The Precious Metals Week in Review – September 16th, 2022

1. This week saw the release of a slew of inflation data in the U.S. for the month of August. The Consumer Price Index, Producer Price Index, retail sales, and import price reports were all released this week. Federal Reserve officials also entered their “quiet period” ahead of next month’s Federal Open Market Committee meeting next week.

2. For the week ending September 3, 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 213,000. The previous week’s level was revised lower by 4,000 claims. The 4-week moving average of claims was 224,000, a decrease of 8,000 from the previous week’s revised moving average. The previous week’s moving average was revised lower by 1,000 claims.

3. The Consumer Price Index report for August was released by the Labor Department on Tuesday and showed that inflation edged higher by 0.1% despite a drop in energy costs. Economists had expected the CPI to show a 0.1% decline and the miss sent the Dow Jones Industrial Average tumbling 1,276 points, or 3.9%, by the end of the trading day. The report showed that while gas and used car prices fell for consumers, food costs continued to surge. Looking at core CPI, which excludes volatile food and energy categories, prices were 0.6% higher, which is a larger increase than July. The reading likely means that the Federal Reserve will opt to carry out another 75 basis point rate hike when it meets next week. 30-year mortgage rates surged to 14-year highs after the release of the report.

4. A report on the Producer Price Index (PPI) released by the U.S. Bureau of Labor Statistics on Wednesday showed that overall prices received at the wholesale level fell by 0.1% in August. Core PPI, which excludes volatile food, energy, and trade services, increased by 0.2%. The figures were in line with the expectations of economists surveyed by Dow Jones. On a year-over-year basis, headline PPI increased by 8.7%, which is notably lower than July’s reading of 9.8% and is the lowest year-on-year gain since August of 2021. Looking at core PPI, the annual increase was 5.6% from one year ago, which is the lowest rate of increase for core PPI since June of 2022. The drop in prices was largely due to declining costs for energy. Bill Adams, chief economist for Comerica Bank said, “The PPI report fleshes out the picture on inflation in the U.S. and makes it look not quite as bad as the August CPI report did. Inflation is clearly slowing as gas prices fall. But the process is slow, and inflation looks set to stay well above the Fed’s target for at least a few more quarters.”

5. U.S. Retail sales for August rose by 0.3%, which was better than analysts had expected. Dow Jones analysts had expected retail sales to be unchanged in August. The reading is not adjusted for inflation, which rose 0.1% in August, but may still indicate that spending for the month outpaced increases to prices. For the same time period one year ago, retail sales were up 9.1%. Much of the increases in sales were in in the automotive industry for vehicles and parts. Excluding autos, retail sales actually decreased 0.3% for the month.

6. Stocks fell on Friday after traders digested a missed earnings report from FedEx and a warning that the global shipper expects “a worldwide recession” and would be implementing cost-cutting initiatives due to softer shipment volumes and a global economy which has “significantly worsened.” Shares of FedEx plunged 24% after it withdrew its full-year guidance in the wake of its earnings report while the 3 major stock averages were on pace to log their fourth losing week in the last five.

7. There appear to be some signs of tension between Russia and China, as well as between Russia and India. At a summit in Uzbekistan, Russian President Vladimir Putin said “We highly value the balanced position of our Chinese friends when it comes to the Ukraine crisis. We understand your questions and concerns in this regard. During today’s meeting, of course, we will explain in detail our position on this issue, although we have spoken about this before.” The following day, Indian Prime Minister Narendra Modi criticized the ongoing war in Ukraine to Putin’s face, saying “Today’s era is not an era of war, and I have spoken to you on the phone about this.” Putin responded, saying “I know about your position on the conflict in Ukraine, and I know about your concerns. We want all of this to end as soon as possible.”

8. Reports surfaced of mass graves outside of multiple cities which were recently recaptured by Ukrainian forces after months of Russian occupation. Both Ukrainian officials and international media which were present on the scene reported the information. Ukrainian President Volodymyr Zelenskyy said “More than 400 bodies were found at the mass burial site in Izyum with signs of torture. Children, those killed as a result of missile attacks, warriors of the Armed Forces of Ukraine, Russia leaves only death and suffering. Murderers. Torturers. Deprived of everything human. You won’t run away. You won’t hide. Retribution will be justly dreadful. For every Ukrainian, for every tortured soul.”

