Exclusive Precious Metals Outlook and Recommendations
Index updated March 1, 2020
The Blanchard Economic Report
It’s Official, Stocks Are in a Correction
Fear and panic spread shockingly fast last month around potential economic impact from the growing coronavirus threat. Investors dumped stocks, driving the Dow Jones Industrial Average down nearly 14% in February, officially driving the market into so-called correction territory (anything over a 10% decline).
The stock selling was fast and furious. It only took six trading sessions for the stock market to fall into correction territory – the fastest start of a correction in over 70 years.
The coronavirus officially known as COVID-19 spread to 60 countries as of the end of February. The World Health Organization put the world on notice that it could get worse before it gets better.
With cities in China shut down due to quarantines, the world’s deeply interconnected supply chain has already been disrupted. Apple (AAPL) announced to investors that it won’t meet first quarter revenue goals because of the coronavirus.
Apple’s stark warning was the first major U.S. business to confirm that the outbreak is damaging both production and sales in China. Apple manufactures the majority of its iPhones inside China. Other major U.S. corporations like Mastercard, UnderArmour and Canada Goose also warned that the coronavirus will damage their profits.
Economic activity is expected to slow around the globe as manufacturing, travel and consumption patterns are disrupted. How bad it becomes depends on how far reaching the spread of the coronavirus becomes.
Looking ahead, fears of a global economic slowdown are real, especially as it is difficult to say that any country has definite control over containment of the coronavirus. Wall Street is pricing in concerns that this could trigger a recession in the United States. The stock market has forecast 9 of the last 5 recessions and last month’s action is a stark warning that the cycle may be shifting.
Stock Market Plunge, Gold Rallies
The last week of February marked the worse week on Wall Street since the 2008 Global Financial Crisis. A 1000-point drop at the start of the last of week of February drove gold to a fresh 7-year high.
In one five-day period in February, gold surged over $120 an ounce.
While gold climbed almost as high as $1,700 an ounce last month, it trimmed gains heading into the end of February, closing out the month above 3% higher on the year.
Analysts explain that equity investors were forced to sell positions in gold in order to meet margin requirements as the stock market crashed.
The Fed meets next in mid-March and expectations are growing that the central bank may slash rates in 2020 on rising coronavirus concerns. It’s dubious what economic impact that could have with rates at historically low levels already. The fed funds rate stands at 1.50-1.75%.
In February, Goldman Sachs told clients in a research note that gold could hit the $1,850 an ounce level if the coronavirus continues into the second quarter. Citi analysts went even further, projecting that gold could climb above the $2,000 an ounce level – setting a new time record high – within the next 12 to 24 months.
2020 Presidential Election
Meanwhile, Senator Bernie Sanders gained front-runner status after February primaries. The 2020 presidential election injects another major factor of uncertainty into the economic and political environment this year. The progressive policies of a candidate like Sanders are viewed as anti-big business, which could have a further negative impact on the stock market if he continues to hold onto the front runner position.
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: 95.00 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.