1. This holiday-shortened week will round out a brutal year for Wall Street as 2022 comes to an end. Stocks made small advances while currencies were mixed in Asia on Monday amid cautious trading and reduced liquidity with many markets closed for holidays. Benchmark equity indexes for mainland China, Japan, and South Korea climbed less than 1%, with a gain of just above that for India. Other markets including Hong Kong, Singapore, and Australia were shut. Appetite for risk-taking was limited, with the positive impact from recent U.S. inflation data partly offset by concern over China’s ability to cope after abandoning its Covid Zero policy. China’s National Health Commission said it would stop publishing daily case numbers for the coronavirus, complicating the task for investors trying to assess the economic impact. Looking across all the years for global equities, 2022 has been the worst annual performance in more than a decade. It’s not too late for the Santa Claus rally, but unfortunately, positive inflation data has been overshadowed by the Fed’s tough language and the upcoming potential recession that they’ve orchestrated with their aggressive rate hikes. The Santa Claus Rally is typically defined as the last five trading days of the year and the first two of the New Year. More importantly, the Santa Claus Rally is often seen as an indicator of future market performance. The S&P 500 has historically underperformed in January and over the following year when a year-end rally failed to unfold. Elsewhere in markets, Bitcoin was little changed below $16,559.68 on Friday as the crypto world continued to reel from the collapse of FTX.

The Precious Metals Week in Review – December 30th, 2022
The Precious Metals Week in Review – December 30th, 2022.

2. Marko Kolanovic and John Stoltzfus were two of the loudest stock bulls on all of Wall Street and were convinced of one thing at the outset of 2022: The Federal Reserve would go very slowly, with its plan to lift interest rates. Never mind that inflation had already soared to its highest level in four decades. The rate increases, they said, would come in increments so small that financial markets would barely feel them. And so Kolanovic, JPMorgan Chase’s co-head of global research, predicted a broad rally. He and his team pinned the S&P 500 Index at 5,050 by the end of 2022. Stoltzfus, the chief investment strategist at Oppenheimer, was even bolder: 5,330. And they were off by more than 1,000 points. The two men, high-profile personas at big-name firms, are the public faces of what can only be described as the blindsiding of Wall Street. With few exceptions, the best and brightest in stock and bond markets failed to appreciate how the inflation outbreak would upend the investing world in 2022. They did not expect how the Fed would react, that the rate increases would come at a torrid, not measured, pace, and failed to foresee how that, in turn, would trigger the worst simultaneous rout in stocks and bonds since at least the 1970s.

3. Financial markets’ nastiest surprises often come when something that is taken for granted is suddenly called into question, whether it’s rising tulip-bulb prices, functioning banks, or a lockdown-free existence. Investors had a tough time in 2022. But given how many trends changed direction over the course of the year, the real surprise is that it was not nastier. Here were the most important reversals.

End of cheap money

Future financial historians, looking back at the 2010s, will marvel that people really thought interest rates would stay near zero forever. Even in 2021, respectable investment houses were publishing articles with titles such as: “The Zero: Why interest rates will stay low”. Borrowing costs had been falling for decades; the combination of the global financial crisis of 2007-09 and the covid-19 pandemic seemed to have permanently glued them to the floor.

Death of the long bull market

Bull markets don’t die of old age, goes the adage: they are murdered by central banks. And so, it was in 2022, although the long bull run that ended had grown older than most. This year’s crash has proved lasting. Nor are stocks the only asset class to have been bludgeoned. Share prices have fallen in part because interest rates have risen, raising the returns on bonds and making riskier assets less attractive by comparison. The same mechanism pushed down bond prices to align their yields with prevailing rates. Indices compiled of global, American, European, and emerging-market bonds have dropped by 16%, 12%, 18%, and 15% respectively. Whether or not prices fall further, the “bull market in everything” has come to a close.

Evaporating capital

Capital was not just cheap in the last years of the bull market; it was seemingly everywhere. Central banks’ quantitative easing (QE) devised during the financial crisis to stabilize markets, went into overdrive during the pandemic. Together, the central banks of America, Britain, the euro area, and Japan pumped out more than $11trn of newly created money, using it to hoover up “safe” assets, such as government bonds, and depress their yields. This pushed investors in search of returns into more speculative corners of the market. The Fed and the Bank of England have put their bond-buying programs into reverse; the European Central Bank is preparing to do likewise. Liquidity is draining away, and not just from the risky end of the debt market. The value of mergers and acquisitions has fallen, too, albeit less dramatically. Capital abundance has turned to capital scarcity.

Value beats growth

The bull run was a dispiriting time for “value” investors, who hunt for stocks that are cheap compared to their underlying earnings or assets. Low-interest rates and refueled risk-taking put this cautious approach firmly out of fashion. Instead, “growth” stocks, promising explosive future profits at a high price compared with their (often non-existent) current earnings, stormed ahead. This year, rising interest rates turned the tables. The end of cheap money shortens investors’ horizons, forcing them to prefer immediate profits to those in the distant future. Growth stocks are out. Value is back in vogue.

