The Precious Metals Week in Review – March 24th, 2023

1. Gold and silver prices are up in early US trading Monday, with gold notching a 12-month high of $2,014.90 and silver a six-week high. Safe-haven demand for the metals is featured amid a still shaky general marketplace amid the US and European banking crisis. The technical charts are also bullish for gold and silver, which continues to invite chart-based speculators to the long sides. Gold miners need to invest in exploration instead of buybacks and dividends if they have any hope of meeting demand, according to Alastair Still, CEO of GoldMining. “The reality is those discoveries don’t come quickly, and they don’t come cheaply,” he said. “Projects that are in our portfolio which are advanced, with resources on them already, are becoming much more scarce and much more sought after by the majors and the developing and producing companies. Some of the deposits that are being found nowadays are in challenging environments, challenging countries geopolitically,” he said. “Our portfolio is in countries solely within the Americas, stable, mining-friendly geopolitical jurisdictions, Canada, the US, and Brazil among some of the highlights, all areas that have very strong operating and mining histories. Those are the places where our projects can be advanced quicker towards production.” As for the price outlook, Still believes the market will see the yellow metal maintaining strength in the coming months. “I think we’re going to see a ‘2’ in front of the gold price this year more often than we may see a ‘1’ so a $2000 price is certainly not any stretch of the imagination, particularly when we look at some of the peak all-time highs,” he said. “If you inflation-adjust them to today’s rates, we’ve already seen $2000 gold, so it’s not unheard of, and I think we’ll be there this year.”

2. The Federal Reserve’s FOMC meeting begins Tuesday and concludes Wednesday afternoon. There is still some debate in the marketplace regarding whether the Fed will raise its main interest rate by 25 basis points (they did) or stand pat amid the US and European banking crisis. Most market watchers, however, are leaning toward a 0.25% rate increase. The 0.5% rate hike by the European Central Bank last week makes a 0.25% increase by the FOMC more likely. However, a case for the Federal Reserve to forgo an interest-rate hike persists in the eyes of some central bank watchers following a coordinated global move to ease growing financial strains. “The fact that you are engaged in global coordination with other central banking authorities to rescue institutions and keep liquidity flowing, it just suggests that a pause is probably a better risk/reward,” said Julia Coronado, a former Fed economist. To be sure, the decision on whether to pause or hike remains a tough call, and analysts weren’t immediately changing their predictions, so much as indicating that the chances of a pause seemed to have increased following Sunday’s developments. Data released Thursday showed banks in the US borrowed a record amount from Fed backstop facilities in the week ended March 15, topping a previous high reached during the 2008 financial crisis and signaling widespread funding strains.

3. First Republic Bank plunged after S&P Global cut its credit rating for the second time in a week, missing out on a strong rebound by its regional bank peers led by New York Community Bancorp. Shares of the struggling San Francisco-based bank slumped by as much as 22%, extending a recent rout that had taken First Republic down more than 80% in two weeks. Meanwhile, other mid-sized US lenders saw renewed interest from investors such as New York Community Bancorp which jumped by a record 40% after taking over Signature Bank’s deposits and some of its loans. Western Alliance Bancorp rose 9.7%, while PacWest Bancorp gained 23% and the KBW Regional Banking Index added 3.6%. “While this is the most serious bank crisis since 2008, the selloff is overdone, in our view, creating a buying opportunity for our Smid-Cap names,” analyst Michael Diana wrote in a note. Diana cut his price target on multiple firms — including buy-rated First Republic. S&P lowered First Republic’s long-term issuer credit rating to B+ from BB+, having already downgraded the lender to sub-investment grade, or junk, territory last Wednesday. The rating agency said a recent $30 billion infusion from some of Wall Street’s biggest lenders may not solve the “substantial” challenges the bank is now likely facing, even if it does ease near-term pressure on liquidity.

4. A year and a half ago, China put on a flashy event to make an announcement significant enough that Zeng Yuqun, the founder and chairman of the world’s biggest battery maker, served as emcee. Zeng, who had just passed up Alibaba’s Jack Ma in the Billionaires Index, revealed that CATL was working on battery packs that would use lithium-ion and sodium-ion cells. While sodium is more abundant and offers potential safety benefits over lithium, the latter is dominant in EV batteries. Lithium-ion chemistries offer superior energy density, enabling drivers to travel further between charges. Sodium-ion batteries can leverage the same manufacturing processes as the lithium-ion industry, meaning the former could benefit from advances that the latter had made over the last decade. The use of similar materials and components, from electrolytes and separators to aluminum current collectors, means this emerging technology also could benefit from the existing economies of scale. Sodium-ion batteries are more expensive than lithium-ion today because of low volumes and underdeveloped supply chains. But BNEF sees potential for material savings and energy-density improvements that would supply a viable pathway for sodium-ion cells to cost half what lithium iron phosphate cost today.

5. Russia’s gold holdings jumped by 1 million troy ounces over the last year as the central bank bought the metal amid sanctions on its reserves imposed by the US and its allies over the invasion of Ukraine. The Bank of Russia said it held 74.9 million ounces of gold at the end of February, unchanged from the previous month and up from 73.9 million a year earlier. Over the same period, total holdings of foreign exchange and gold dropped to $574 billion from $617 billion. The gold hoard was worth $135.6 billion on Feb. 28, 2023, the central bank said. Russia has the world’s second-highest gold mine output, and its central bank has for years been among the biggest buyers globally. But Russia’s bullion has been shut out of western markets since an import ban in June. Local producers, who previously shipped most of their metal to London, were forced to find new customers in Asia.

