In a new report, the World Gold Council has identified six key trends that will support continued gold demand in 2017. These include:

• Heightened political and geopolitical risks
• Currency depreciation
• Rising inflation expectations
• Inflated stock market valuation
• Long-term Asian growth
• Opening of new markets

GEOPOLITICAL RISK

Political risk is rising around the globe. The World Gold Council pointed to a number of upcoming elections in Europe in 2017, including Netherlands, France and Germany.

Some market watchers have warned that the outcome of these elections could prove to be a destabilizing force for the European Union, depending on the votes. Rising waves are populism are seen in Europe and there is speculation that Russia could attempt to influence the European elections.

The Eurasia Group outlined top geopolitical risks in its 2017 outlook report > Read it here.

Closer to home, one of the worries for financial markets are trade policies. There is “a meaningful risk that negotiations on trade will turn belligerent” and suggests that “confidence in markets could be affected by geopolitical tensions triggered by the new administration,” says Jim O’Sullivan, Chief US Economist at High Frequency Economics, in the World Gold Council Report.

As a high-quality, liquid asset, gold benefits from safe-haven inflows, which could emerge from rising geopolitical risks in 2017.

CURRENCY DEPRECIATION

Paper (or fiat) money has fallen in value over the last century, while gold has vastly outperformed. See Figure 1 below.

Over the past century, gold has vastly outperformed all major world currencies as a means of exchange, the World Gold Council says.

A key reason for this is:

• The available supply of gold changes little over time, growing about 2% per year through mine production
• That compares to paper money, which can be printed in unlimited quantities to support monetary policies.

Since the global financial crisis, central banks around the globe have turned to quantitative easing or “money-printing” policies in an attempt to stimulate economic growth. At its heart – that devalues the paper money. It is simple economics – more supply of anything decreases its value.

Investors have turned to physical gold investments in recent years in an attempt to preserve the wealth and protect it from depreciating paper money values.

RISING INFLATION EXPECTATIONS

The World Gold Council points to expectations that inflation will rise in 2017 as another factor that is supportive to gold demand.

“An upward inflationary trend is likely to support demand for gold for three reasons. First, gold is historically seen as an inflation hedge. Second, higher inflation will keep real interest rates low, which in turn makes gold more attractive. And third, inflation makes bonds and other fixed income assets less appealing to long-term investors.” – World Gold Council report

It is well known that gold holds its value and often increases significantly during inflationary periods. What is not as well known is that rare coins are an even better hedge and tend to rise in price even faster than gold during inflationary periods.

Read more:  Rare Coins Are An Excellent Hedge Against Inflation

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Check back here on Thursday for part 2 of this report and a look at the final 3 factors that the World Gold Council believes will support gold demand in 2017.

Blanchard and Company has was founded in 1975 and has a rich legacy of helping individual investors access the gold and rare coin market. We believe that gold and silver bullion in physical form is an appropriate asset for a small portion of any properly diversified investment portfolio. Contact Blanchard at 1-800-880-4653.

The stock market has soared to new all-time highs following the election of Donald Trump to the White House. In the now infamous Trump Bump –traders have priced in a spate of good news including tax cuts, deregulation and massive infrastructure spending.

Wednesday’s press conference and the inauguration will see a switch in market drivers from speculation on what Trump may do to what he actually does.

Buy The Rumor, Sell The Fact

The stock market is notorious for a phenomenon called “Buy the rumor, sell the fact” in which traders price in news before it has happened and then dump stocks once it occurs. There are growing rumblings among market watchers and traders that Inauguration Day could mark a top in the stock market.

Analysts are warning that the stock rally and the massive gains in the U.S. Dollar have hit an “exhaustion phase” and are vulnerable to a correction. The recent rally in stocks has been accompanied by weakening stock market breadth, as the number of declining stocks outnumbers gainers. That is a weak signal for the stock market overall.

Gold Is Starting To Move Higher

Gold prices have been climbing in recent weeks as a small bottom has formed on the daily chart at $1,124.30 for Comex February gold futures. Gold hit a high at $1,190.50 in early trading Tuesday – a $66 per ounce move in just three weeks.

If you are a first-time gold buyer, or if you are looking to add to

your existing position, you may not want to wait any longer. Gold

prices are rising again, with higher levels seen throughout the year.

“We forecast gold prices to average $1,420 in 2017,” says Thomson

Reuters in their Gold Survey 2016 Q3 Update and Outlook

Call Blanchard at 1-800-880-4653 to discuss your investment goals

with one of our portfolio managers now.

