The Precious Metals Week in Review – October 14th, 2022

1. Early this week we saw President Vladimir Putin escalate the war with a blitz of missiles against dozens of civilian targets in Ukraine. Including critical energy infrastructure and marks a major escalation. Putin warned of more attacks if Ukraine continues what he called “terrorist acts” on Russian territory. The European Union denounced the missile strikes as “war crimes” and French President Emmanuel Macron said they reflected “a deep change in the nature” of the war. The bombardment knocked out electricity in numerous regions disrupting power in the capital Kyiv and other parts of the country.

2. President Joe Biden’s chip limits on China mark a potential war of high-tech attrition as the US now realizes it can’t outpace its foremost rival simply by running faster; it must also slow Beijing down. The US is escalating the technological cold war with China through new sanctions to squeeze the flow of high-end semiconductors and manufacturing equipment to Beijing. Biden’s administration will use an obscure but potent regulation, the Commerce Department’s Foreign Direct Product Rule, to prohibit firms from providing certain advanced semiconductors to Chinese companies unless they first secure permission from Washington. The administration will also block the acquisition of sophisticated US-manufactured chip making tools by leading Chinese firms and slap additional restrictions on dozens of Chinese companies.

3. A hedge fund manager who correctly timed the crash of the US housing market and a crypto currency rally eight years ago thinks he’s found his next overlooked investment: Venezuelan debt. Bonds the country defaulted on nearly five years ago are trading around record lows, with some oil debt available for 2 cents on the dollar. Adding to the risks, the government is under sanctions that prohibit US investors from buying the notes.

4. JPMorgan’s Jamie Dimon warns U.S. likely to tip into recession in 6 to 9 months. His comments come at a time of growing concern about the prospect of an economic recession as the Federal Reserve and other major central banks raise interest rates to combat soaring inflation. Chicago Federal Reserve President Charles Evans also mentioned last month that he’s feeling apprehensive about the U.S. central bank going too far, too fast in its bid to tackle high inflation rates.

5. Concerns continue to grow over potential fears of if US banks are safe. In 2007-2008 during the financial meltdown amazingly there were no overall major cash runs on the banks worldwide. A legitimate question would be if the individual investors really understand the precarious situation that is inherent within the banking system? Most people don’t realize that the banking system issues have not really been fixed as 10 top banks still own approximately the same ratio of assets they did in 2007. During the financial crisis Hank Paulson, director of the US Treasury and Ben Bernanke, president of the Fed, saw all too well that there was a true lack of liquidity within the US banking system. It appears that the actual cash on hand is insufficient backing for the total denominated credit outstanding.

6. On Tuesday U.S. stocks rose reversing earlier declines, as investors looked ahead to key inflation data and earnings reports out later in the week that will give the Federal Reserve more updated information on the state of the U.S. economy. At mid-day the Dow Jones Industrial Average gained 328 points or 1.13% while the S&P 500 rose 0.37%, rebounding after hitting its lowest level since November 2020 earlier in the session. The Nasdaq Composite also rebounded from a 52-week low but still declined 0.04% weighed down by struggling tech stocks. Stocks slumped on Friday, capping off a volatile week of trading, a day after posting a historic turnaround rally as investors digested inflation expectations. The Dow Jones Industrial Average fell 395 points, or 1.32%, but was still on track to end the week higher after Thursday’s gains.

7. Bond prices also fell, and the yield on the U.S. 10-year Treasury neared the key 4% level overnight. Yields fell back from their rally earlier in the trading session with the 10-year yield up about 1 basis point at 3.894%. Bond yields are inverse to prices, and a basis point is one hundredth of one percent.

8. On Wednesday October 12th the Federal Reserve released the minutes from the Sept. 20-21 meeting. Here are some key takeaways: Policymakers “reaffirmed their strong commitment” to returning inflation to the Fed’s 2% goal, with many officials stressing the need to stay the course even as the labor market slows. Many officials saw need to maintain restrictive rates for “some time,” with several saying such a stance could be held “as long as necessary.” The minutes offer no new details on the size of likely rate moves at the November FOMC meeting.

9. Thursday provided data from the nonfarm payroll report. It showed that employment increased by 263,000 in September, and the unemployment rate edged down to 3.5 percent, as reported from the U.S. Bureau of Labor Statistics today. This has returned it to its July level. The number of unemployed persons edged down to 5.8 million in September. Notable job gains occurred in leisure and hospitality and in health care. Hurricane Ian had no discernible effect on the employment and unemployment numbers for September as household survey data collection was completed before the storm made landfall. In September, 1.4 million persons reported they had been unable to work because their employer closed or lost business due to the pandemic—that is, they did not work at all or worked fewer hours at some point in the 4 weeks preceding the survey due to the pandemic. This measure is down from 1.9 million in the previous month and from 49.8 million in May 2020.

