Exclusive Precious Metals Outlook and Recommendations

Index updated January 1, 2020

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The Blanchard Economic Report


Impeachment, Stock Market Yawns

The U.S. House of Representatives made history in December with the approval of two articles of impeachment against President Donald Trump. This marks only the third time in history the House impeached a U.S. president.

The House vote, nearly along party lines, is not expected to result in the removal of the President in the Senate. In various public statements, Senate Republican leaders made it crystal clear they are not on a path to remove the president from office.

Despite the monumental political moment, the financial market barely blinked on the news.

Onto the markets…

Gold gained in December.

Gold buyers emerged on the November dip scooping up the yellow metal at the bargain price around $1,453 an ounce. In December, gold soared toward the $1,520 level with just two trading days remaining in the month.

With only a couple of trading days remaining, gold is on track to lock in an impressive 15% yearly gain in 2019.

The stock market sailed to new all-time highs in December, chalking up a roughly 29% gain.

  • Notable: Gold returned an impressive 15% gain alongside a stellar performance in the stock market in 2019. This underscores the value of diversifying into precious metals to grow and protect wealth in all types of market environments and cycles.

Phase 1 Tariff Deal Cools Tensions

The cancellation of the December tariffs the President had threatened to slap on China cooled off tense trade tensions, which dominated previous months. This action helped fueled another leg up in the stock market rally in December. Despite the current respite, the larger U.S-China trade disputes remain unresolved and bear watching as the trade war could flare up again in 2020.

Fed Calls “Time Out”

Also notable in December, the Federal Reserve hit the pause button on its monetary easing cycle in 2019 when it left the fed funds target range unchanged at 1.50%-1.75% at its December meeting. That followed three interest rate cuts in 2019, which were historically notable and unusual as the economy was not in recession.

Looking ahead, the next Fed meeting is scheduled for January 28-29. With the cancellation of the December 15 tariffs, many economists now expect the Fed to keep rates on hold throughout 2020. Stay tuned as market and economic dynamics can shift quickly especially in this late stage economic cycle.

More importantly, many well-respected economists have voiced concerns that the central bank may have dealt most of its cards already before the next down cycle even begins.

As the fed funds rate is hovering just above the zero-bound area there is little runway for stimulus once a recession hits. That will force the central bank to experiment with creative and unconventional monetary policies like the continued expansion of their balance sheets or even negative interest rates, which bodes bullishly for gold in the early years of the new decade.

Inflation Rising

Americans point to rising costs of medical care, housing, and college right now. Those costs are all going up. The latest consumer price index report revealed that headline CPI inflation climbed 2.1% in November, and core inflation rose 2.3% in November. That’s already above the Fed’s 2% target.

If you multiply the monthly CPI increase of 0.2 times 12, that equals core CPI inflation of 2.4 percent. Over the next 10 years that means, 2.4 percent a year inflation will make those dollar bills in your pocket worth 25% less.

Fourth quarter economic growth is estimated at 2.3% according to the Atlanta Fed’s GDPNow model, which is hot enough to trigger continued inflation. While the Fed has downplayed inflation concerns at recent meetings. This remains an issue to watch in 2020 and signs of rising inflation will continue to support gold throughout 2020.

Gold has long served as a traditional inflation hedge and also an excellent asset to preserve individual purchasing power for the years ahead.

In Closing

While stock investors are celebrating this year’s gains, as Babe Ruth once said, “Yesterday’s home runs don’t win today’s games.” Heading into 2020, we urge you to take the time to analyze, rebalance and properly diversify your portfolio with tangible assets like gold bullion and rare coins.

The trend for precious metals points up.

Tangible asset investors can expect continued double-digit gains in gold in 2020. BofA Global Research recently stated:  “In 2019 gold confirmed a six year base and start of a multi-year uptrend to a new all-time high. In 2020 we favor buying the dip for a rally to 1586, 1690 and 1750.”

Our Recommendations

The high-end rare coin market remains an attractive buying opportunity for long-term investors. Rare coins offer investors an opportunity for significant price appreciation in the current environment.

The appeal of rare coins to investors is their impressive historical price appreciation, which has outpaced the level of the underlying precious metal.

Buying Rare Coins

For investors able to hold 5–10 years, ultra-rare acquisitions offer the safest store of wealth and the strongest growth potential. Accumulate the highest-quality coins that you can afford. This strategy will pay off handsomely as rarity tends to appreciate the fastest.

Buying Precious Metals

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: 85.00 oz. silver = 1 oz. gold

The gold/silver ratio is a way for investors to 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 into silver.

Popular silver products: 10 oz. & 100 oz. silver bars, Silver American Eagles in monster boxes.