1. The World Economic Forum’s annual meeting began in Davos with corporate executives and economists warning a global recession is likely this year. Of 4,410 business leaders surveyed in October and November last year, 73% predicted global growth to decline over the coming 12 months. The reading was the worst since the consulting firm began polling in 2011. Two out of five even expressed concern their companies may not last a decade. A separate survey of chief economists found two-thirds expect a worldwide recession in 2023 as businesses cut costs; 18% viewed such a downturn as “extremely likely.” The concerns are likely to be rife this week as more than 2,700 executives, bankers and economists head to the Swiss ski resort of Davos for the first time in January since 2020. While recent data has raised hopes economies can still pull off a soft landing, last year’s surge in inflation and the subsequent hiking of interest rates by central banks have many braced for economies to contract. This year’s big three risks are inflation, macroeconomic volatility, and geopolitical conflict. PWC’s Moritz said the main surprise has been the long-term outlook, with 40% of chief executives convinced “their organizations will not be economically viable in 10 years if they do not transform.” He said: “The short term is about how to manage cost pressures and the longer term is about supply chains, climate, technological disruption.” Bosses need to act now to “survive two years to thrive in the next 10” while ensuring they have the capital to deploy for the future.
2. On Tuesday US stocks fell as concern over the outlook for corporate earnings weighed on risk sentiment while investors assessed the path for policy tightening. The S&P 500 closed in the red for the first time in five days after struggling for direction throughout the session. The Dow Jones Industrial Average dropped the most in a month, with financials weighing on the gauge of blue chips. Meanwhile, the tech-heavy Nasdaq 100 eked out gains, up for a seventh day, taking a cue from declines in policy-sensitive short-dated Treasury yields. Goldman Sachs fell 6.4% after it reported investment-banking fees tumbled by almost half during the last three months of 2022 and costs jumped. Travelers dropped after the insurer reported higher storm claims in the fourth quarter as part of preliminary earnings. Pfizer slid more than 3% after Wells Fargo downgraded its recommendation on the stock.
3. Despite lackluster investor demand for paper gold, 2022 proved to be a strong year for bullion demand, according to the British Royal Mint. The Royal Mint said that gold bullion sales increased by 25% in 2022 compared to 2021, which was a record year. At the same time, silver demand increased by 29% from the previous year. They also noted an increase in new investors taking an interest in physical gold as the number of new customers increased by 5% last year. This is despite rising interest rates and lackluster USD performance for most of the year. On a month-by-month basis, March was their busiest month for gold sales as geopolitical uncertainty caused by Russia’s invasion of Ukraine increased safe-haven demand for the precious metal. The mint said it also saw demand pick up in September and October as domestic political uncertainty rose with the nation seeing three Prime Ministers installed in three months. Looking ahead to 2023, the Royal Mint said it is seeing a healthy start to the year as gold prices hold above $1,900 an ounce. “Another 10% climb would see it reach its all-time high of US $2,057.15, as recorded on 6 August 2020,” said Andrew Dickey, The Director of Precious Metals Investment. Dickey added that he expects bullion demand to remain robust throughout the new year as investors continue to protect themselves from the uncertainty and volatility of global markets. “Looking forward to 2023, many financial experts are expecting this momentum to continue, which will promote a level of confidence in investors of precious metals following IMF warnings of a recession,” he said. Evidence shows that previous recessions have had an impact on the gold price increasing, with the metal historically considered a ‘safe haven.’ Other factors affecting demand include a slowing of the cycle of interest rate hikes by central banks, their continued purchasing of vast quantities of gold, and crypto disappointment.
4. BlackRock CEO Larry Fink said the narrative around ESG investing has become ugly and is creating “huge polarization.” ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. “I’m taking this very seriously,” Fink said in an interview at the World Economic Forum in Davos. “We are trying to address the misconceptions. It’s hard because it’s not business anymore, they’re doing it in a personal way.” Fink has been outspoken about investing with environmental, social, and governance goals, making it a focal point in his annual letters to the industry. BlackRock’s push into ESG transformed the firm into a political punching bag for politicians of all stripes. On the right, Florida Governor Ron DeSantis has blamed ESG for hurting the fossil-fuel industry and claimed that BlackRock is turbocharging America’s “woke” culture. Meanwhile, Democrats including US Senator Elizabeth Warren have criticized the firm for not doing enough. In August 2022, the Republican state attorneys general signed a letter accusing New York-based BlackRock of favoring its ESG commitments at the expense of pension fund profits. Since then, some states, including Louisiana, have started to pull money from BlackRock funds. In December, Florida made the biggest withdrawal yet, pulling $2 billion with DeSantis saying, “using our cash to fund BlackRock’s social-engineering project isn’t something Florida ever signed up for.” To manage the fallout, the giant asset manager poured record sums into US political campaigns last year, mounted an advertising campaign to explain its business managing money for retirees, and brought on added lobbyists in Texas and Washington. BlackRock’s assets under management, which had crossed the $10 trillion threshold at the end of 2021, stood at $8.59 trillion at the end of December despite inflows into its funds during the fourth quarter.
