Blanchard Index

Exclusive Precious Metals Outlook and Recommendations

Index updated July 1, 2017


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The Blanchard Economic Report

Seize Opportunities at Mid-Year

Gold benefited from a weaker U.S. dollar and increased safe-haven demand in recent months. Gold is up 8.32% through late June, versus the S&P 500’s gains of 8.91%. Looking ahead into the second half of the year, financial markets potentially could see a great deal of change. The current relative “calm” in the financial markets offers savvy investors excellent opportunities to diversify and protect their assets right now.

The Growth Picture: The U.S. economy continues to limp along around a paltry 2% growth rate. The current economic expansion cycle hit its 8th birthday in June. That makes it the third longest expansion cycle since WWII at 96 months. The average of the last 11 expansions is 58 months.

The current recovery cycle is long in the tooth. Beyond that, it has been historically unimpressive. This expansion’s cumulative 17.5% growth in Real GDP from its trough in June 2009 through Q1 2017 ranks it only seventh and below the average increase of 25%, according to CFRA Research. History buffs may be interested to know that the greatest growth occurred under the Vietnam War-influenced expansion of 1961-1969 at 53%, whereas the weakest growth of 4.4% was recorded during the short 1980-81 expansion, according to CFRA data.

The Federal Reserve: As expected, the central bank hiked interest rates by a quarter percent to a 1.00%-1.25% range at its June meeting. That remains extremely low by historical standards and leaves the Fed in an extremely “accommodative” position.

At its June meeting, the Fed announced its plan to wind down the size of its balance sheet, which grew to record-size and historic levels following the 2008 financial crisis. Prior to the crisis, the Fed’s balance sheet was about $800 billion with a “B.” Through its quantitative easing policies, popularly referred to as “money printing” the Fed expanded its balance sheet to about $4.5 trillion, with a “T” as of now.

The Fed’s announced it will reduce its holdings by allowing $6 billion in Treasury securities and $4 billion in mortgage bonds to roll off the books through maturity each month. That amount will rise each quarter.

Why should investors care? Ultimately that removes a “buyer” from the Treasury market and will put upward pressure on interest rates, which will cascade through to consumer rates on mortgages, car loans, student loans and credit card debt.

Looking ahead, the Fed is expected to hike rates one more time in 2017.

The Stock Market: Year to date, the S&P 500 posted a price gain of 8.91%. That is similar to the long-term average full-year return.

Notably, 2 out of the 3 sectors that posted the strongest advances are “defensive” sectors – that investors turn to when they expect rocky roads ahead (Health Care and Utilities).

The stock market has hit its expected return in the 6-9% area for 2017 already. That leaves the market vulnerable to correction, or even a cycle turn in the second half.

Investment Demand for Gold Remains Strong: At the end of May, total holdings in gold-backed ETFs and similar products stood at 2,291.9t (73.7moz), 10.5t higher from April, according to the World Gold Council.

Rare Coin Update: A unique undervalued condition has emerged this summer, with a significant drop in the premiums on circulated gold coins. That means investors can buy a $20 Saint-Gaudens “Double Eagle” at a historically low spread price to gold bullion. Read more here.

Predicted Price Trading Bands, Next 90 Days

Gold  $1,225-$1,375

Silver $16.50-$18.50

Our Recommendations:

The high-end rare coin market continues to increase in value as inflationary expectations build.

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

Buying Rare Coins:

The high-end rare coin market continues to grow.
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 December 2016 low in precious metals marked out a major bottom. 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 bet for clients wishing to add to holdings.

Trading Precious Metals:

Silver continues to offer a better value than gold

Ratio: 67 oz. silver = 1 oz. gold

This ratio has averaged 55 to 1 over the past five years

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.

Call for personal acquisition assistance: 1.800.880.4653

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