Exclusive Precious Metals Market Outlook and Recommendations
Index updated September 1, 2023
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.
The Blanchard Economic Report
Dog Days of Summer: Gold Investors Buy the August Dip
As the sweltering heat begins to cool, the children return to school and the days become shorter, gold is well positioned for strong gains in the months ahead.
Gold closed out the month of August virtually unchanged from the start of the month – at $1,941.60. Mid-month, however, gold drifted lower in the late summer doldrums toward the $1,890 an ounce level. Gold investors swooped in to buy the dip below $1,900, trading their dollars for even more gold.
While gold action has quieted, the long-term trend points higher. The strong August buying action reveals that investors remain on the sidelines eager to add gold to their portfolios at lower prices—when that opportunity occurs.
Jobs Market Begins to Cool, Inflation Still Above Fed’s Target
In August, the labor market began to weaken. The overall unemployment rate jumped up to 3.8% in August, which marked the highest level in a year. In the meantime, inflation continued to tick higher. The Federal Reserve’s favored inflation gauge ticked 0.2% higher in July, as prices rose 3.3% from a year earlier. The personal consumption expenditures price index (PCE index) revealed that the price of groceries, and gas rose, while the price of new and used cars fell moderately.
Blame it on Barbie
Despite high inflation and a weakening job market, consumer spending rose 0.8% in July. However, don’t read too much into the data, as economists point to the blockbuster openings of both the Barbie and Oppenheimer movies, which set box-office records as a factor boosting summer consumer spending. Beyoncé’s ‘Renaissance World Tour,’ and Taylor Swift’s ‘Eras Tour’ also boosted the economy this summer as Americans dug deep in their pocketbooks and paid often hefty prices to see these popular performers.
Looking ahead, however, retailers like the Dollar Store and Walmart warn that lower-income consumers are reducing their spending, which could be a sign of a recession on the horizon.
“Our core customers continue to tell us they feel financially constrained,” Dollar General Chief Executive Jeff Owen told the Wall Street Journal. “Her savings are gone, and so certainly she is still living with the inflationary pressures.” Other discount retailers also issued weak outlooks for the remainder of the year as higher prices and rising interest rates weigh on consumers’ appetite for discretionary spending, the WSJ reported.
What’s Next for the Federal Reserve?
Economists say the recent cooling in the labor market could open the door for the Fed to hold interest rates steady when it meets next on Sept. 19-20. The fed funds rate currently stands at 5.25-5.50%. Looking ahead, however, the Fed has signaled that it may still need to raise interest rates again later this year if inflation continues to hold above its 2% target rate.
When China Catches a Cold…Stocks Struggle in August
Volatility returned to the U.S. equity markets in August as stocks struggled to absorb the impact of higher interest rates on the economy and earnings. Another factor weighing on the stock market is uncertainty over the health of the world’s second-largest economy—China.
The recent deterioration in the Chinese economic growth is weighing on the outlook for global growth and could hamstring equity gains in the quarters ahead. A developing debt crisis at China’s largest property developer is just the latest in a number of worrisome economic developments there. The Hang Seng Index, recently fell into an official bear market, after dropping over 20% from its January peak.
The Cost of Holding Too Much Cash
In today’s market environment, cash is earning interest levels not seen in well over a decade. However, there remains an opportunity cost for investors who hold too much cash. Notably, there is a re-investment risk when those 1-year CDs mature, as it is unlikely investors will be able to reinvest at the same levels a year from now.
As always, investors benefit from a properly diversified portfolio over the long run. Instead of increasing cash holdings in the current environment, have you considered adding to your allocation in gold? Despite the bounce gold saw in August from below $1,900, you could still capture strong gains if you add to your gold allocation at current price levels.
All-Time Highs Forecast for Gold in 2024
A number of investment firms continue to project new all-time highs for gold ahead. Here’s a look at a few forecasts:
- Wisdom Tree forecasts gold at $2,225 per ounce by the second quarter of 2024
- CITI forecasts gold at $2,150 in the first half of 2024
- Morgan Stanley projects gold to climb to $2,100 in the first quarter of 2024.
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: 80.23 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.