Exclusive Precious Metals Outlook and Recommendations

Index updated February 1, 2018


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The Blanchard Economic Report

Investors Stampede into Gold as U.S. Dollar Tumbles

The gold market has been on fire since the middle of December. Spot gold prices soared 9% since then, boosted by a plunging U.S. dollar and growing concerns about tax-reform driven inflation.

  • The price of an ounce of gold surged to its highest level since August 2016 in January – above $1,366.00 an ounce.

Hang on, 2018 is just getting started.

The Dollar: A Key Driver of Gold Gains in January

The U.S. dollar fell to a three-year low in January, in part driven lower, by news that US Treasury Secretary Steven Mnuchin said a weak American currency would be good for the economy.

Typically, gold and the U.S. dollar have an “inverse” relationship. That simply means when the dollar goes down, gold tends to go up. Gold is priced and sold in U.S. dollars on the world marketplace. A weaker dollar means gold is less expensive to foreign buyers and tends to stimulate fresh demand, especially from Asian buyers who tend to be price-conscious bargain-hunters.

Immigration Policy Triggers Government Shutdown

The U.S. government shut down for several days in late January, amid a lack of funding from Congress as the parties bumped heads on immigration policy. Financial markets barely blinked as shutdowns have become commonplace in Washingington D.C. in recent years. There have been 18 government shutdowns since the late 1970s. While most of the shutdowns are brief, the 1995-1996 shutdown, lasted for almost a month.

Kicking the Can

Congress kicked the can just a few weeks down the road. The continuing resolution (CR) passed to temporarily fund and restart the government expires on Feb. 8. Political drama and debate could provide fresh fuel for the gold market. Political brinksmanship in August 2011 drove gold prices to their all-time high above $1,900 an ounce as Congress barely avoided a debt default. Despite having a Republican controlled Congress, the political environment could provide fresh trigger for gold gains in 2018.

Say Goodbye to Janet

The Federal Reserve Bank is expected to hold monetary policy steady at its January 31 meeting, which will be the final meeting under the helm of Chair Janet Yellen. Jerome Powell takes over and the central bank is expected to hike rates next at its March meeting. Despite several interest rate hikes in 2017, the gold market still performed well, with gains of over 12 for the year. For now, rising interest rates are not expected to be a significant headwind for the gold market. As investors turn to gold for portfolio diversification and protection.

Stock Market Rally Continues, For Now

The U.S. stock market continued its strong advance in January, scoring another round of new all-time highs.

In 2017, under President Trump the S&P 500 recorded its third-strongest first-year/first-term price gain for any president since 1929, and the best for any Republican President.

Looking ahead, however, the outlook may not be as rosy for the stock market in 2018. History shows that the second-year performance for U.S. Presidents averaged 2.5% since Hoover. However, for those that saw a double digit gain in the first year (like 2017) the majority posted a full-year decline.

Storm Clouds on the Horizon?

Gold experts point to a number of underlying tensions that will keep the gold market well bid in 2018 including:

  1. Potential conflict with North Korea.

  2. The growing possibility of a U.S. trade war with key trading partners, including China.

  3. On-going political tensions in Washington D.C. amid the on-going investigation into Russian interference in the 2016 U.S. presidential election.

  4. Continued weakness in the U.S. dollar.

  5. Velocity of money will increase leading to inflation.

Predicted Price Trading Bands, Next 90 Days

Gold $1,325-$1,400

Silver $17.00-$18.00

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: 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.

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.

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.