Politics – The Next Big Trigger For Gold?

“As Mr. Trump’s inauguration date nears, we suspect gold investors will monitor political developments more closely. Any significant ratcheting higher in geopolitical tensions could help trigger safe-haven bullion demand. The market may be more sensitive than usual to political developments in the early days of a Trump Administration,” according to a January 9 HSBC research report.

Blanchard is the premiere tangible assets adviser in the United States for serious investors and serious collectors. Learn more about our firm here.

As the three main US indices (Nasdaq 100, S&P 500, & Dow Jones Industrial Average) continue to hover near all–time record highs, investor fear continues to hover near all–time record lows.

One of the most common ways to gauge investor fear in the market comes from the CBOE Volatility Index, commonly referred to as the VIX, which measures the implied volatility of S&P 500 options. The concept is simple: when turbulence is expected in the market, investors are willing to shell out more money to protect their portfolios by hedging with options, and when no turbulence is expected, investors don’t have the need or desire to protect their portfolios. A higher VIX = more volatility expected. A lower VIX = less volatility expected.

Recently, any small spike in the VIX has been abruptly quashed due to the relentless and steady rise of the major indices. Out of 252 equity trading days in the past year, there have only been 38 days where the VIX has been south of the $12 level. Therefore, based on the current low price of the VIX, equity market participants are pricing in virtually zero downside risk or fear, even at record market highs.

However, this is where the plot begins to thicken. Although the VIX suggests that there is essentially zero fear in the equity market, the gold market tells a slightly different story. Currently, gold is already up approximately 2.3% for the year, adding more than $50 since the low point of $1124.3 in mid–December. Analysts attribute the recent rally in the precious metal as a flight–to–quality amid lingering concerns about what 2017 has in store.

Perhaps the biggest cause of doubt and uneasiness for US financial markets comes form an unexpected presidential election result. This is not to say, however, that investors are not also keeping a careful watch on European political changes as well.

Adrian Day, the president of Adrian Day Asset Management, which oversees $190 million noted how “the euro zone has plenty of crisis triggers over the coming months; Indian and Chinese buying [of gold] remain strong and Trump’s policy threatens inflation. All this is positive for gold.”

This is likely why gold is off to a very solid start for 2017, because unlike the VIX in US equity markets, there are other factors besides fear that are pushing the precious metal higher.

With that said, US institutional investors are closely monitoring China’s mounting currency problem, because it was China’s government devaluation of the yuan back in August of 2015 that sparked a severe US equity sell–off and sent gold soaring.

Therefore, not only are investors from China buying gold to seek refuge from a drowning currency propped up by the government, but US investors are also purchasing gold as a heaven in case the yuan crisis worsens and the effects are felt in the US stock market, again.

Macroeconomic factors like China’s currency crisis, trepidation about new US politics, and complacency with stocks at record highs are all valid reasons to own gold, and this consequently explains the recent rally. Once again, this underscores the benefits of owning gold as an investment, because not only can market fear instigate a rally, but other underlying economic factors can as well – and this is precisely what is happening.

The commodity sector, as a whole, closed out its first positive year in 2016 since 2012. The good news for hard assets, including precious metals, is that positive years in commodities usually come in bunches.

Gazing into the crystal ball for 2017: Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices, finds that the path upward could continue into 2017 and beyond.

She points to three key factors that could impact the commodity sector as a whole this year:  inflation, a potentially weakening dollar and OPEC. Let’s take a look at each factor.

Trump and Inflation

Historically Republican presidencies are favorable for grains and gas which are key for rising inflation, Gunzberg says.  

“Copper, lead and nickel have had their best performance with Republicans. That in itself does not promise growth since rising inflation from commodity prices can cause stagflation – but stagflation is less likely if Trump builds infrastructure and jobs growth which may propel GDP and help the metals.

“Also, industrial metals outperformed precious metals last month by the most in 26 years. This is considered extremely bullish,” Gunzberg says.

US Dollar

The US dollar has been on a tear –rising significantly in recent weeks, which in turn has pressured commodities including gold and silver. Precious metals are priced and sold in US dollars on the world marketplace and a rising dollar tends to depress the price of these and other commodities, as it makes them more expensive to foreign buyers.

Although the dollar theoretically should rally from rising interest rates, that relationship hasn’t held, Gunzberg says.

“So, even if rates rise more, there is a chance the dollar will revert after continually hitting new recent highs – that can lift commodities substantially. In fact, every single one of the 24 commodities we track rises from a falling dollar, especially industrial metals which can rise as much as 7% for every 1% the dollar falls.”

