Exclusive Precious Metals Outlook and Recommendations

Index updated December 1, 2018

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The Blanchard Economic Report

Will Santa Visit Wall Street This December?

Closing out the month of November, thoughts turn to the twinkling holiday lights that brighten city streets and the annual Santa Claus rally on Wall Street.

After the 10% plus correction in the stock market this fall, will Santa deliver his traditional rally this holiday season?

Before looking ahead, we’ll do a quick recap on the key events driving financial markets and gold in November.

Year to Date Market Performance

S&P 500                            +3.24%

Gold                                   -8%

Silver                                 -19%

10-Year T-Note yield      2.99%

Fed funds rate                 2.00-2.25%

Gold Market Action

Gold fell into the summer months in 2018. Buying interest picked up in the fall as the stock market plunged lower and a gold bottom is confirmed at the August low. Safe-haven demand for gold emerged and trading action turned more positive for precious metals in recent months.

Looking into 2019, early forecasts are quite positive for gold and precious metals.

Here’s a snippet from a Nov. 28 Capital Economics report:

“We think that the prices of precious metals, except palladium, will rise in 2019, in part because we expect an early end to Fed tightening and stronger safe-haven demand in the second half of the year.”

Now let’s look at recent financial market events.

A Cease Fire in the China-U.S. Trade War

Following months of rising tensions, President Trump and Chinese President Xi agreed to a temporary truce after the G-20 meetings in Buenos Aires.

The temporary cease fire means the 10% tariff rate imposed on $200bn of Chinese imports will not rise to 25% on January 1st as previously planned. In the temporary pause, both sides agreed to a 90-day negotiation over the broader trading relationship between China and the U.S.

What’s ahead? The risk remains if the negotiations fail or drag on too long, the tariff rate on the $200 billion of China exports to the US could still be put in place by early February. Then, the US would likely move to impose tariffs on the remaining $250 billion of imports from China that are still tariff-free.

  • Key takeaway: For now, the temporary cease fire could support a modest Santa stock rally. But, will that be short-lived? Stay tuned.

The Stock Market

For stock market investors, 2018 has been a rocky year.

The volatility and big downward correction in prices served as a wake-up call to equity investors. The swift and deep stock market sell-off tested many individual’s tolerance for risk.

  • Key takeaway: We believe it is important to review your asset allocation on a regular basis. You may be overextended in risk assets and further diversification into tangible assets may be appropriate at this time.

Economic Fundamentals

U.S. economic conditions remain fairly strong heading into year-end. Solid retail sales numbers on the heels of rising wages suggest consumers will be shopping and buying more presents to put under the tree this holiday season.

The big decline in crude oil’s decline is noteworthy. Since early October, the price of a barrel of crude oil fell from about $77 to as low as $49.40 in late November.

  • Key takeaway: While Americans may be cheering lower prices at the pump this December, lower crude oil prices are reflecting sluggish demand and forewarning about slower global growth for 2019.

Capitol Hill, Congress and Politics as Usual

The Democrats took back control of the House of Representatives in the November mid-term elections. Prepare for congressional gridlock. There are threats of a potential government shutdown in early December in a fight over funding for the U.S./Mexico border wall.

  • Key takeaway: Increased scrutiny on the President could emerge in the New Year as Democrats begin to wield new investigative powers with their control over the House, which could heighten partisan politics and tensions and be gold bullish.

The Federal Reserve

In late November, Federal Reserve Chair Jerome Powell ignited a little storm when he described interest rates as “just below” neutral, which was a big shift from a month ago when he said rates were a “long way” below neutral.”

Some note that the Fed Chair may be caving to political pressure in the wake of attacks on rising interest rates from the White House.

The Fed is scheduled to meet in mid-December and most on Wall Street do expect another modest hike in interest rates at that time.

  • Key takeaway: Fed Chair Powell opened the door to potentially fewer interest rate hikes in 2019, which is gold bullish.

The Bottom Line

Heading into December, expectations for fewer interest rate hikes in 2019 and a temporary pause to the U.S./China trade war could open the door to a modest Santa Claus stock market rally. The well-known Santa Claus rally technically occurs during the last five days of the year and the first two of the New Year.

However, there are underlying headwinds that could stall significant stock market gains in 2019.

Here’s what the CPM Group wrote about gold in late November:

“The gold market appears poised to move higher. There are numerous macroeconomic factors bubbling under the surface which are positive for the gold price in the medium to long run. Shorter term financial market trends have kept prices from rising in 2018, but they are dissipating.”

Predicted Price Trading Bands, Next 90 Days

Gold $1,225-$1,275

Silver $14.00-$15.00

Our Recommendations

The high-end rare coin market remains an attractive buying opportunity for long-term investors as economic, political and geopolitical uncertainty climbs. Rising inflation data is another factor expected to underpin potentially dramatic increases in the numismatics sector in the months ahead.

Buying Rare Coins

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

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: 86 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.