Blanchard Index

Exclusive Precious Metals Market Outlook and Recommendations

Index updated May 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.

High: | Low: | Current:

The Blanchard Economic Report

S&P 500 Drops 13% during First Four Months of 2022: It’s Worst Start Since 1939

One hundred years ago, TS Eliot wrote the now-famous words “April is the cruelest month” in his 1922 poem, The Waste Land. Indeed, those words ring true in 2022 – as the U.S. stock market etched its worst performance in the first four months of the year since 1939.

The S&P 500 dropped 13%, officially entering correction territory. The Dow Jones Industrial Average is down 9.2% for 2022, while the tech-heavy Nasdaq Composite tumbled 17%.

Gold is now trading about 5% higher on the year.

What’s Driving Stocks Lower?

Investors have been selling stocks since the start of the year for a variety of reasons. These include:

  • The Russian War in Ukraine – The military action has increased inflation, impacted commodity markets like energy and grains and raises questions about global growth and geopolitical stability.
  • Inflation at 40-year highs – Consumer prices continue marching higher in the U.S. as Americans pay higher prices for everything from food, to rent to gas and more. The most recent consumer price index data jumped 8.5%, to its highest level since 1981.
  • Fed expected to hike interest rates aggressively – The Federal Reserve is expected to raise interest rates much faster-than previously expected, with the potential for three 0.50% interest rate hikes at its next meetings, in order to fight inflation.
  • Supply chain disruptions continue – The latest Covid lock-down in China is impacting Chinese manufacturing and continues to slow down the supply chain globally.

What about the Real Economy?

The U.S. economy shrank by 1.4% in the first quarter, surprising Wall Street economists who still expected the economy to grow. The unexpected negative first quarter GDP opens the door to the very real possibility of a recession – if we see a second consecutive quarter of negative GDP growth.

Picture this: the Federal Reserve is now trying to land a huge jumbo jet on a landing strip as narrow as a sidewalk. While the Fed hopes to engineer a “soft landing” out of the raging inflation it has created by keeping interest rates near zero for the past year, the more likely scenario is a “hard landing” – aka a recession.

The Fed Meets on May 4

The Fed meets on May 4 and is widely expected to raise the federal funds rate by half a percentage point to 0.75% – 1.00%. The latest Wall Street consensus now sees the fed funds rate as high as 3.00-3.25% by year-end as the slow-moving Fed tries to catch up in its inflation fight.

The Case for Gold Remains Bright

Amid the slumping stock market, weakening economy and raging inflation, the case for gold diversification remains strong.  In recent weeks, major firms came out with fresh recommendations to buy gold. Wells Fargo believes that “investors are actively looking for assets that can add diversification to portfolios.” The firm names gold as a store-of-value asset at the top of the list. Wells Fargo pegs a 2022 year-end gold price target in the $2,000-$2,100 range. Analysts at Bank of America are also upbeat on the prospects for gold this year. According to a recent BofA Global Research report, the firm forecasts gold gains to $2,175 an ounce and silver to $30 an ounce.

Managing Your Portfolio through Uncertainty

Volatility sent stock markets spiraling lower in recent months. More losses are forecast ahead with the potential for U.S. stocks to fall into a bear market (declines of 20% or more).

The current environment presents you with the opportunity to review your financial plan and consider how you can best position yourself in these uncertain times. If you are looking for an opportunity to protect and growth your wealth, gold is a proven portfolio diversifier. Increasing your allocation by even 2%, 3% or 5% could have a big impact on your wealth profile in the months ahead.

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: 82 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.