Exclusive Precious Metals Outlook and Recommendations

Index updated February 1, 2018

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The Blanchard Economic Report

Gold Hits 8-Month High in January

Investors poured fresh money into gold in January, as the yellow metal climbed to an 8-month high just above the $1,325 an ounce level.

Last month’s gold gains marked a continuation of the rising precious metals trend seen since last summer. Gold soared an impressive 13% since the August 2018 low.

Many on Wall Street believe the current uptrend in gold is still in its early stages – with even higher prices ahead.

In late January, Mad Money’s Jim Cramer stated:

“We are big gold believers here. Now gold is at $1,300, we think gold is going to $1,400-$1,500.

We suggest that everybody have a little bit of gold in their portfolio.”

How High Can Gold Rally?

Goldman Sachs agrees with Mr. Cramer forecasting higher prices ahead in 2019.

Gold has a lot of potential and can hit $1,450, Jeffrey Currie, global head of commodities research at Goldman Sachs, said in news reports.

Why is Goldman Sachs bullish on gold?

  1. Recession fears
  2. Gold’s wealth-effect
  3. Central bank buying

Here is a quick recap of major events impacting gold.  

Fed Will Be “Patient” On Rate Hikes

The Federal Reserve surprised financial markets with a key message that future interest rates are now on hold at its January 30 meeting. The Fed said it would be “patient” as it determines future interest rate policy, in light of concerns about global economic growth, financial developments and muted inflation.

Bottom line? Don’t expect interest rate increases anytime soon.

“The case for rate increases has diminished,” said Fed Chairman Powell during the post-meeting Fed press conference.

The official fed funds rate stands at 2.25-2.50% after December’s interest rate hike. This remains an extremely low level historically for interest rates – with a more “normal” rate in the 3.5-4.5% area.

Looking ahead, if the Fed’s rate hike cycle tops out at this level – it will mark another extraordinary and uncharted monetary policy experiment, leaving the central bank with fewer bullets in its holster for the next down cycle.

Government Shutdown Ends (For Now)

In late January, the political stalemate over Wall Funding at the U.S. Mexico-border came to a temporary end. This marked the longest-ever government shutdown in U.S. history – at 35 days – which left 800,000 federal workers without a paycheck for over a month.

There still is the threat of another federal government shutdown in February if Congress does not approve money for the proposed border wall. President Trump continues to advance the notion that he will declare a national emergency if funding is not approved.

IMF Signals Slowest Global Growth Since 2008

On the economic front, 2019 could mark the slowest level of global growth since the 2008 Global Financial Crisis, according to the International Monetary Fund.

The IMF just cut its forecast for global growth to 3.5% in 2019 (the second time it slashed the growth outlook in three months).

“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” the IMF’s Managing Director Christine Lagarde said.

The culprit? Advanced economies are on a declining path in terms of economic growth and this is occurring faster than previously forecast. Advanced nation economies are expected to grow 2 percent this year and 1.7 percent in 2020, the IMF said.

Central Bank Buying in 2018 – Highest Since Nixon Closed Gold Window

Central banks bought 651.5 tonnes of gold in 2018, the largest increase in global reserves since 1971, according to a World Gold Council report released in late January.

Central banks around the globe continue to turn to gold as a portfolio diversifier for their country’s assets.

  • Russia, Turkey and Kazakhstan continued to buy gold, while European central banks also made notable purchases.

Continued strong buying from central banks shows confidence in the role of gold as a safe-haven, vehicle for wealth preservation and growth and a proven portfolio diversification tool.

The Bottom Line: The Winds Are Shifting

Demand for gold picked up significantly since the August 2018 low. The gold trend points higher and the strong start to January bodes bullishly for precious metals in 2019.

The gold market is healthy and demand is strong. Economics suggests there’s only one direction for gold to go and that’s up.

Predicted Price Trading Bands, Next 90 Days

Gold $1,300-$1,375

Silver $15.75-$16.75

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. 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: 83 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.