Exclusive Precious Metals Outlook and Recommendations

Index updated November 1, 2019

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The Blanchard Economic Report

Buyers Buy Gold during October Pullback

Gold chalked up gains in October, closing out the month around $1,515 an ounce versus September’s monthly close around $1,475 an ounce.

Buyers emerged on the early month gold price decline and swooped up gold below $1,500 an ounce level – that is now viewed as a bargain buying opportunity.

The stock market shrugged off early October volatility and weakness and surged to new all-time highs toward the end of the month. Easy money policies from the Federal Reserve fueled the move higher in equities.

The S&P 500 Index has now sustained the longest bull market on record. As the bull market ages, it is normal to wonder if it’s near an end. While Blanchard cannot predict the timing of the end of this bull market, history shows that bear markets are a normal part of the market cycle and investors should plan for them now.

Economic Expansion Continues But Slows

In October, the U.S. economic expansion became 126 months old, making it the longest expansion in U.S. recorded history.

The U.S. economy grew at a tepid 1.9% in the third quarter, the government reported Wednesday, down from 2.0% in the second quarter and 3.1% in the first quarter. The engines of growth are tiring after ten years of record expansion.

Fed Lowers Interest Rates Again

The Federal Reserve lowered interest rates for the third time this year in late October. The central bank has aggressively been attempting to stave off a potential recession. The use of monetary policy while the economy is actually growing is controversial and sets the Fed up for future ineffectiveness.

  • Once a recession actually does hit, with the Fed funds rate already at a low 1.50-1.75%, there is little runway to further decrease interest rates to stimulate economic growth.

For perspective, a more “normal” Fed funds rate stands at the 3.5-4.0% range during an expansion phase. The Fed never got there during the post-2008 Global Financial crisis era. That leaves the Fed with few bullets in its holster to stimulate the economy and opens the door to negative interest rates in the future.

The big news in October were Fed comments that suggested the central bank is done easing interest rates this year. The central bank is attempting to “wean” the stock market from its easy money policies.

  • What this means: the Fed may have no choice but to turn to negative interest rates during the next economic recession.

Despite the Fed’s warning to the markets that interest rate cuts are done, the economic data may force the central bank’s hand later this year or in early 2020 if the ongoing trade war and global economic slowdown impact the U.S. economy more.

Strategies to Prepare for the Next Downturn

We recommend investors fully diversify their portfolio to mitigate risks. Use the current environment to increase exposure to alternative investments like gold bullion and rare coins.

If you haven’t fully protected your portfolio with an allocation of up to 15-25% of tangible assets, today’s markets provide an excellent opportunity to purchase tangible assets and protect against the inevitable downturn and the potential for negative interest rates.

Why rare coins? The investment return on U.S. rare coins over the last 40 years is higher than other assets and twice that of gold, according to an independent study by Raymond E. Lombra, Ph.D., entitled The Investment Performance of U.S. Rare Coins.

3 Steps You Can Take Now

  1. Increase your overall exposure to tangible assets. Experts recommend up to 15-25% depending on your risk tolerance levels.
  2. Add exposure to U.S. rare coins at the MS65 level or better.
  3. Consider converting some of your current gold bullion holdings (likely at a nice profit) into rare coin holdings, which should outperform in the new gold bull market cycle that is just beginning now.

If the U.S. moves back to a zero-interest rate environment like it did during the 2009-2009 Global Financial crisis or even goes negative, or the stock market crashes, expect new all-time highs in gold above the $1,900 an ounce level. Many on Wall Street are already forecasting gold gains to the $2,000 an ounce level over the next 12 months.

Predicted Price Trading Bands: Next 90 Days

Gold: $1,590 –$1,495

Silver: $19.75–$17.40

Our Recommendations

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 the strongest growth potential. Accumulate the highest-quality coins that 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: 83.47 oz. silver = 1 oz. gold

The gold/silver ratio is a way for investors to 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 into silver.

Popular silver products: 10 oz. & 100 oz. silver bars, Silver American Eagles in monster boxes.