Exclusive Precious Metals Outlook and Recommendations
Index updated August 1, 2019
The Blanchard Economic Report
Summer Shines on Gold
July was a good month for gold and silver. Both precious metals climbed higher last month. Investors took a special shine to gold, which climbed as high as $1445.50 in July, marking out a fresh 6-year high.
Heading into August, the uptrend in precious metals is on track to extend higher. On August 1, gold surged higher following a fresh uptick in the U.S-China trade war. President Trump said that the government will impose a 10% tariff on the remaining $300 billion in imported goods from China. That piles on top of the 25% tariff on $250 billion of imported goods. Investors piled into gold supporting a huge one-day advance.
Big picture, questions continue to swirl around slower economic growth in the U.S. The U.S. economic growth fell to a 2.1% annual rate in the second quarter, the Commerce Department reported last month. That’s a big drop from a 3.1% pace seen in the first quarter. Trade policy uncertainty is dampening business investment and has taken a toll on manufacturing jobs.
Sigh of Relief over Debt Deal
In the news in July, Congress agreed on a bi-partisan debt limit deal to raise the debt ceiling and bump up spending levels. If the deal is signed into law, it will remove a big uncertainty that had been looming over the market.
Brexit Still Drags On
The Brits elected a new Prime Minister last month. The Conservative Party’s newly elected Prime Minister Boris Johnson has taken a hard line on a no-deal departure from the EU. Brexit-related concerns are making headlines with the U.K’s scheduled departure in October. Stay tuned as the uncertainty and a messy exit could propel gold even higher in the months ahead.
Fed Lowers Interest Rates
In July, the Federal Reserve reduced the Fed Funds rate by a quarter of a point (25 basis points), marking the first cut since the Global Financial Crisis in 2008. Some stock traders had been hoping for a 50 basis point cut, and the disappointment triggered a setback in the stock market.
The stock market’s knee-jerk reaction reveals how much expectations for a continuation of “easy money” policies have fueled the rally in equities in 2019.
Widely viewed as an “insurance” cut, many economists questioned whether an interest rate cut was appropriate at this time, given that the U.S. economy is still growing.
- In fact, two members of the Federal Open Market Committee (FOMC) voted against lowering rates. This was not a unanimous decision.
Looking ahead, the consequences of the Fed’s “pre-emptive strike” means the central bank will have fewer bullets in its holster to deal with an actual recession and increases the potential for negative interests down the road.
Fed Action Increases Bullish Case for Gold
While some may question the motives or the efficacy of an interest rate cut at this time, it nonetheless is bullish for gold on multiple fronts.
- First, it reduces competition from interest-bearing assets.
- History shows that when the Fed begins a rate reduction cycle, gold is higher in the following year.
- Finally, the degradation of monetary policy and the potential for negative interest rates strengthens the case for diversification into hard assets like gold.
Trump Appoints Gold Bug to Federal Reserve
Judy Shelton, who is President Donald Trump’s intended nominee to the Federal Reserve board, spoke out against the recent interest rate cut.
Shelton told CNBC that interest rate cuts are being used to devalue currencies and hurt other countries as opposed to promoting growth.
CNBC noted that she compared the policies to “beggar-thy-neighbor” actions taken during the Great Depression in the 1930s and said the global economy is “in a very dangerous situation.” Learn more about Shelton’s interest in returning the nation to the gold standard here.
Central Banks Are Buyers, Not Sellers
In the background in July, a notable development occurred, which reveals that the era of central bank gold sales are firmly in the history books.
Last month, the European Central bank announced the Central Bank Gold Agreement won’t be renewed when it expires in September. This was set up in 1999 to limit central bank gold sales.
Central banks don’t want to sell their gold. They are actively buying. Poland jumped into the marketplace and bought 100 tonnes of gold so far this year. Total central bank purchases are estimated at an incredible 375 tonnes in the first half of 2019, with total year forecasts at the highest level since the 1960s.
Why the big interest in gold right now?
The cycles are at a tipping point. The economic growth cycle in the U.S. is a record 10-years old, aging and on its last legs. The recent quarter point cut by the Fed will likely have little impact on actual economic growth. The stock market is climbing on easy money fumes, also near the end of the current bull cycle. Negative interest rates are popping up in Europe already.
This all adds up into a desire to invest and own real, hard assets – like gold and silver, which have intrinsic and recognized value in every country on the globe.
Platinum Offers Unique Buying Opportunity
Recent market action in platinum highlights a unique buying opportunity for investors. Platinum, like gold is both a monetary metal and an industrial metal. Platinum is significantly more rare than gold.
Over the last 50 years, platinum traded at a premium – or well above the price of gold for 80% of the time.
Right now, platinum is trading at a huge discount to gold. At this writing, platinum is trading $562 an ounce lower than gold. At one point in the last 10 years, platinum was worth double the price of gold.
Within precious metals, platinum offers investors an incredible opportunity to diversify even further – at historically low prices. What is the potential upside for platinum for long-term investors?
Using history as a guide, platinum could double in value. The all-time high hit in 2008 stands at over $2,200 an ounce. From current levels around $862 an ounce, there is a lot of runway toward the all-time high.
It’s easy to diversify your portfolio with platinum bullion. If you are interested in tangible assets diversification, consider adding the Royal Canadian Mint’s 2019 1 oz. Platinum Maple Leaf to your portfolio. This is an excellent way to diversify your tangible assets portfolio, with an asset that has huge upside potential at a historically opportune time when you act now.
Predicted Price Trading Bands, Next 90 Days
Gold $1,400 -$1,525
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 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: 88 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.