In a blink of an eye, stock markets around the world began careening sharply lower on Aug. 1. Bad economic data and disappointing earnings started the crash and the stock rout accelerated as traders around the globe began unwinding leveraged stock market trades from Japan to the United States.

What Triggered the Stock Market Sell-Off?

A series of bad U.S. economic reports showing weakening employment, manufacturing and construction data pushed the stock market sharply lower on August 1.

Then, the sell-off escalated the following day with the release of a lousy July employment report. The data showed a significant cooling in the labor market, as the unemployment rate jumped to 4.3% in July. Meanwhile, employers added only 114,000 new jobs to the economy last month, well below the expected 185,000 number.

Stocks Get Battered at Home

Here in the U.S., the technology-heavy Nasdaq 100 index has now plunged 16% from its highs scored last month. U.S. small cap stocks have tumbled 13% from last month’s highs and on one day alone – the S&P 500 fell 3% on Aug. 5, marking the biggest daily loss since September 2022.

Stock Slump Quickly Spread Around the Globe

There was no place to hide as the stock losses spread from one time zone to another.

Japan’s Nikkei 225 stock index crashed 12% overnight on Aug. 5, which marks the biggest single-day drop there since the Crash of 1987. Over in Europe, stock markets there officially entered so-called correction territory, with total losses of over 10% from their recent high. Chinese stocks fell roughly 8% from their recent high. And, emerging market stocks tumbled about 7%.

What Lies Ahead?

The swift stock market collapse warns of more volatility ahead. What can you watch for?

The Fed: Quickly, the narrative on Wall Street has shifted to: Did the Federal Reserve wait too long to cut interest rates?

Many now believe the Fed should have cut rates at its July meeting amid signals of an already slowing economy. Some on Wall Street now expect the Fed may even pull the trigger on a larger than expected .50 basis point rate cut at the September meeting, versus the previously expected .25 bp rate cut. This would be a positive for gold as the precious metal historically trends significantly higher during Fed easing cycles.

Recession: Some investors are now worried the U.S. could face a recession in the months ahead as new economic data reveals a slowdown and amid the impact from the Fed’s still high interest rates. If the economy were to weaken into an official recession, this would further weigh on corporate earnings and the stock market. That in turn would increase demand for assets like gold that perform well during economic downturns and stock market declines.

Geopolitics: Beyond our shores, heightened focus is on the potential for military conflict to escalate in the Middle East, with the potential for Iran to get more directly involved in the Israel-Hamas war. A widening of the war could have broad implications for the price of oil, inflation, global equities and would likely be a catalyst for a fresh move higher in gold amid safe-haven buying.

What Does It Mean For You?

As an investor, there are steps you can take to protect your wealth and your portfolio against the uncertainty and potential for increased stock market volatility that lies ahead.

Gold and silver historically climb in value when other markets like stocks crash. Owning a percentage of your portfolio in precious metals helps offset the losses that can occur in stock, bond and even real estate markets during economic, political and military shocks and crises.

Wondering what size allocation could be right for you? New research from the well-respected CPM Group stated that over the past 50 years, the best return of a portfolio including stocks, bonds, and gold was for portfolios that had around 25% – 30% of their value in gold. Do you own enough?

There is an often-quoted market adage: “In Wall Street, what has happened before will happen again.” It’s true. Investors who look at market cycles and invest accordingly can benefit from the knowledge of history.

That leads us to one of the biggest economic questions of 2024 for gold investors:

What does history tell us about how gold performs during Fed easing cycles?

New research from the Wells Fargo Investment Institute provides the answer: “the average price of gold has tended to rise quite nicely and for nearly 21 months, following the start of past Fed interest-rate easing cycles.”

Short answer is simple—gold trends higher and for almost two years once the Fed begins cutting interest rates.

What else does Wells Fargo say in their July 22nd research report?

“The bottom line is that gold fundamentals remain solid, and inflation rates have likely fallen enough for the Fed to begin cutting interest rates later this year. If this indeed occurs, history suggests that gold prices could move significantly higher for some time. We continue to recommend Precious Metals as one of our favorite Commodities sectors.”

Let’s explore what happened the last time the Fed started cutting interest rates.

One Year Later Where Was Gold?

On August 6, 2020, a year after the Fed started cutting rates, gold had climbed 44% to $2,059.90.

