Exclusive Precious Metals Outlook and Recommendations

Index updated June 1, 2018

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The Blanchard Economic Report

Gold Is Cheap Insurance

As the calendar flips to June, rising temperatures are not the only thing that’s climbing.

In recent weeks, the U.S. dollar index climbed, crude oil traded as high as $73 barrel (a 3 1/2 year high), and the 10-year Treasury note briefly climbed above the 3.10% level, before falling back below 3.00% toward the end of the month.

  • Gold fell back in May, registering a 1.6% year-to-date decline.
  • The S&P 500 registered a 1.78% gain year-to-date.

The dollar’s climb weighed on the price of gold in May. The U.S. dollar and gold have a strong negative correlation. That means when the dollar goes up, the price of gold traditionally goes down.  Rising interest rates also slightly pressured the gold market. While, rising crude oil is bullish for gold as it implies rising inflation.

What’s Next?

Gold appears to have “bottomed” out around the $1,280 an ounce level in late May. Bargain hunters boosted gold off that low in late month action.

  • The modest weakness in gold offers long-term investors an excellent accumulation opportunity.

A June Fed Rate Hike Is Baked In

Looking ahead, the Federal Reserve meets on June 12-13. A rate hike is widely anticipated at this meeting. That would mark the second rate hike of 2018. The current federal funds rate stands at a historically low 1.50-1.75%. Even a quarter point rate hike would leave official interest rates low by “normal” standards. 

Heading Higher

A bevy of metals analysts are targeting gains back to the $1,400 level per ounce for gold this year. What could be the trigger for a fresh buying wave?

  1. Gold is cheap geopolitical crisis insurance.

The nuclear-armed North Korean state is dancing a fine diplomacy line. While recent news suggests the North Korean state wants to continue with talks, the Trump Administration closed the door on previously announced talks. Diplomacy is still developing on this front. Stay tuned.

  1. Gold is cheap insurance against stock market declines.

The stock market has officially entered its weak “Sell In May” period that lasts through November 1. Stocks have seen another artificial liquidity pump from the corporate tax cuts. But, those fail to translate into higher “actual” profits for individual shares. The higher P/E ratio is artificially improved by the corporate tax rates. The companies still earn the same amount of revenues. While the tax cut sent a short-term lift into the stock arena, the longer-term consequences are bearish.

  1. The Federal budget deficit is rising.

Long-term that is U.S. dollar and stock bearish and gold bullish. The structural forces that are creating ballooning debt will limit additional dollar gains and hamstring policymakers going forward.

  1. Inflation is rising. From consumer prices for everyday goods to health care and rents, prices are rising. That’s bullish for gold.

Macro Themes Support Gold For Long-Term

If you are wondering about the long-term outlook for gold, the World Gold Council recently released a new report looking 30 years ahead for gold. Here’s what they found:

  • Economic growth is good for gold. As the middle class grows – especially in China and India – demand for gold will continue to rise. Those countries, especially, have a special relationship with gold, which has been used as a wealth building tool for centuries there.
  • Gold mining will struggle to produce as much gold in the next 30 years as it has done in the past. Other firms – like Goldman Sachs – have already warned of “peak gold” – the idea that the world could soon run out of mineable gold supplies. Production will fall in the future, which is gold bullish.

Technology will create additional industrial demand for gold. As the world comes to rely even more on technology, this will create new demand inputs for gold, which has unique features that make it essential for smart phones and other everyday electronics. 

The Bottom Line

Geopolitics, trade war tensions, the surge in oil prices and accelerating inflation have injected a high level of uncertainty into the second half of 2018. The recent retreat in gold prices offers long-term investors a buying opportunity. The second half of the year could see explosive market movements. Is your portfolio diversified?

Predicted Price Trading Bands, Next 90 Days

Gold $1,290-$1,375

Silver $16.40-$17.25

Our Recommendations

The high-end rare coin market continues to increase in value as economic, political and geopolitical uncertainty climbs.

Buying Rare Coins

For investors able to hold at least 10 years, ultra-rare acquisitions offer the safest store of wealth and strongest growth potential.

Buying Precious Metals

The trend is up. Any modest price pullbacks would offer an excellent buying opportunity as higher levels are forecast ahead. 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: 78 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.

Current price levels and any minor price retreats offers investors an excellent entry point for both gold and silver investments. Give your portfolio manager a call today at 1-800-880-4653 to discuss current market conditions and potential shifts you may want to consider to your investments.