Exclusive Precious Metals Outlook and Recommendations
Index updated July 1, 2020
The Blanchard Monthly Index is a roll-up of industry news and economic trends affecting the precious metals trading world.
Check back each month for insights and commentary from our leading experts and contributors.
The Blanchard Economic Report
Gold’s Summer Rally Is Just Getting Started
As we head into the depths of summer, the temperatures are rising, Covid-19 infections are hitting new daily record-highs and the historic rally in gold continues to advance – full steam ahead.
Gold is flirting with the $1,800 an ounce level for the first time since 2011 and ended the second quarter at an 8-year high.
Here’s a quick look at key market metrics:
- Gold is up 16% year to date.
- The S&P 500 is down 3.12% year to date.
- The U.S. 10-year Treasury yields 0.67%.
Economic Data Is Noisy
Last month, economic data continues to confuse. The June employment report came in better than expected with 4.8 million new jobs created. The unemployment rate fell to 11.1% from 13.3% the previous month.
While that sounds promising, at the same time, another 1.4 million Americans lost their jobs in the last week of June and applied for unemployment benefits.
- The country remains mired in one of its deepest recessions in decades with full-year economic growth seen at negative levels.
S&P Global now forecasts full-year GDP contracting 5.0% in 2020. The recovery will be slow, as the lingering effects of COVID-19 severely limit growth, S&P Global wrote at the end of June.
Fed Makes Public Corporate Bond Buying Details
As part of the unprecedented efforts by the Federal Reserve to stoke economic growth continue – the Fed made public details on its historic move to buy corporate bonds last month.
For the first time ever in U.S. history, the Fed began buying corporate bonds this year – amid the gigantic money-printing stimulus program it began in March.
At the end of June, the Federal Reserve released its list of 750 companies including Apple, Walmart and Exxon Mobile – whose corporate bonds it will buy in the coming months to keep borrowing costs down and keep credit flowing smoothly, it says.
The central bank said it has already bought nearly $429 million in corporate bonds from companies including AT&T, Walgreens, Microsoft, Pfizer and Marathon Petroleum.
Remember, the Fed has expanded its balance sheet (printed new money) by about $3 trillion since the Covid-19 pandemic began in this country in 2020. It now stands at over $7.2 trillion and some warn it could climb to $10 trillion by the end of the year.
Printing money to buy corporate bonds…the Fed continues to stretch the limits of what money means.
Stock Market Closes Out Second Quarter with +20% Gain
The Fed’s massive money printing campaign had its desired results. The S&P 500 index rebounded from the depths of the February-March market crash and closed out second quarter with a 20% gain. As July began, the stock index remained in negative territory for the year, however.
Despite the gains, the disconnect between Main street and Wall Street has never been wider in history.
Millions of Americans are unemployed, thousands have businesses have declared bankruptcy and many corporations simply stopped giving forward guidance on corporate profits this year amid so much economic uncertainty.
The stock market rally is being fueled by money-printing and a new wave of active day traders who seek excitement amid the lack of professional sports betting opportunities. The phenomenon is well-documented and called the “Robin hood” traders – named after a new discount trading site online that offers $0 trading fees.
Gold Gains New Admirers
As gold chalks up an impressive 16% gain year-to-date, investors are turning to gold as a safe-haven, portfolio diversifier and hedge against continued dollar debasement.
The list of major Wall Street firms that are calling for continued gains in gold ahead continues to grow on a near daily basis.
Goldman Sachs forecasts new all-time highs in gold at the $2,000 level within 12 months.
Another U.S. investment bank recently jumped on the bandwagon of bullish price forecasts for gold – Citi bumped up their 3-month forecast for gold to $1,825 an ounce. At the rate the gold market is going, we could see that level by the end of July.
Heading into the Fall…Much Uncertainty Lies Ahead
With the U.S. presidential election looming, Covid-19 cases spreading like wildfire in the Sun-belt states, and states starting to shut down businesses that had only recently reopened, there is much uncertainty ahead.
One thing you can count on is the protection that gold will afford you and your portfolio in these uncertain times. Current price levels around $1,800 could offer you the best buying opportunity of the decade in gold.
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 severely undervalued and is a strong buy signal for the metal.
Ratio: 98.50 oz. silver = 1 oz. gold
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 are seeing now.
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.