Exclusive Precious Metals Outlook and Recommendations

Index updated August 1, 2018


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The Blanchard Economic Report

The Dog Days of August

As the calendar flips to August, Congressional members are leaving Washington D.C. on a month-long recess, farmers will begin harvesting their crops and families are squeezing in one last vacation before the kids head back to school.

News pertaining to the economy, financial markets and investments is often the last thing on many American’s minds this time of year as vacation beckons. We offer up some brief highlights here.

Economy Hits 4.1% Growth Rate in the Second Quarter

The tax cuts from late 2017 goosed up economic growth this year, spurring the economy to post a strong 4.1% growth reading for the second quarter. While we like economic growth, just like the next firm, there are some dark clouds on the horizon behind this growth. The tax cuts passed in 2017 added to the fast-growing federal debt, which now stands at a massive $21.2 trillion.

Economists are already warning that this new found economic growth won’t last next year as the tax cut boost is a one-off stimulant. More worrisome is the fast-growing levels of debt that have even conservative think tanks voicing concerns about the impact on Americans down the road. Many expect higher interest rates, higher taxes and cuts to entitlement spending down the road as the U.S. will be forced to address the debt issue.

The Federal Reserve: Higher Rates in September?

The Fed is not expected to shift monetary policy at its meeting that concludes on Aug. 1. Wall Street expects the central bank to hike rates in September. The fed funds rate remains at historically low levels of 1.75% and 2.0%.

Fed Independence Under Threat?

In a CNBC interview in mid-July, President Trump revealed that he was “not happy” with the Fed’s rate increases. These types of comments go against the tradition of sitting Presidents not commenting on Fed policy, due to the central bank’s unique position of non-partisanship and independence. The President added on Twitter, that “tightening now hurts all that we have done.”

Pressure from the Administration could be another factor that slows or derails the Fed’s current interest rate hiking path, especially with mid-term elections fast approaching. If the economy goes sour, the Administration could blame the Fed for the downturn.

Market News: Gold Hits 12-Month Low

The price of gold skidded lower in July, hitting a 12-month low around the $1,220 an ounce level. Day traders and technical selling pressured the market in recent weeks following negative chart signals.

Bargain Hunters Take Notice

The price drop is garnering attention as money managers note that the current price of gold looks attractive. Russ Koesterich, chief investment strategist and head of model portfolio & solutions business for Blackrock, said last week that the gold market is looking “cheap.” He estimated that gold is roughly 10% undervalued.

Physical Gold News Update: Russia, China Demand Climbs

The latest data from China reveals robust demand for physical gold. Data released in late July revealed that that China’s combined imports of gold via Hong Kong and Switzerland surged by 49% month over month in June to 142 tonnes.

Russia also continues to aggressively buy gold, while recent data also shows that it has been implementing large scale dumping of its U.S. Treasury bond holdings, while ramping up its investment in gold. Since the start of 2018, Russia has purchased 106 tons of gold.

Trade War: Tit for Tat

The trade war developments continue to dominate headlines and last week a potential “truce” may be in the works with the European Union. Meanwhile, the Administration promised $12 billion in aid to farmers who have been hurt by slumping soybean prices as China took aim at their crops in the retaliatory moves. Nonetheless, corporate America remains stuck in the crossfire as large multi-nationals sell goods widely overseas. This remains a developing story and economists warn this is one of the greatest near-term risks to the economy.

Rare Coin Update

Since the start of 2018, investors have been quietly pouring money into numismatics, evidenced by a record high in the Rare Coin Values Index earlier this summer.

The higher inflation numbers creeping into official data are a key factor driving coin prices higher.

Inflation soared to a 6-year high, the Labor department reported in mid-July. Rare coin values historically outperform gold bullion during inflationary periods. That rising inflation is already impacting rare coin values.

Investor Opportunities

The drop in gold bullion prices, while rare coin prices are rising signal a market in flux. The recent declines in gold prices were exacerbated by day traders and technical selling in the futures market. The true value in gold can be seen in the rising price trend of numismatics over the course of 2018.

The current levels of gold bullion offer long-term investors an incredible entry level. If you’ve been waiting to buy gold, now is perhaps one of the best points of 2018 to enter the market.

Predicted Price Trading Bands, Next 90 Days

Gold $1,200-$1,300

Silver $15.15-$16.25

Our Recommendations

The high-end rare coin market continues to increase in value as economic, political and geopolitical uncertainty climbs. Rising inflation data is another factor boosting the numismatics sector.

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: 79 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.