Exclusive Precious Metals Outlook and Recommendations
Index updated April 1, 2019
The Blanchard Economic Report
Push Pull Action in Gold during March:
Gold bulls and bears battled it out last month with push-pull action seen in the yellow metal.
After soaring to a new 2019 high in February above $1,350 an ounce, the gold bears made headway in March, closing out the month at lower levels.
Bullish versus Bearish Gold Factors
Despite the modest setback in March, there remains active two-way trade in the gold market.
Several underlying bullish catalysts remain at the forefront:
- Continuing uncertainty about the on-again, off-again U.S.-China trade talks
- Fresh signs of European economic weakness
- The surprise news that the Federal Reserve plans to stop raising interest rates in 2019
“Price action in gold continues to lend strength to our view that expected data deterioration will help spark a gold rally as interest rates continue to fall in the context of a slowing global economy,” analysts at TD Securities wrote in a late March research note.
Short-Term Bearish Factors
A surging U.S. dollar index in the second half of March weighed on gold. The U.S. dollar index and gold typically trade in an inverse correlation.
Renewed “risk-on” appetite among global investors in late March also pressured gold lower, as stocks resumed their rally. The risk-on environment saw traders pulling back on gold late in the month and profit-taking weighed on the yellow metal.
Digging Deeper: Federal Reserve on Hold
Perhaps one of the biggest bullish catalysts to emerge last month was the surprise news from the Federal Reserve that it is pausing its interest rate hike campaign.
After the March Fed meeting, the central bankers announced the news that no more interest rate hikes were expected in 2019, a dramatic shift from previous meetings where 2 or even 3 rate hikes were forecast for this year. The central bank cited slowing economic data in the U.S. as one of the main factors for the policy shift.
The removal of the threat of higher interest rates is an extremely positive development for gold and should open the door to additional gold gains throughout 2019.
Yield Curve Inverts: Traditional Recession Indicator
In the last week of March, the yield on the 3-month Treasury bill traded higher than the yield on the 10-year Treasury bond.
- That is the official signal of an inverted yield curve and triggered worries of an impending recession on Wall Street.
In fact, every U.S. recession over the past 40 years was preceded by an inverted yield curve,
“Based on history and the underlying dynamics of the economy, a yield curve inversion is indeed a bad sign and something to watch. But it is not a sign of imminent doom. What we should take away from last week is the idea that risks continue to rise—and bear watching—but that we very likely still have some time to prepare,” noted Brad McMillan, Chief Investment Officer for Commonwealth Financial Network in a research note.
Goldman Sachs remains optimistic that gold prices will climb higher over the next 12 months.
The investment bank forecasts gold gains throughout the next 12 months as investors turn to gold amid late-cycle worries in the U.S. Also, Goldman Sachs expects growing gold bullion purchases by central banks of China, Russia and Kazakhstan to boost gold’s price. Goldman Sachs 12-month gold price target stands at $1,450 an ounce.
Bottom line? Global demand for gold remains high price action is forecast to rebound higher in the month of April as both Brexit and U.S.-China trade talks have yet to find a positive resolution.
Longer-term, worries about recession and global economic growth are expected to fuel fresh investor buying in gold this year.
Most importantly, investors have time to prepare. The yield curve inversion is a negative warning, but doesn’t mean a recession will happen tomorrow. If you haven’t fully diversified your portfolio, now is the time to prepare for the coming cycle changes, with additional investment in tangible assets.
Predicted Price Trading Bands, Next 90 Days
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. Gold is climbing, which implies even larger potential gains in rare coins ahead.
Buying Rare Coins
For investors able to hold 5-10 years, ultra-rare acquisitions offer the safest store of wealth and strongest growth potential. Accumulate the highest quality coins 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 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.