Exclusive Precious Metals Outlook and Recommendations

Index updated April 1, 2018


High: | Low: | Current:

The Blanchard Economic Report

Trade War Breaks Out: Stocks Down, Gold Jumps

Just like the assassination of Archduke Franz Ferdinand in 1914, an event widely acknowledged as the trigger for World War I, President Trump fired the first shots of an economic trade war in March and China quickly fired back.

In late March, President Trump levied an estimated $60 billion in new tariffs against Chinese goods.

The stock market plunged on the news. The Dow plummeted more than 1,100 points in just two days after the announcement.

China did not sit idly by and quickly responded with plans for tariffs on U.S. products from pork, wine, fruit and steel.

Tariffs, which are essentially a tax on imported items, will have ripple impact throughout the American economy and the picture might not be pretty, economists warn.

Why Is The Stock Market Selling Off?

The stock market is a leading indicator and right now stock investors are warning that tough times may lie ahead.  Stock investors may be remembering what happened during one of the most notorious trade wars in history – the Smoot Hawley Act – passed by Congress in 1930. Historians often point to the 20% tariffs set in law by the Smoot Hawley Act as the key factor that deepened the Great Depression.

Back then, global trade skidded to a near halt. Demand collapsed and currencies were devalued.

Investors Run To the Safety of Gold

In late March, the price of gold shot higher, as stock prices tumbled and the U.S. dollar fell amid rising tensions between the world’s two largest economies: the United States and China.

Investors shifted assets from stocks into gold amid concerns about the impact of protectionist trade policies. Fears are rising that but overall global growth could slow as countries trade less and amid concerns that higher input costs for manufacturers will mean fewer jobs and slower U.S. economic growth from the Rust Belt to America’s farm lands.

Gold is also getting a boost as a traditional hedge against a rise in geopolitical instability.

The Fed Hikes Rates

In March, the Federal Reserve hiked interest rates by a quarter percent as expected. That lifted the benchmark Federal funds rate to 1.50-1.75%.  This is the sixth interest rate hike in the current monetary tightening cycle, as the central bank attempts to lift the economy toward a more normal interest rate environment.

The gold market was unfazed by the news, as official interest rates remain dramatically below normal levels in the 4.0% range.

While the Fed is expected to pull the trigger on two more interest rate hikes in 2018, the current downward action in the stock market and heightened concerns that a trade war could slow economic growth could throw a wrench in the Fed’s plans to hike rates later this year. Stay tuned on that developing story.

The Bottom Line

Current conditions are very bullish for gold. Geopolitical tensions from North Korea to the U.S-Chinese Trade War have ratcheted up significantly in recent weeks. Investors will continue to turn to gold, which will drive the price up even more. If the stock market continues its downward path, the rush to gold will become even more intense.

If you have been thinking about adding to your gold exposure, now is the time to make your move, before gold prices catapult sharply higher.

Predicted Price Trading Bands, Next 90 Days

Gold $1,350-$1,450

Silver $16.60-$17.60

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: 81.5 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 1-866-827-4314 to discuss current market conditions and potential shifts you may want to consider to your investment picture.