Crypto implodes (again)

Those who think crypto is good for nothing, but gambling and dubious activities could not hope for a better example than the fall of FTX. American authorities now call it a “massive years-long fraud.” FTX’s downfall marked the bursting of crypto’s most recent bubble. At its peak in 2021, the market value of all cryptocurrencies was almost $3trn, up from nearly $800bn at the start of the year. It has since fallen back to around $800bn. Like so much else, the affair’s roots lie in the era of cheap, abundant money and the anything-goes mentality it created.

4. The largest U.S. grid operator is leaning on more than 65 million people to conserve electricity to keep the lights on as a frigid winter storm moves over the East Coast, boosting heating demand and forcing power plants to trip offline. Rotating blackouts continue to be “a real potential risk” and people are being asked to help the grid. The magnitude of the cold weather that blew in from the West was so fast and intense that PJM, which manages the grid stretching from Illinois to Virginia, had under-forecast demand during the peak hour by more than 7 gigawatts. That’s the equivalent of 7 million homes on a typical day. The grid started a rare emergency requiring certain customers to curtail their usage. The warning of rotating blackouts is especially stunning because PJM has a massive surplus of power plants. Old coal and natural gas plants have lingered even as a wave of big new gas plants was built with the shale boom in the previous decade. PJM’s excess supply was such an outlier that it was considered one of the safe zones that weren’t at elevated risk of blackouts this winter, according to the North American Electric Reliability Corp. seasonal assessment. The other region was the Southeast, which had seen rolling blackouts in this storm.

5. Meta Platforms has agreed to pay $725 million to settle a long-running lawsuit that claimed Facebook illegally shared user data with the research firm Cambridge Analytica. It’s “the largest recovery ever achieved in a data privacy class action and the most Facebook has ever paid to resolve a private class action,” the plaintiffs said in a court filing late Thursday. Lawyers for the consumers had steadily gained leverage to pry into the company’s internal records to back up their claims that Facebook failed to safeguard their personal data. Facebook’s parent company could have been on the hook for hundreds of millions of dollars more had it gone to trial and lost the case. Since the case was filed, Facebook has stopped allowing third parties to access data about users through their friends, plaintiffs said in a court filing detailing the settlement. The company has also strengthened its ability to restrict and monitor how third parties acquire and use Facebook users’ information and improve its methods for telling users what information Facebook collects and shares about them, according to the filing. Last month, Google agreed to pay $391.5 million to 40 U.S. states to resolve a probe into controversial location-tracking practices in what state officials called the largest such privacy settlement in U.S. history. Separately, a judge last month approved a $90 million Meta deal to settle a suit over the use of browser cookies and Facebook’s “Like” button to track user activity.

6. Applications for U.S. unemployment benefits rose last week, but remained near historic lows, underscoring the enduring resilience of the labor market despite the Federal Reserve’s aggressive efforts to cool demand. In the week ending December 24, the advance figure for seasonally adjusted initial claims was 225,000, an increase of 9,000 from the previous week’s unrevised level of 216,000.

7. As of early morning trading on Tuesday, WTI (West Texas Intermediate) Crude was up by 0.80% at $80.19 though it fell to $78 by Friday. The international benchmark, Brent Crude, was trading up by 0.85% on the day, at $84.63 per barrel. Brent was trading at $83.38 on Friday. Oil prices received a major boost late on Monday and early Tuesday after China said that as of January 8 inbound travelers to China would no longer be subject to mandatory travel quarantine. China is seeing a surge in Covid cases after abandoning other parts of its so-called “zero Covid” policy that was in place for more than two and a half years.

8. The Euro faces multiple headwinds. Economists expect the EUR/USD pair to stay in a 1.09-1.14 average range. The ECB is expected to hike rates to 2.5% amid fears of a severe winter’s effect on energy consumption, China’s delayed recovery, and likely recession in Europe. These forces suggest the Euro staying weaker for longer in a 1.09-1.14 average range.

9. The U.S. Dollar is dropping against the Japanese Yen for the second consecutive day. The pair has lost about 1.75% over the last two days and is trading at one-week lows right above 132.00, down from the 134.45 high seen on Wednesday. The unscheduled bond purchases announced by the Bank of Japan have spurred demand for the JPY.

For the vast majority of the world’s wealthiest people, 2022 was a year to forget. It’s not just the money that was lost, though it was staggering, almost $1.4 trillion was wiped from the fortunes of the richest 500 alone. Plenty of the pain, it turns out, was self-inflicted: The alleged fraud by onetime crypto wunderkind Sam Bankman-Fried; the war waged by Russia on Ukraine that spurred crippling sanctions on its business titans; and, of course, the actions of Elon Musk, the new owner of Twitter who’s now worth $138 billion less than he was on Jan. 1. Combined with a backdrop of widespread inflation and aggressive central bank tightening, the year was a dramatic comedown for a group of billionaires whose fortunes swelled to unfathomable heights in the Covid era of easy money. In most cases, the bigger the rise, the more dramatic the fall: Musk, Jeff Bezos, Changpeng Zhao, and Mark Zuckerberg alone saw some $392 billion erased from their cumulative net worth.