5. European Central Bank policymakers are starting to consider a slower pace of interest-rate hikes than President Christine Lagarde indicated in December, according to officials with knowledge of their discussions. While the 50 basis-point step in February she signaled is still likely, the prospect of a smaller 25-point increase at the following meeting in March is gaining support. Any slowdown in monetary tightening shouldn’t be viewed as the ECB going soft on its mandate, the officials said. They stressed that no decisions have been taken and that policymakers may still deliver the half-point move for the March meeting that Lagarde penciled in on Dec. 15. The euro fell against the dollar after the report, trading as low as $1.0795 versus an earlier high of $1.0869. While a half-point hike remains priced for February, money markets eased tightening wagers further out, putting odds on a similarly sized increase in March at around 70%. Weaker-than-expected inflation in the euro area, a drop in natural gas prices, and the prospect of gentler tightening by the US Federal Reserve have brought some comfort to policymakers as they ponder how to continue the most aggressive rate hikes in ECB history. Whether and how inflation prospects have shifted will only become clear with the new forecasts in March, which might help justify a less aggressive pace. That may be one reason for policymakers to be cautious about departing from their outlined hike in February.
6. In the week ending January 14, the advance figure for seasonally adjusted initial claims was 190,000, a decrease of 15,000 from the previous week’s unrevised level of 205,000. The 4-week moving average was 206,000, a decrease of 6,500 from the previous week’s unrevised average of 212,500.
7. Oil fell for the first time in almost two weeks as disappointing US economic data ignited fears of a recession and sparked a sell-off across Wall Street. WTI (West Texas Intermediate) reversed course after hitting the highest intraday price since early December, falling almost 1%. “Oil’s rally could not last after energy traders saw broad weakness across large parts of the US economy,” said Ed Moya, senior market analyst at OANDA. “Crude-demand concerns are growing as the consumer is much weaker than expected and as the manufacturing sector is plunging.” WTI for February delivery fell 70 cents to settle at $79.48 a barrel in New York. Brent for March settlement slipped 94 cents to $84.98 a barrel.
8. The EUR/USD adds to Wednesday’s small advance and manages well to keep business above 1.0800 the figure so far on Thursday. Indeed, the selling interest around the greenback allows the continuation of the improvement in the risk complex and helps with the pair’s upside bias, while hawkish ECB-speak also props up the march north in spot.
9. The USD/JPY pair extends the previous day’s sharp retracement slide from the 131.55-131.60 area, or the weekly high and remains under some selling pressure on Thursday. The pair, however, recovers a few pips from the daily low and is currently placed just below mid-128.00s, still down nearly 0.50% for the day. The prevalent risk-off mood, as depicted by a sea of red across the equity markets, benefits the safe-haven Japanese Yen and exerts some downward pressure on the USD/JPY pair.