Watch OPEC

Crude oil prices are on an upward path. Since bottoming at around $26 per barrel in February 2016, crude oil climbed as high as $55 per barrel at the start of 2017.

Perhaps you’ve noticed higher gasoline prices at the pump? Get used to it. A significant impact of rising crude oil is higher inflation throughout the economy. Higher crude prices not only impact pump prices, but almost every good you buy from milk at the grocery store to that sweater at your favorite department store.

Why? Higher crude oil prices mean higher transportation costs for all goods in the economy, which usually are passed along to consumers.

OPEC’s decision to cut production in late 2016 has given a lift to the energy sector. In 2017, Gunzberg points to two factors to watch:

Whether all the participants follow through on the agreement.

How the U.S. producers respond.

Big Picture

Big Commodity Winners in 2016

Energy  + 41.9%

Industrial metals  +17.6%

These two sectors had their best years since 2007 and 2009, respectively Gunzberg says.

“The comeback in these two sectors is meaningful because they are the most economically sensitive, and the last time these two sectors were up this time together, they led commodities to return nearly 360% in the next eight years (1999-2007).”

Focus On Gold

Despite the sell-off in precious metals in the second half of 2016 –gold still closed out the year 2016 with an 8.5% gain.

Recent action: Since bottoming out at $1,2430 in mid-December, gold has gained 5.47%.

Do You Have An Investment Plan?

Gold prices are already starting to move higher. Is your portfolio properly diversified? Many investors are using the recent strength in stocks to book profits on the equity portion of their portfolios and use the proceeds to diversify into tangible assets. A Blanchard portfolio manager can help design an investment plan tailored to your personal goals. Call us at 1-800-880-4653.

Read More:

10 Coins That Gained More Than 100% In Value In 2016

How To Buy Precious Metals and Rare Coins

There’s no question that 2016 has been one of the most interesting and surprising years for every market across the globe. In US equity markets during the beginning of the year, January and February were home to some of the most consecutive violent selloffs and volatile trading days in history.

Major US indices plunged 10% in a matter of days, and this launched everybody’s favorite precious metal, gold, into a tremendous month long rally before it finally plateaued.

About five months later, in the early hours of June 24^th, the United Kingdom voted in favor of withdrawing from the European Union which caused the British pound to suffer its worse intraday loss in history. Major US, European, and Asian stocks also suffered brutal beatings before US index futures temporally halted trading on the CME due to the relentless selloff.

Because an event like the UK leaving the EU (Brexit, as its colloquially called) has never happened before, volatility and gold saw some of their biggest rallies since the infamous collapse of Lehman Brothers in the midst of the 2008 financial crisis. After it was determined to be highly implausible for the UK to remain in the EU, gold rallied more than 8% while volatility spiked a whopping 70%.

Shortly after this Brexit induced selloff in global stocks and currencies, almost every large cap index fully recovered and made new highs within a matter of weeks; to many investors, this rally displayed the tremendous strength and resilience of an almost decade long bull market. Moreover, despite much of the fear rapidly draining out of the marketplace during the global equity rally, gold continued to make new yearly highs and stayed well above $1,300 until the beginning of October.

Markets around the world were fairly quiet until November 8^th came around. Throughout the night of November 8^th as votes slowly poured in to determine the next president of the United States, the main US stock index futures (S&P, Nasdaq, & Dow) began free-falling in unison before trading was eventually halted to stop the carnage; the similarities between Brexit and the US election are shocking.

Of course, investors flocked to gold for safety, and gold futures traded all the way up to $1,338, which was 20 dollars higher than the final closing price during Brexit. However, something very interesting happened in the middle of the miniature stock market crash that night. Sentiment completely changed when news broke that the famous billionaire activist investor Carl Icahn left a celebration party early to buy $1 billion in US stocks.

Like a volcano erupting from the ground, the S&P 500, Nasdaq 100, and Dow Jones futures all shot up with so much velocity that investors didn’t physically have enough time to cover their hedges and short positions. This 5% reversal in only a few hours was likely one of the biggest in recent history besides the flash crash in 2010. Needless to say, the rally in gold was short lived and the precious metal barely finished positive for the trading day. Additionally, in the fixed income market, the 30-Year US Treasury Bond futures plummeted as a result of the unexpected election outcome.

Since then, US stocks have enjoyed quite a healthy month-long rally with only a few negative days. As for the precious meals, gold and silver pared most of their event driven gains. For all of 2016, however, gold is still up around 9% which is an extremely decent year-to-date ROI.