9. Berlin announced this week that it was taking control of Russian energy giant Rosneft’s German operations, to “protect the continuity of business operations and ensure its energy security.” Germany also seized control of Gazprom Germania, which runs the largest liquified natural gas facility in the country, after Gazprom informed Germany that it “no longer owned” its subsidiary but refused to disclose who the new owners were.

10. Oil prices were slightly lower again this week as fears of sharply accelerated interest rate hikes were expected to dampen global economic growth and demand for oil and fuel. The IEA lowered its forecast, projecting almost no growth in demand for oil in the fourth quarter due to a weaker demand outlook in China. Brent crude futures ended the week at $91.35 per barrel while West Texas Intermediate crude settled at $85.11 per barrel.

11. The euro spiked to the upside against the U.S. dollar when trading began for the week, but had touched its high by Monday afternoon. The euro drifted lower overnight into Tuesday, but had nearly recaptured its high for the week by Tuesday afternoon. On Tuesday, the euro took a near vertical dive lower which took it near its low for the week by late Tuesday night. The euro bounced along in a narrow trading range, once again below parity with the U.S. dollar, for the rest of the week. The euro took a slight bump higher just before the market closed on Friday but it was not enough to regain parity with the U.S. dollar and the battered currency will close out the week to the downside.

12. The Japanese yen drifted sideways against the U.S. dollar in a narrow band to start the trading week, but took a near vertical drop lower on Tuesday. The yen bounced lower after its vertical drop and touched its lows for the week late in the day on Tuesday. The yen took a relatively steep climb higher in early trading on Wednesday, but by mid-day had lost momentum and began moving sideways again, still in a narrow band. The yen never regained positive momentum and finished out the week slightly to the downside against the U.S. dollar.

Market volatility remains extreme, with equity markets, particularly the S&P 500 and the Nasdaq, experiencing their worst week since June. Conflicting inflation reports sent markets tumbling drastically on Tuesday, and an abysmal earnings warning from FedEx about the state of the global economy on Friday kept up the pressure to the downside. FedEx withdrew its full-year guidance and said it is beginning the implementation of cost-cutting initiatives in reaction to a sharp decrease in global shipment volumes as the global economy “significantly worsened.” Transport stocks are typically seen as one of the leading indicators for the state of the economy, and a proxy for overall stock performance.

On Tuesday, a hotter-than-expected Consumer Price Index report elevated analysts’ concerns that the Federal Reserve may be forced into triggering a recession in order to tame inflation, which still remains over 8%. Callie Cox, a U.S. investment analyst at eToro, said “There is a lot of nervousness about how the global economy can affect the U.S. economy now, while the U.S. economy is dealing with its own set of very serious issues. I think that dynamic is what people have woken up to.”

The head of the United Nations’ World Food Program warned this week that food insecurity has drastically increased due to the ongoing conflict in Ukraine. David Beasley said, “What was a wave of hunger is now a tsunami of hunger.” Beasley also noted that the number of people experiencing food insecurity has doubled since the Covid-19 pandemic first hit. Beasley also noted that surging costs for food, fuel, and fertilizer has brought nearly 70 million people closer to starvation and that “there is a real and dangerous risk of multiple famines this year.”

Geopolitical, economic, and environmental uncertainty can be expected to continue in the near-term. Germany upped the ante in its energy standoff with Russia this week by seizing control of Gazprom Germania, which controls the country’s largest gas storage facility. The takeover took place after Gazprom said that it no longer owned its subsidiary but refused to disclose the new ownership structure to German officials. Germany renamed the company Securing Energy for Europe after it took control. As part of the seizure, Germany also took control of three liquified natural gas (LNG) ships that previously belonged to Gazprom.

Inflation remains elevated and analysts that had been forecasting that the Federal Reserve might dial back the pace of its interest rate hikes have returned to expecting another 75 basis-point hike next week after the Federal Open Market Committee concludes its meeting on near-term monetary policy. This, combined with FedEx’s gloomy outlook on the possibility that the world might tip into a global recession, had most markets jittery for the entire week. As the likelihood of such a recession increases, savvy investors continue to take steps to ensure that their portfolios remain significantly diversified enough that they hope to weather such events. Many investors continue to seek out alternative investments that are not yet in “bubble” territory, that they hope will retain value during times of economic turmoil. Some of these investors continue to maintain the view that physical precious metals meet that criterion. Physical precious metals have a long history of being viewed as a store of value during times of economic and geopolitical turmoil. Investors that hold to this view continue to use temporary price dips as buying opportunities to add additional physical product to their 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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