2024 Outlook for Gold

Let’s take a look at what J.P. Morgan said in mid-July about gold: “Many of the structural bullish drivers of a real asset like gold — including U.S. fiscal deficit concerns, central bank reserve diversification into gold, inflationary hedging and a fraying geopolitical landscape —have lifted prices to new all-time highs this year despite a stronger U.S. dollar and higher U.S. yields, will likely remain in place regardless of the U.S. election outcome this autumn,” said Natasha Kaneva, Head of Global Commodities Strategy at J.P. Morgan.

How high could gold climb in the months ahead?

J.P. Morgan predicts new all-time highs for gold. “The direction of travel is still higher over the coming quarters, forecasting an average price of $2,500/oz in the fourth quarter of 2024 and $2,600 in 2025,” according to Gregory Shearer, Head of Base and Precious Metals Strategy, at J.P. Morgan.

So, there you have it. History shows we are about to enter another big upswing for gold with the start of a new Fed easing cycle. Will you benefit from the knowledge of history? Explore current gold investment opportunities now.

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Fed Signals Rate Cuts May Come Before Election

Gold traded higher after the Federal Reserve held interest rates steady at its meeting today. However, the central bank made an important pivot in how it talked about the economy, signaling to Wall Street that it is getting closer to an interest rate cut.

Gold is climbing in afternoon trading at $2,449.90, not far from its record high set earlier this month at $2,469.70.

At the Fed’s post-meeting press conference, Fed chair Jerome Powell confirmed that an interest rate cut “could be on the table” at its next meeting on September 18.

With the U.S. presidential election front and center for so many Americans, Powell addressed that head on and said he “absolutely” believed that Fed can stay out of politics with its monetary policy actions. Powell added that “Anything we do before, during or after the election will be based on the data,” as opposed to trying to help one political party or another.

In fact, Congress has deemed that the Federal Reserve is an independent central bank and must make its decisions without taking politics into consideration, though that hasn’t stopped political figures from making requests of the central bank around election time.

Progress has been made on inflation. 

The Fed used today’s meeting to prepare the financial markets that interest rate cuts are coming, as the inflation rate continues to retreat. In June, the consumer price index fell 0.1% to an annual rate of 3.0%. While it is still above the Fed’s 2% inflation target, there has been significant progress made from the sky-high 9.1% inflation reading from June 2022.

How fast could rates fall once the Fed gets going? 

The Fed’s benchmark interest rate stands today at a two-decade high of 5.25-5.50%, but lower rates may be in store by the end of the year.

The Fed’s most recent economic projections from June revealed that the central bank could lower rates about every other meeting once they begin cutting. That could tug the Fed’s benchmark interest rate down to 4.1% by the end of the 2025 and as low as 3.1% at the end of 2026.

Fed shifts focus back to its dual mandate

Digging into the Fed’s meeting statement today, the bankers said that employment and inflation goals “continue to move into” better balance.

Fed-speak translation 

This implies that the central bankers are ready to treat both sides of their dual mandate, inflation and employment more equally, as opposed to the sharp focus on inflation following the major jump in consumer prices during and after the pandemic.

More gold gains ahead

Key takeaways? Expectations are rising for interest rate cuts later this year and that’s positive for gold. Once the Fed starts cutting interest rates, research shows that the price of gold tends to rise on average for the next 21 months.

Is it time for you to consider increasing your allocation to gold? The next upside targets for gold lie at $2,500 and $2,600 and with the way the precious metal has been trading this year, it could achieve those levels in a couple of blinks of the eye.

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If you are looking for a new job, the latest U.S. employment report won’t come as a surprise. It is getting harder to find a new job.

Spot gold jumped to over $2,300 an ounce—a six week high— following the June jobs report, which painted a decidedly weaker-than-expected economic picture, and boosted odds that the Federal Reserve will cut rates twice in 2024.

Silver prices also rose on the news, trading over $31.00 an ounce. The U.S. dollar fell to a three-week low following the jobs report, which makes gold less expensive for foreign buyers of the precious metal.

Mid-Year Report Card on the Jobs Market? Thumbs Down

In June, the overall unemployment rate rose to its highest level since late 2021 at 4.1%. And, while U.S. non-farm payrolls grew by 206,000 in June, big downward revisions to March and April job growth numbers show the labor market is cooling and reveal a worrisome trend.

When you remove new government jobs created in June, private payrolls grew by only 136,000. Key takeaway? Be skeptical when the jobs market growth is largely supported by new government jobs.