Moving forward, many analysts and market pundits are completely unsure of what effect the new year and new president will have on markets. It is interesting to note, however, that in times of widespread uncertainty, like starting a new year with unprecedented political and economic forces, it pays (quite literally) to own risk averse assets like gold.

There is a psychological phenomenon known as “Recency Bias.” Financial advisers have discovered that investors often fall prey to this tendency, where individuals remember most easily something that has recently happened as opposed to circumstances from awhile back. 

How does this relate to investing and the markets? Investors sometimes have short memories.

Here’s a Quick Quiz: What do you remember most about the stock market in 2016?

The dramatic stock market plunge in January 2016 which saw the S&P 500 drop like a rock from the opening bell amid fears the Chinese economy could trigger a global recession?

A. The S&P 500 plunged from 2043 on Dec. 31, 2015 into the Feb low at 1810 a swift 11.40% decline in roughly six weeks

or

B. The rally to new all-time highs in the S&P 500 in December 2016

If you answered “B” you aren’t alone. For most investors the stock plunge 12 months ago is distant history.

Here’s another question: What do you remember most about the gold market in 2016?

A. The 29% rally in gold prices from January-July 2016

or

B. The post-presidential election sell-off in gold which tugged the market from a high at $1,341.00 per ounce on Nov. 9 to a low at $1,124.30 on December 15

Don’t fret. If you answered “B” you aren’t alone.

Investors easily remember the most recent history and sometimes erroneously make decisions about their portfolio based on that.

Solid Yearly Gains In Gold And Silver

Gold scored a solid 8.68% gain year-to-date through Dec. 30, while silver gained almost double that at up 16.04% on the year. It might not feel like that though since the markets have tumbled off their summer highs.

It is worth acknowledging the existence of the Recency Bias and more importantly using the information to make objective decisions about your portfolio.

Gold: The Long-Term View

While nearby gold futures traded in a range from $1,055 -$1,387 per ounce in 2016 that is a far cry from where it traded in 2000 and 2011. Let’s take a look at Figure 1 below a monthly chart of nearby gold futures.

Gold is near levels where heavy physical buying emerged from long-term investors in 2015. That means metals could be approaching a good buying opportunity. Don’t get tripped up by the Recency Bias. Take the long-term view, especially when it comes to your investments.

Despite the pullback in gold and silver prices in the second half of 2016 both precious metals are still ringing up year-to-date gains for the year.

-Silver is the leader in 2016 scoring a 13.90% ytd gain

-Gold is closing out the year with a solid 6.75% increase

Precious metals investors may be disappointed by the price slide in the second half, but it is useful to take a look at the long-term view.

The significant rally which took gold from a low at $1,065 per ounce at the start of 2016 to a summer high just above $1,385 per ounce revealed a resurgence of long-term bullish investor in both gold and silver.

Gold had been declining from its all-time high above $1,900 per ounce (hit in September 2011) and 2016 was the year that broke the multi-year downtrend in the metals.

What Does This Mean For 2017?

Gold and silver are retreating to a long-term “value area” for buy-and-hold physical metals investors. The multitude of factors that woke up gold and silver bulls in 2016 largely remain intact and will provide a floor for the markets in 2017.

6 Factors That Will Support Metals Prices Ahead

-The Federal Reserve May Not Raise Rates As Much As The Market Expects
-Inflation Is Expected To Rear Its Ugly Head Next Year
-A Variety of Geopolitical Flash Points Are Heating Up
-A Number Of European Elections Could Leave The Stability and Future Of the EU In Question
-Negative Interest Rates Remain Intact in Europe and Japan
-Increased US Protectionism Policies Could Restrain American and Global Growth

2017 Growth May Under perform

Morningstar released its quarter-end insights report and projected an anemic 1.9% Gross Domestic Product pace in 2017. Has Wall Street overshot reality?

Don’t forget the current U.S. economic expansion phase began in June 2009 and is old at 73 months. That is well above the average 58.4 months of expansion seen during the 11 cycles since 1945, according to the National Bureau of Economic Research. It’s simply getting late in the cycle and markets will need to adjust in 2017.

As the year comes to a close, gold and silver have tumbled off their mid-year highs as stocks climb in what some say is another bout of irrational exuberance.

Investors should brace for a stock market correction in the first quarter of 2017. When those pullbacks in equity markets around the globe begin to unfoldthe rush toward silver and gold will begin anew.