Gold, silver still top of the 2016 heap as Greenspan warns of huge unknowns

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February is over, and gold and silver once again have proven their mettle as some of the best investments so far in 2016.

Gold gained more than 10% in February to rack up a roughly 17% advance for the year so far until Tuesdays profit-taking pullback. That was its best monthly performance since 2012. Silver, meanwhile, rose by more than 4% in February and has yielded an 8% increase in 2016.

 

Gold has been the biggest story of this year, USAA fund manager Dan Denbow told Bloomberg. Last summer, people were calling it a barbaric relic, and nobody could care less about gold. Now, its slowly generating more and more buying.

U.S. growth under 3% for a decade: Gold dipped back near $1,230 on Tuesday after the Institute for Supply Managements manufacturing report contracted less than expected in February, while construction spending rose to the highest level since October 2007.

However, contrast that relatively positive news with Mondays data: A key Chicago business barometer plunged to 47.6 in February, signaling a contraction; the latest Dallas Federal Reserves economic report missed expectations for the 17th month in a row and has been in contraction for 14 straight months; and pending home sales fell by 2.5% in January.

Although the U.S. economy is one of the brighter lights in the world, it has managed to spend the past decade with a growth rate below 3%. In the meantime, its debt levels continue to explode.

Entitlements killing productivity: No wonder so many people are turning to precious metals. Citi recent repeated its prediction that a recession is on the way, joined by Wells Fargo, while the IMF said last week that the global economy is highly vulnerable to adverse shocks.

Even former Federal Reserve chief Alan Greenspan admitted he is uncertain about the future.

Its hard to see where it goes from here, he told Bloomberg. There are so many huge unknowns. In my experience Ive never seen this many unknowns.

Asked whether he is optimistic going forward, Greenspan replied: No. I haven’t been for quite awhile. And I won’t be until we can resolve the entitlement problems. Nobody wants to touch it, but its gradually crowding out capital investment, and that’s crowding out productivity, and that’s crowding out the standards of living. Where do you want me to go from there?

6 reasons to buy gold in 2016: Many are going to gold. Evergreen Gavekal recently presented six reasons why investors should buy gold in 2016:

  1. Technical trading patterns suggest gold may finally be breaking out into a bull market (we do caution, however, that it appears to be temporarily over-bought).
  2. Gold remains out of favor despite the recent rally.
  3. The Feds ability to hike nominal interest rates is constrained.
  4. The overpriced U.S. dollar has limited room to run.
  5. Real interest rates are heading lower around the world as central banks get creative.
  6. Physical gold may be difficult to acquire in the coming years.

With even The Maestro, Alan Greenspan, unclear on the economy’s direction, the answer is clear for investors seeking shelter: precious metals.