliance. After Biden’s signature, the governments of the Czech Republic, Greece, Hungary, Portugal, Slovakia, Spain and Turkey will still need to sign the ratification instruments. Biden said “I urge the remaining allies to complete the ratification process as quickly as possible. The United States is committed to the transatlantic alliance. We are going to write the future we want to see.” The two countries hope for the ratification process to be completed by September.

9. Oil prices had a bit of a rollercoaster week. On Thursday, Shell halted production at three deep water oil platforms in the Gulf of Mexico. These three platforms produce a combined total of 410,000 barrels of oil per day. A section of damaged oil pipeline had also taken seven offshore oil platforms offline, but repairs were scheduled to be completed by Friday afternoon. Oil prices had surged on Thursday following the news from Shell but pulled back on Friday after news of the pipeline repair and weakened demand forecasts took some pricing pressure off. Brent crude futures settled at $98.13 per barrel while U.S. West Texas Intermediate settled at $92.26 per barrel. Despite the pullbacks on Friday, both contracts were higher for the week, overall.

10. The euro dipped slightly against the U.S. dollar to start the trading week, then quickly climbed back into positive territory. The euro paused briefly on Monday, sliding sideways overnight and then risking briefly higher late Tuesday. Wednesday, the euro moved near vertically higher against the dollar, touching its highs for the week around mid-day before retreating slightly into overnight trading. The euro returned near its highs on Thursday, then began drifting lower into Friday. The euro’s drop accelerated on Friday, but the fall halted just prior to market close, and the euro will still close out the week to the upside against the U.S. dollar.

11. The Japanese yen bounced briefly higher against the U.S. dollar to start the trading week, but quickly returned to opening levels where it slid basically sideways through Wednesday. On Wednesday, the yen moved near vertically higher, in similar fashion to the euro’s moves. The yen retreated slightly, overnight into Thursday, but the fall was short-lived and the yen touched its highs for the week late Thursday. The yen began a shallow retreat after touching its highs late on Thursday, which lasted throughout Friday’s trading session. The yen’s fall also halted just prior to market close and it too will close out the week to the upside against the U.S. dollar.

Despite data that seemed to show that inflation might be showing signs of peaking in the U.S., global inflation continues to be one of the primary concerns for investors amid ongoing geopolitical and other economic uncertainties. The war in Ukraine shows no signs of slowing, and concerns are still elevated that the Russian controlled Zaporizhzhia nuclear plant remains under fire. Ukrainian troops reportedly infiltrated an air base in Crimea, which Russia annexed from Ukraine in 2014, and destroyed multiple aircraft this week. Ukrainian military intelligence alleged on Saturday that Russian troops had shelled the Zaporizhzhia nuclear plant from a village a few kilometers away, which damaged a pumping station and a fire station. The intelligence directorate said the Russians had bused people into the power plant and mounted a Ukrainian flag on a self-propelled gun on the outskirts of the city where the plant is located. The directorate said “Obviously, it will be used for yet another provocation to accuse the armed forces of Ukraine.” If so, this would not be the first so-called “false flag” operation Russia has undertaken. The entire war began under just such pretenses. Ukrainian officials continue to accuse Russia of using the plant as a fire base, shelling communities in the region with impunity under the assumption that Ukrainian forces will not fire back at the nuclear facility. Such tactics go against every nuclear safety rule in existence.

Geopolitical tensions continue to escalate as Russia and China become increasingly more aggressive towards their smaller neighbors. As inflation continues to surge around most of the globe, investors continue to seek out ways to ensure that their portfolios are sufficiently diversified in an attempt to insulate those portfolios from a market collapse in any one sector. Many investors have sought out alternative investments that appear underbought when compared to markets such as equities and the real estate sector, both of which have shown signs of correcting from their record highs in recent months. In their attempts to diversify their portfolios but avoid alternative assets whose values remain near record high levels, many investors have begun looking at physical precious metals as an alternative asset for portfolio diversification once more. Physical precious metals have a long history of being viewed as a hedge against geopolitical uncertainty, economic turmoil, and inflation, all of which are still heavily under way. Investors who hold to this view have continued to use temporary price dips in physical precious metals as buying opportunities to acquire more physical product for their investment portfolios. Remember 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. You should also 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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