Exclusive Precious Metals Outlook and Recommendations
Index updated September 1, 2019
The Blanchard Economic Report
Gold Embarks On New Bull Market Cycle
The gold market is on the move.
Spot gold continues its strong price advance in August. Investors around the globe continued to pour money into gold as a method to diversify portfolios, hedge against recession and preserve and grow wealth.
Gold Breaks Through Another Key Level
In August, gold sailed through the $1,500 an ounce level, scoring a fresh six-year high.
Wall Street analysts are hailing the gold buying as a major cycle shift – and the start of a new bull market in gold.
- Gold closed higher for the fourth month in a row in August.
- Since the start of 2019, gold has chalked up impressive 17% gains.
- Gold is outpacing stocks, bonds and the U.S. dollar.
“One of the things that 2019 will be known for is the end of the eight-year bear market in gold and the beginning of a new bull market,” Miller Tabak equity strategist Matt Maley told CNBC in August.
What’s Driving Gold Higher?
The gold gains are fueled by worries over slowing economic growth, rising US- China trade war tensions and expectations for easier monetary policy around the developed world.
In the last 30 years, China as grown into a global manufacturing and technology superpower and now ranks as the second largest economy in the world behind the U.S. The current trade war is a major event that could have major repercussions throughout the global economy.
In August, the US ratcheted up the trade war with threats to impose more tariffs on $300 billion of imports from China.
Tariffs are a tax on trade that can disrupt global growth, says Blu Putnam, Chief Economist, CME Group.
China was quick to retaliate and cancelled orders of U.S. agricultural goods. On the currency front, China allowed its exchange rate to drop below 7 against the U.S. dollar, which makes its goods cheaper for US buyers.
- The escalation of the US-China trade war sent gold rocketing over $100 an ounce higher in August alone.
Consumer’s nerves are getting frayed as higher prices on everyday items like clothing and shoes are taking affect because of the U.S. tax on Chinese imports, also known as a tariff. New tariffs on U.S. imports of Chinese goods went into effect on September 1.
U.S. consumer confidence edged lower last month and home price appreciation fell to its slowest pace in nearly seven years. It’s not just consumers who are worried. Weak business investment is another red flag warning signal. Wall Street is lowering its growth forecasts for 2019 and beyond as the trade war is expected to intensify its impact to the economy with real pain to consumers at the cash register.
Recession Indicator Emerged in August
Alarm bells rang across Wall Street in August and stocks sank lower when the U.S. yield curve inverted for the first time since the Global Financial Crisis.
The “inverted yield curve” represents the difference between the 10-year treasury and 2-year treasury notes and is widely known as a recession indicator. Most bear markets in stocks occur with economic recessions.
The Case for Gold Ownership Grows
Global headwinds make the case for gold exposure in a well-rounded portfolio, Chad Morganlander, portfolio manager at Washington Crossing Advisors, told CNBC.
Experts recommend individuals diversify their portfolio with 5% to 15% in tangible assets, like gold bullion.
“Overall, it’s a good stabilizer and a noncorrelated asset class in a retail account,” Morganlander told CNBC. “It’s a good hedge, it’s [a] good protection asset in one’s portfolio.”
Stock Market Volatility
Stock market volatility increased significantly in August as markets were roiled by Presidential Tweets about the China trade war and by evidence of slowing economic growth in government reports. August notched up three of the worst days for the S&P 500 in 2019 and multiple 1% swings in both directions.
Heading into September, equity investors should not expect a break. Since 1950, September has produced the worst returns of the year for the stock market.
At the Fed’s iconic summer gathering in Jackson Hole, Wyoming last month, Fed Chair Jerome Powell opened the door to a September rate cut. He warned that the downside economic risks have increased since the July FOMC meeting.
Also, increasing the spotlight on Chair Powell, the Administration has publicly pressured the Federal Reserve to lower interest rates in a long-time break of tradition, which allows the central bank to conduct monetary policy independent of politics.
- The Federal Reserve meets next on Sept. 17-18 to consider monetary policy. Financial markets are widely expecting a quarter point cut in the fed funds rate to 2.0%.
Looking ahead, markets are pricing in over 100 basis points of easing by the end of next year, which is an extremely bullish development for gold.
Time to Play Defense
If a recession is on the horizon, now is the ideal time to look over your investments and confirm that you have the right balance of stocks and portfolio diversifying assets like tangible assets.
Make sure that you are owning assets that you’d be comfortable holding through a period of economic contraction that could last as long as one or two years.
Bullion and rare coins tend to outperform other investments during times of economic uncertainty and are an excellent portfolio diversifier.
- In the last three economic recessions, gold outperformed all other asset classes, according to BlackRock research.
What Do the Experts Say About Gold?
The gold bull market is just getting started. Goldman has a six-month forecast of gold at $1,600. Citi sees the same rise to $1,600 in six months to a year, and Bank of America Merrill Lynch sees prices climbing toward $2,000 within two years, topping the record of $1,921.17 reached in 2011.
Predicted Price Trading Bands, Next 90 Days
Gold $1,500 -$1,625
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: 84 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.