10. Oil fell Friday and headed for a weekly loss as central banks’ inflation-fighting measures risk growth and Chinese demand remains muted amid virus lockdowns. West Texas Intermediate futures dropped below $88 a barrel. A measure of US inflation jumped to a 40-year high last month, spurring expectations that the Federal Reserve will have to continue hiking interest rates that could slow growth and potentially hit energy consumption.

11. The Euro is clinging to modest signs of stabilization on Wednesday, from last week’s sharp selloff, but this respite comes amid obvious headwinds and looks extremely shaky. The fundamental backdrop remains grim as European Union energy ministers meet in Prague. The fightback seen last week took EUR/USD close to the downtrend line which has been firmly in place on the daily chart since February of this year.

12. The Japanese Yen remains near 24-year lows after Japanese PPI came in hotter than anticipated at 9.7% year-on-year to the end of September instead of the 8.9% forecast. This has raised market concerns about the ability of the Bank of Japan (BoJ) to maintain extremely loose monetary policy. USD/JPY raced above 146 in the North American session but stopped just short of 147. The market is weighing the possibility of selling by the Bank of Japan. A currency that continues to weaken could lead to imported inflation.

Painfully high inflation continuing to squeeze US households. Spending at retail stores fell flat in September as consumers continue to confront the hottest inflation in 40 years. Retail sales, a measure of how much consumers spent on a number of everyday goods, including cars, food and gasoline, was unchanged at 0% in September, the Commerce Department said Thursday. Economists surveyed by Refinitiv expected sales to increase 0.2%. That is a marked decline from the upwardly revised data in August, which showed that retail sales actually climbed 0.4%. “The high inflation environment is weighing on consumer morale and purchasing power, and it is forcing many households to dip into savings and use credit to finance outlays,” said Gregory Daco, the chief economist at EY Parthenon. “While consumers remain willing to spend, many families are feeling increasingly constrained by elevated prices and rising interest rates.”

Many Americans facing skyrocketing home heating costs alongside general inflation surges are worried they won’t be able to afford to keep their homes warm through the winter. Kara Hay, the head of a nonprofit designed to help those in financial need stated “we always hear from our struggling neighbors, friends and family member about winter and how hard it is, but we’ve never heard concern like we are hearing this year.” With inflation hovering around a 40-year high many haven’t been able to save for winter heating during the off-season like usual, according to Hay.

Friday, September 30th 2022 was the close of the Fiscal Year for the US federal government. And based on the figures just released, the US national debt has now reached nearly $31 trillion as of the close of the Fiscal Year last Friday. At the start of the Fiscal Year back on October 1, 2021, the national debt was $28.4 trillion. So, over the course of the past twelve months, the debt increased by a whopping $2.5 trillion.

That’s the second highest annual increase in the US national debt EVER, after the $4.2 trillion increase in the 2019-2020 Fiscal Year during the pandemic. In case you’re wondering, total interest in the Fiscal Year that just ended last Friday is an unbelievable $706 billion. If rates keep rising, annual interest payments could increase to nearly $2 trillion. This is an inconceivable figure that could potentially bankrupt the federal government. The US national debt is high… and the average debt maturity is short… and significant rate increases risk pushing the federal government towards possible default.

As geopolitical, economic, and environmental uncertainties escalate, many investors watching these volatile moves continue to try to take steps to diversify their portfolios and seek out alternative investments. This could include physical precious metals otherwise known as “sound money” that have recently shown signs of being under bought prior to the equity and real estate bubbles beginning to deflate. Stocks closed lower on Monday with the Nasdaq Composite index falling to the lowest level in two years as tech shares continue to be the hardest hit in this bear market because of spiking interest rates. Home prices in the US have taken a turn and are now posting the biggest monthly declines since 2009. Median home prices fell 0.98% in August from a month earlier, following a 1.05% drop in July, mortgage-data provider Black Knight Inc. said in a report Monday. The two periods mark the largest monthly declines since January 2009. 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 without overextending your ability to maintain its ownership.

Trading Department – Precious Metals International, Ltd.

Friday to Friday Close (New York Closing Prices)

Previous Years Comparisons

Here are your Short-Term Support and Resistance Levels for the upcoming week.

This is not a solicitation to purchase or sell.
© 2022, Precious Metals International, Ltd.