Exclusive Precious Metals Outlook and Recommendations
Index updated July 1, 2019
The Blanchard Economic Report
June Was a Good Month for Gold
Gold skyrocketed nearly 10% higher in June, hitting a six-year high.
Gold bulls have woken up. The bears have gone into hibernation and the sky is the limit for gold after a bullish upside breakout from a six-year long bottoming pattern on the monthly chart.
What’s driving the parabolic move higher in gold?
It’s a combination of pent-up demand, investors flocking to safe-haven investments and portfolio reallocation as the U.S. approaches the end of the current business and stock market cycle.
3 Key Catalysts for Gold Gains Last Month
- Expectations for lower interest rates
After the June Federal Open Market Committee (FOMC) meeting, market expectations for an interest rate cut – possibly as early as July – soared. After its meeting, the Fed said it will “closely monitor” the economy amid a growing list of uncertainties, including the impact from the U.S.-China trade war. The Fed also removed the word “patient” from its statement referring to future policy moves.
- There is a 72% chance of a Federal Reserve 25 basis point interest rate cut at the July meeting, according to the CME FedWatch Tool, while there is a 28% chance of a 50 basis point interest rate cut!
The Fed just hiked rates back in December 2018. So, this is a swift reversal in central bank outlook and expectations.
Bottom line: Lower interest rates typically support gold and this could provide momentum for continuing gains throughout the second half of 2019.
- Geopolitical Tensions: U.S. – Iran
The U.S. came within minutes of unleashing a military strike against Iran in June.
The Administration approved a military strike to retaliate against the downing of an unmanned American surveillance drone. This comes on top of American accusation that Iran attacked two oil tankers in mid-June near the Strait of Hormuz.
U.S. – Iranian tensions have been high since in 2018 the Trump Administration pulled out of the 2015 international agreement aimed at containing Iran’s nuclear program. The U.S. administration implemented devastating economic sanctions against Iran, which has led to rationing and food shortages, alongside surging prices for food inside Iran.
Bottom line: Investors around the globe turned to the safety and security of physical gold as global geopolitical tensions ratcheted higher last month.
- Weakness in the U.S. dollar
The U.S. dollar trended lower in June. Gold and the dollar sometimes reveal an inverse relationship, which means weakness in the dollar is supportive to gold. A weaker dollar makes the price of gold cheaper to foreigners who buy gold priced in U.S. dollars.
Bottom line: If the Fed follows through with interest rate cuts, this will weaken the U.S. dollar even more and provide further impetus for gold to rally late in 2019.
Putting It All Together
Looking ahead, this gold rally is just getting started. The technical set up on the monthly gold chart reveals potential for an epic rally ahead, with initial price targets in the $1,700-$1,800 range. Summer prices in gold are likely the lowest prices you will see this year.
Predicted Price Trading Bands, Next 90 Days
Gold $1,395 -$1,500
The high-end rare coin market remains an attractive buying opportunity for long-term investors. Rare coins offer investors an opportunity for significant price appreciation in the current environment.
The appeal of rare coins to investors is their impressive historical price appreciation, which has outpaced the level of the underlying precious metal.
Buying Rare Coins
For investors able to hold 5-10 years, ultra-rare acquisitions offer the safest store of wealth and strongest growth potential. Accumulate the highest quality coins you can afford. This strategy will pay off handsomely as rarity tends to appreciate the fastest.
Buying Precious Metals
An accumulation strategy is probably the best option for clients wishing to add to holdings.
Trading Precious Metals
Silver continues to offer a better value than gold. Generally, readings above 65 signal that silver is severely undervalued and is a strong buy signal for the metal.
Ratio: 92 oz. silver = 1 oz. gold
The gold/silver ratio is a way investors measure the relative value of these two metals. The ratio indicates the number of ounces needed to buy one ounce of gold. Investors have long turned to this ratio to identify attractive long-term entry points for precious metals purchases. A high ratio is generally viewed as a signal that silver is undervalued relative to gold. That is what we are seeing now.
You may want to consider converting some gold holdings to silver.
Popular silver products: 10 oz & 100 oz. silver bars, Silver American Eagles in monster boxes.