Blanchard Index

Exclusive Precious Metals Outlook and Recommendations

Index updated May 1, 2017


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The Blanchard Economic Report

Call it the stealth rally in the metals markets.

Despite the move to new all-time highs in the stock market this spring, gold and silver are still beating out stocks this year on a return basis. The precious metal sector remains a leader in 2017 as investors around the globe turn to gold and silver as a safe-haven investment, portfolio diversifier and inflation hedge.

Here’s how the market performance stacks up through April 28:

 

                                    Gold                 up 9%

                                    Silver               up 7%

                                    S&P 500           up 6%

                                   

Key Gold Drivers

The trend points up for gold and silver, with higher price levels forecast by year-end. There are a number of economic, political and military events that could serve as the trigger for the next up leg in gold. 

Geopolitical instability

There remain a number of hot spots around the globe including Syria and the Middle East, North Korea and the South China Sea dispute. Any one of these simmering political and military situations could boil over at any time, which would attract another round of safe-haven investment into the gold market. 

Spotlight on North Korea – Amid the recent escalation in tensions, the United States recently installed a missile defense system in South Korea. The objective is to protect South Korea, Japan and other U.S. allies in the region from a potential North Korean missile attack. China did not welcome this move, who sees it as a check against Chinese power in the region.

European elections

Investors continue to monitor the uncertain fate of EU stability. The second round of the French presidential election is slated for May 7. Currently, Emmanuel Macron is expected to beat back populist candidate Marine Le Pen. But, the outcome will be closely watched. A Le Pen win would be viewed as potentially disruptive to the global economy and financial markets as she is expected to push for a French exit from the European Union. A Le Pen win would likely create another rush into safe-haven assets, which would be a supportive factor for the gold market.

Federal Reserve: Even though the Federal Reserve is in hiking mode, official interest rates remain historically low, which is gold-positive.

Stock Market:  The S&P 500 hit a new all-time high in March and came close to matching that level in late April. The technology sector has been leading, as the NASDAQ index surged to new all-time highs in late April. Stock investors are pricing in expectations of a significant economic and corporate-earnings boosting tax relief package.

Spotlight on Capitol Hill: In late April, the White House proposed a tax plan which would deliver across the board cuts to both individuals and families and corporations. For businesses, the plan proposes a cut in the maximum corporate tax rate from 35 percent to 15 percent. There are costs to the plan. In order to offset the loss of tax revenue, the administration would eliminate all tax deductions, except the mortgage, charitable giving, and retirement savings deductions. Independent experts believe the plan will take in significantly less revenue than current tax laws. The White House believes faster economic growth will make up for that shortfall. But, if not – the U.S. deficit is expected to rise significantly – and that would be gold bullish. However, there are questions if the tax plan, which allocates most individual tax relief to the wealthy will get enough support from Democrats to pass.

The stock market has priced in a significant tax reform package and Congress must deliver or investors will register their disappointment with an equity sell-off.

Risk: The stock market is entering its seasonal Worst Six Months of the year (May-October). The market is overbought, overvalued and vulnerable to a cycle turn or correction lower at any time. Declining stock prices historically see gold prices rise often significantly.

Economic Outlook: U.S. economic growth slowed significantly in the first quarter of 2017. Real gross domestic product (GDP) rose by an uninspired 0.7% in the first quarter. That failed to meet economists’ expectations for a 1.2% increase. That is not a strong start to a year filled with expectations for fresh growth under the pro-business Trump Administration.

Blame it on Mom and Pop: American consumers pulled back on their spending in the first quarter, which contributed to the overall lackluster performance. Real consumer expenditures grew by a measly 0.3% in the first quarter, following a blockbuster 3.5% expansion in the fourth quarter. A continuing economic slowdown would further tie the Fed’s hands and limit future interest rate hikes. That would be gold-bullish.

Predicted Price Trading Bands, Next 90 Days

Gold  $1,250-$1,350

Silver $16.80- $19.00

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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