6. In the week ending March 18, the advance figure for seasonally adjusted initial claims was 191,000, a decrease of 1,000 from the previous week’s unrevised level of 192,000. The 4-week moving average was 196,250, a decrease of 250 from the previous week’s unrevised average of 196,500. The advanced seasonally adjusted insured unemployment rate was 1.2 percent for the week ending March 11, unchanged from the previous week’s unrevised rate.

7. Biden’s SPR (Strategic Petroleum Reserve) strategy has capped oil prices. While the banking crisis in the US appears to have eased, the fact that the US was not refilling the SPR appeared to cap the initial rebound in oil prices. US Energy Secretary Jennifer Granholm, replenishing US strategic oil stocks will be “difficult” this year due to site maintenance as the SPR remains at 40-year lows, and it would take years to refill last year’s 180-million-barrel release. As of Friday morning, WTI (West Texas Intermediate) was trading at $ 68.73 a barrel. with Brent crude at $74.64 a barrel.

8. The Euro was down nearly 1% to $1.07 on Friday, moving further away from seven-week highs touched on Wednesday, as renewed concerns over the health of the banking sector weighed on investors’ risk appetite. News on a U.S. probe on Credit Suisse and UBS and a big drop in Deutsche Bank shares prompted deeper banking worries.

9. The USD/JPY pair remains under heavy selling pressure for the third successive day and touches its lowest level since February 03, around the 129.65 region on Friday. Spot prices, however, trim a part of the intraday losses and trade just above the 130.00 psychological mark during the early North American session, still down nearly 0.50% for the day.

The risk-on tone prevailed on Wall Street as a rebound in banks and assurances from authorities eased fears about financial instability that could derail the Federal Reserve’s war against inflation and tip the economy into a recession. Equities climbed across the board, with the S&P 500 near 4,000 and trading above its key 200-day moving average, a threshold seen by many analysts as heralding more gains. First Republic Bank soared from a record low as JPMorgan Chase mapped out a new plan to help the firm. Every major lender in a gauge of US industry heavyweights advanced, trimming a monthly plunge that approached 30%. UBS Group jumped as much as 9.1%, on track for its biggest gain since March 2020, as investor optimism about the takeover of its biggest rival gathered pace. Traders had to rethink the Fed’s rate hike path after the collapse of three US banks and the rescue of Credit Suisse Group tightened financial conditions and spurred a stampede into havens. In the run-up to the central bank decision, investors are selling Treasuries as they expect policymakers to warn that the inflation fight is far from done and further tightening is looming. The yield on two-year Treasuries jumped as much as 18 basis points to 4.16% on Tuesday after plunging more than 70 basis points last week. Now with the market currently betting on the possibility of a quarter-point cut by July and two more before 2024, the fear is that investors are getting carried away. Swap traders indicate an around 85% chance of a 25 basis-point hike Wednesday — having virtually discounted that possibility altogether last week.

On Wednesday, the Federal Open Market Committee voted unanimously to increase its target for the federal funds rate by a quarter percentage point to a range of 4.75% to 5%, the highest since September 2007.
US mortgage rates fell to a five-week low of 6.48%, helping drive a third-straight advance in applications to buy a home. The 23 basis-point drop in the contract rate on a 30-year fixed mortgage was the biggest in four months, data showed Wednesday. US sales of previously owned homes rose in February by the most since mid-2020, snapping a record year-long slide tied to rising interest rates and affordability constraints. Contract closings increased 14.5% last month to an annualized pace of 4.58 million, according to data released Tuesday by the National Association of Realtors. Both the monthly advance and rate of sales exceeded the highest forecasts in a survey of economists. “Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” Lawrence Yun, NAR’s chief economist, said in a statement. “Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing, and the local economies are adding jobs.” While mortgage rates are down from their peak and may ease further as banking turmoil drives Treasury yields lower, the market for previously owned homes may continue to struggle because of a lack of inventory. Many homeowners have lower-rate mortgages, offering them little incentive to relocate. The number of homes for sale held at 980,000 in the month. It would take 2.6 months to sell all the homes on the market. Realtors see anything below five months of supply as indicative of a tight market. The pace of sales in February was the strongest in five months. Despite the increase, residential real estate is still depressed against the backdrop of the Federal Reserve’s aggressive policy-tightening campaign that sent mortgage rates soaring last year and sidelined many prospective buyers.

Persistent inflation has made Gen Z’s transition to adulthood hard. According to a report from Credit Karma, members of Gen Z saw their average debt balloon to $16,283 in the final quarter of last year, up 3.1% compared to the three months through May. That’s the biggest increase out of any generation, although their overall average debt was lower than their older counterparts. Younger generations weren’t just taking on debt at a faster pace than older generations, they were falling behind on payments too. Gen Z was the only generation to see an increase in past-due accounts, which includes any credit card, mortgage, student loan, medical loan, auto lease or auto loan accounts that are overdue by more than 30 days.

It is relatively common that what should be recognized as a warning flag of major trouble is often ignored until things get so bad that it is almost impossible not to notice. Geopolitical, economic, and environmental uncertainty can be expected to continue in the near term. Astute investors continue to seek out alternative investments for their portfolios to aid in diversifying them away from overexposure to any single asset class. Some are seeking out buying opportunities from temporary price dips to add more physical precious metals into 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 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.
© 2023, Precious Metals International, Ltd.