Digging into the details, job growth numbers for April and May were revised down a big 111,000 meaning that jobs rose only 108,000 in April and 218,000 in May.

For perspective, with the newly reported revisions, jobs growth over the last three months averaged 177,000, which is down from a 249,000 three-month average in the prior month.

Three Strikes and You Are Out

The increase in the unemployment rate to 4.1% in June follows a rise in May from 3.9% to 4.0%. If there is another increase in the unemployment rate in July, one of the best available recession indicator’s known as the Sahm Rule will start flashing red.

Former Fed economist Claudia Sahm developed this rule, which is based on the idea that, when people start losing jobs, they cut back on spending, and this in turn causes even more job losses throughout the economy. It technically is triggered when the unemployment rate rises to at least half a percentage point above its low point from the past year, which is the signal that a recession has begun.

Will Gold’s 2024 Rally Continue?

Gold has gained over 12% since the start of the year and Wall Street analysts say more record highs are on the way. The gold market’s reaction after the employment report was a bullish signal and opens the door to a new all-time record high later this year in the $2,538-$2,643 area, according to a BofA Global Research report. Investors are piling into precious metals to protect and grow their wealth. If you act now, you can trade your dollars for gold before the next big upswing begins.

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Traditional economic theory is based on the idea that investors make rational decisions. However, humans are emotional beings, which means investment decisions can sometimes be driven by emotional factors.

Indeed, the latest Capgemini World Wealth Report 2024 discovered that 65% of high net worth individuals are influenced by behavioral finance biases when making investment decisions—especially during emotional life events such as marriage, divorce and retirement.

Throughout their lifetime, investors make many decisions including whether to buy physical gold and silver or rare coins, real estate, stocks and bonds and in what proportion to each other, or allocation levels.

Emotional investment decisions can have a long-lasting impact on your financial goals and your financial security. Do you recognize any of these six investment biases, which Capgemini found impact high net worth individuals (HNWI)?

1. Confirmation bias: This refers to the idea that you seek information from sources that already aligns with your views. 65% of HNWI were susceptible.
2. Activity bias: This means you are open to grab opportunities without extensive deliberation. 47% of HNWI were susceptible.
3. Disposition effect: This means you hold onto bad-performing investments for an extended period. 45% of HNWI were susceptible.
4. Risk aversion: This means you are too conservative to grab potential opportunities. 43% of HNWI were susceptible.
5. Anchoring bias: That means sticking to past investment decisions without regular re-evaluation. 43% of HNWI were susceptible.
6. Overconfidence: This means you invest based on your own market predictions. 37% of HNWI were susceptible.

If you recognized any of these biases, you aren’t alone. They are very common and even among high-net worth individuals. However, when you are making investment decisions, you want to ensure you are making the right decision for your financial future. Fortunately, there are four simple strategies you can employ to help you avoid these behavioral finance traps, and Blanchard is here to help.

Set Clear Investment Goals

What are your financial goals? Blanchard will take the time to learn your investment objectives, investment time horizon and risk appetite before recommending products for your consideration.

Invest for the Long-Term

Blanchard’s investment philosophy is based on a long-term outlook. We believe in the long-term investment value of high end rare and ultra-rare coins. Download a 45-year study on the long-term investment performance of gold bullion and U.S. rare coins to learn more about performance returns.

Diversify Your Portfolio

Gold and silver bullion in physical form is an appropriate asset for a portion of any properly diversified investment portfolio. We recommend investing up to 10% of your overall portfolio in gold, depending on your financial goals and risk tolerance levels. Learn more about a proven gold diversification strategy.

Rely on Proven Professionals

Talking with a financial professional before you make an investment decision can help alleviate some or all of the investment biases shown above. Take the time to get a second opinion and professional guidance with your most important investment decisions.

Blanchard believes that most of our clients benefit by talking to one of our Portfolio Managers before they make a purchase. The precious metals market is complicated and in constant flux. We follow it closely and getting a second opinion before you buy can dramatically improve your purchasing power and help you avoid making a bad purchase. We can also help educate you on topics such as IRA’s, inheritance, storage, diversification and many more topics.

Investing doesn’t have to be complicated, nor ridden with bad emotional decisions. If you follow these four steps it will help you feel confident and secure that you are moving your financial future forward. Blanchard is here to help

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