Blanchard Index

Exclusive Precious Metals Market Outlook and Recommendations

Index updated August 1, 2022

Blanchard's Monthly Index

The Blanchard Monthly Index is a roll-up of industry news and economic trends affecting the precious metals market and trading world.

Check back each month for insights and commentary from our leading experts and contributors.

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The Blanchard Economic Report

If It Looks Like A Recession…

You may have heard the old saying: if it looks like a duck, swims like a duck and quacks like a duck, then it probably is a duck. The same could be said when it comes to an economic recession.

Last month, Americans heard the news that the economy shrank in the second quarter. That marked the second quarter in a row that the U.S. economy contracted. That meets the rule of thumb definition of a recession. So, we note, if it looks like a recession….then it probably is.

The official numbers revealed a 0.9% decline in gross domestic product (GDP) in the second quarter following the 1.6% slump in the first quarter 2022.

Economic growth in 2022 is negative, there’s no other way to spin it.

Who Declares A Recession?

A private, non-profit group called the National Bureau of Economic Research (NBER) is the official arbiter of when the U.S. falls into a recession – yet they typically don’t announce that we are in a recession until months after the fact. In order to make its official determination, the NBER looks for economic declines that are significant, broad-based, and persistent.

While today’s environment may not look like a typical recession – the labor market remains strong for now – there is plenty of news around hiring freezes at many corporations. The labor market is already being impacted. Also, higher interest rates are impacting business investment and we are already seeing a decline in commercial and residential real estate.

Scorching Hot Inflation – CPI Climbs Again in June

Inflation accelerated in June as the consumer price index hit another fresh 4-year high at 9.1%. Consumers are paying more for everything from food and gas to shelter. So far in 2022, it’s evident that the Fed is losing its battle in the fight against inflation.

Fed Hikes Rates Fourth Time This Year

The Federal Reserve hiked interest rates by .75 basis points in June, pushing the Fed funds rate to 2.25-2.50%. This marked the fourth rate hike by the central bank this year.

The impact of rising interest rates has been felt deeply in the housing market. Would-be home buyers have been priced out in some cases amid sharply higher mortgage rates. Existing home sales tumbled by 5.4% in June.

Builders are pulling back too. Housing starts fell by 2% in June, although some parts of the country saw more dramatic slowdown. In the West, single family home construction collapsed by 25.4% in June. Home builders are losing confidence and the real estate cycle is beginning to turn.

Managing Volatility

There are many things an investor can’t control – the Fed, the economy, and the stock market to name a few. Portfolio diversification and allocation to non-correlated assets is something you can control – and a strategy that can make a significant difference to your long-term investing success.

While the stock market ride has been very bumpy in 2022 as we entered a full blown bear market (defined as a decline of 20% or more), gold has outperformed and is one of the best performing asset classes this year.

Here’s a look at the numbers year-to date:

Gold – Down 3%

S&P 500 – Down 14%

NASDAQ Composite – Down 21%

U.S. Government Fixed Income Index – Down 9%

Holding gold today is once again providing the proven support to your portfolio – reducing overall drawdown levels and providing diversification against non-correlated paper assets.  Economists are forecasting renewed weakness in the U.S. dollar later this year – as the Fed faces the reality that it will need to pull back on rate hikes to support the weak economy. And, that will open the door for gold to power sharply higher – especially as inflation remains at red-hot levels.

Indeed, Goldman Sachs recently raised its year end gold price target to $2,500 an ounce. For long-term investors, the current levels in gold offer an attractive buying opportunity. If you are considering increasing your allocation to gold, now is the optimal time to enter before the next powerful up leg in gold prices.

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 undervalued and is a strong buy signal for the metal.

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’re seeing now.

Current Ratio: 87 oz. silver = 1 oz. gold

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.