The Global Economy of 2023 is going to be a wild ride as the pillars of prosperity that supported 30 years of growth have crumbled. Now the world must cope with inflation, labor shortages, and geopolitical unrest. For these reasons, this has been dubbed the ‘dangerous decade.’ Already, a global pandemic, Russia’s invasion of Ukraine, and the return of inflation have shaken the 21st-century global economy to its core. After the shocks of 2022, a recession for large parts of the world in 2023 seems a safe bet. Plentiful cheap labor, low energy, and transportation costs, and a generally peaceful era for geopolitics all helped turbocharge the globalization of supply chains and drive economic growth around the world in the past. Whenever one of those pillars wobbled, there was cheap money to keep the party going, especially in the years after the 2008 financial crisis. The three major central banks, the US, the Eurozone, and Japan, have kept their key interest rates below 5% since 2001. For most of the past 10 years, rates have been close to zero and certainly well below the inflation rate. In less than three years, each of those supporting pillars of globalization has been knocked away. Workers are scarce and increasingly expensive in the US, Europe, and the UK. Oil prices have more than tripled since 2020, and the global cost of energy jumped 50% in 2022 alone. At the start of 2022, the yield on the 10-year benchmark US government bond was around 1.5%, and the market was expecting the federal fund rates to stay below 1%. Instead, it ended the year above 4%, with 10-year yields expected to be not far short of that level throughout 2023. It’s not only the size of the shift that’s historic but also the pace. In the UK, the rate on a five-year fixed-rate mortgage tripled, from 2% to 6%, in barely two months. This was after more than two decades during which households, businesses, and investors got used to the idea that interest rates could always go lower. One pressing question for 2023 is how the jump in the cost of borrowing will affect business investment, consumer spending, and government budgets. The second key issue is how corporations will react to a world in which the tide of history now seems to be running against them. To sum it up: There’s no more free money; macroeconomic policymakers are being tested; and the basic geopolitical assumptions underpinning more than 30 years of global economic integration are being thrown into the air.
Consumers returned from the holiday season to find mortgage rates at their lowest level since September. Mortgage application volume across the US increased by almost 28% last week compared with the previous week, according to the Mortgage Bankers Association’s (MBA) seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances dropped to 6.23% from 6.42%, with points decreasing to 0.67 from 0.73 (including the origination fee) for loans with a 20% down payment. Just a year ago, the average rate on the 30-year fixed was 3.64%. Refinance saw the biggest shift, up 34% from the previous week. However, it was still 81% lower than the same week one year ago.
The refinance share of mortgage activity rose to 31.2% of total applications from 30.7% the previous week. Applications for a mortgage to purchase a home increased 25% week to week but were 35% lower than the same week one year ago. The number of active listings is about 21% higher than it was a year ago, according to Redfin.
It’s as close to a sure-thing bet as markets ever offer. When the S&P 500 falls 20% or more, a recession is close behind. But economists whose forbidding calls for 2023 are being informed by this signal should look deeper into last year’s rout before betting the farm on it. Twelve months of a drubbing in stocks from Tesla to Amazon, Apple to Netflix have pounded the larger market relentlessly, sending the S&P 500 to its worst year since the financial crisis. But an alternative view exists when considering the outsized role played this time by a factor whose relevance to the economy is tenuous: valuation. This is a lens through which last year’s stock market histrionics can be viewed as more noise than signal when it comes to the future path of the American economy. Much of the 2022 equity selloff was based upon a popping of the speculative bubble as the cost of capital normalized, not because the fundamentals collapsed. But the math is tough to rebut. Fourteen times the S&P 500 has completed the 20% plunge into a bear market. In just three of those episodes, the American economy did not shrink within a year.
Nevertheless, there are arguments that the most recent swoon will be an exception. Consider the performance of value stocks, a style dominated by economically sensitive companies like energy and banks. After trailing their tech-heavy growth counterparts for five straight years, cheap shares are finally having their moment to shine. The index tracking value just had its best relative performance in two decades, beating growth by 20 percentage points in 2022. As much as this bear market has aroused fear of an economic recession, it’s worth noting that almost half of the S&P 500’s decline can be blamed on the five biggest tech firms. And while growth companies are part of the economy, the beating those stocks took was primarily driven by shrinking valuations because of higher interest rates. Value shares had far less bloat to correct and therefore their relatively tame losses could be framed as a purer, and cheerier signal on future activity. The last time when value outperformed this much was in 2000, the economy suffered only a mild downturn.
Volatility should be expected to remain high as investors will be closely watching for hints on upcoming monetary policy direction. Many investors have redoubled their efforts to ensure that their portfolios are sufficiently diversified in the hopes that they will be able to withstand corrections in multiple market sectors. Many of these investors have included physical precious metals as part of their diversification plans, given their long history as a hedge against both inflation and during times of economic turmoil. Remember, the key to profitability through the ownership of physical precious metals is to own the physical product and hold it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long run.
Trading Department – Precious Metals International, Ltd.
Friday to Friday Close (New York Closing Prices)
|Jan. 13, 2023||Jan. 20, 2023||Net Change|
Previous Years Comparisons
|Jan. 21, 2022||Jan. 20, 2023||Net Change|
Here are your Short-Term Support and Resistance Levels for the upcoming week.