Ever so subtly, the high-interest rates of the past year have started to separate viable businesses from the ones sustained by cheap money. Expect 2023 to kick that process into high gear. Interest rates started surging in late 2021 as the Federal Reserve began to acknowledge that inflation wasn’t “transitory,” but relatively few companies have had to deal with the consequences. Many of them met their near-term borrowing needs during the first two years of the Covid-19 pandemic when rates were unusually low. Defaults and bankruptcies have begun to inch up since then, but only slowly and from extraordinarily low levels. So far, prominent blowups have been few and far between. But corporate America’s reckoning with its addiction to cheap debt is coming, and possibly as soon as next year. While high-yield bond maturities still look manageable for the next 12 months, the wall of expiring debt looks much more daunting in 2024. Companies will have to start refinancing well in advance of that, and they’re likely to find that the cost has risen too high for otherwise flimsy business models to withstand. At today’s rates, all-in yields on high-yield debt sit around 8.67% at the time of writing, far above the 2017-2021 average. Much will depend on what transpires in the economy next year, and when. Credit spreads for junk bonds typically head toward 800 basis points over Treasury bonds in a typical recession, and at the current 452, they’re nowhere near discounting a genuine downturn. Even if inflation continues to ease and Treasury yields decline, junk-rated corporations may not find much of an opening to refinance inexpensively next year before credit spreads widen. As a result, many companies that got used to cheap money in recent years are probably going to have to settle for more sobering rates in 2023. Unfortunately, some of them won’t survive the process.

U.S. pending home sales fell for a sixth month in November to the second lowest on record as higher borrowing costs and an uncertain economic outlook kept many potential buyers out of the market. The National Association of Realtors index of contract signings to purchase previously owned homes decreased 4% last month to 73.9, the lowest outside of the pandemic in data back to 2001. The drop was worse than all estimates in a survey of economists. The Federal Reserve’s aggressive tightening campaign to cool inflation has had an outsize impact on the housing market in 2022. With borrowing costs roughly double where they were at the start of the year, home sales, and therefore prices, have been declining for months. Consumers rate current home-buying conditions as the worst since the early 1980s. That said, mortgage rates have been retreating after spiking to a two-decade high earlier this year. Contract signings were down nearly 39% in November from a year ago on an unadjusted basis. Pending sales fell in all four regions in the month, led by the Northeast and Midwest. Pending home sales are often looked to as a leading indicator of existing-home purchases as properties typically go under contract a month or two before they’re sold. The index is based on a sample that covers about 40% of multiple listing service data each month.

As tensions continue to escalate and macroeconomic and geopolitical uncertainties increase, astute investors take added steps to help ensure that their portfolios are well-diversified in the event of a drastic downturn in the global economy. Such investors have continued to add physical precious metals as part of a well-diversified portfolio to help mitigate the growing global risks. These investors continue to stick to their plans to add physical precious metals to their portfolios whenever temporary price dips present themselves at a discount. 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)

Dec. 23, 2022 Dec. 30, 2022 Net Change
Gold 1,797.30 1,821.47 24.17 1.34%
Silver 23.76 23.87 0.11 0.46%
Platinum 1,026.14 1,070.91 44.77 4.36%
Palladium 1,743.02 1,803.56 60.54 3.47%
Dow 33206.33 33147.35 -58.98 -0.18%

Month End to Month End Close

Nov. 31, 2022 Dec. 30, 2022 Net Change
Gold 1,752.81 1,821.47 68.66 3.92%
Silver 21.64 23.87 2.23 10.30%
Platinum 1,029.88 1,070.91 41.03 3.98%
Palladium 1,871.44 1,803.56 -67.88 -3.63%
Dow 34589.77 33147.35 -1442.42 -4.17%

Previous Years Comparisons

Dec. 31, 2021 Dec. 30, 2022 Net Change
Gold 1,826.78 1,821.47 -5.31 -0.29%
Silver 23.30 23.87 0.57 2.45%
Platinum 972.44 1,070.91 98.47 10.13%
Palladium 1,926.31 1,803.56 -122.75 -6.37%
Dow 36338.30 33147.35 -3190.95 -8.78%

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

Gold Silver
Support 1779/1761/1738 22.90/22.10/21.39
Resistance 1842/1861/1890 24.42/25.13/25.93
Platinum Palladium
Support 988/954/931 1681/1611/1572
Resistance 1046/1071/1104 1799/1830/1899
This is not a solicitation to purchase or sell.
© 2022, Precious Metals International, Ltd.

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