Despite rising inflation, gold has traded in a choppy and corrective manner recently. Some gold investors may be wondering if gold still offers the same level of portfolio protection as it has in recent years.

While gold is down about 6% year-to-date and silver is down about 10%, that comes on the heels of a 22% gold gain in 2020 and a 44% silver gain last year.

Investors may not realize that gold has delivered long-term average annual returns of 10.8% since the elimination of the gold standard in 1971 – on par with long-term stock market returns. And, when you compare gold performance to commodities over time – gold outperforms.

Consider this data from the August 25 World Gold Council report: Gold: the most effective commodity investment:

“In the Q4 2018 global equity selloff, for example, the S&P 500 fell 15% and commodities fell 9%, yet gold rose 8%. And in the 2020 COVID selloff, the S&P 500 fell 20%, commodities fell 17%, while gold returned 2%. In both recent cases, gold not only protected portfolio assets but also delivered positive returns, while broader commodities behaved more like a risk-on asset.”

Understanding historical performance of assets like gold, bonds, stocks and REITs during previous reflationary periods – can offer insights to investors on what may lie ahead for gold in this cycle. The World Gold Council research reveals that in past reflationary periods, gold historically lagged early in the cycle – just as we are seeing now. But, significantly, gold outperformed over the long run.

The new research confirms that gold allocations of up to 10% in a portfolio delivered better risk-adjusted returns than those with simply broad-based commodity allocations.

If you’ve been wondering about gold’s performance this year, this historical data reveals that what we are seeing is typical. In fact, for long-term investors, the current lower price level of gold allows you to “buy low” and receive more gold in exchange for your dollars.

Here are six key characteristics that the World Gold Council highlighted about gold:

• It has delivered superior absolute and risk-adjusted returns to other commodities over multiple time horizons.
• It is a more effective diversifier than other commodities.
• It outperforms commodities in low inflation periods.
• It has lower volatility.
• It is a proven store of value.
• It is highly liquid.

If you are looking for diversification that counts as a store of value for your wealth, consider increasing your allocation to physical gold. Historical data suggests that gold is on the verge of its next big upswing in price as the economy moves farther into the reflationary phase. If you are under-allocated to gold, don’t miss this opportunity to increase your gold allocation to 10% or even higher depending on your desire for protection.

Gold is a unique asset class that delivers powerful diversification and wealth appreciation opportunities. “Looking at other commodities, some can be considered luxury goods, some have technological applications, and some are basic, everyday products. Some are used to hedge against inflation, some protect against currency devaluation, and all provide a degree of diversification in an investment portfolio. However, only gold performs all these functions,” the World Gold Council said.

Want to explore how you could implement more wealth building assets into your portfolio? Read about our diversification strategy here.

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Palantir Technologies is a big data analytics company that serves some of the most powerful organizations in the world. One of the three main segments of the company, Palantir Gotham, is a counter-terrorism tool and has a client list including the CIA, NSA, West Point, and Special Operations Command. It is no surprise that the company wants to become “the default operating system across the U.S. government.”

These relationships put them in an elite class of clandestine organizations with access to information seen by few. This advantage is what makes one of Palantir’s latest moves so interesting.

A single note in the company’s 93-page second quarter earnings report published in mid-August states that they purchased $50.7 million worth of 100-ounce gold bars. For the moment the bars are being held in a third-party location in the northeastern United States.

This move prompts one eager question: why?

The details are scarce but the COO Shyam Sankar explained that the move was part of the company’s aim to shift to more of a worldview. His next comment was more ominous. Sankar added, “You have to be prepared for a future with more black swan events.” His remark seems genuine given that the company has also decided to accept gold as payment from customers.

The market seems in agreement with this view given that gold surpassed a value of $2,000 per ounce for the first time in history as COVID fears mounted in 2020.

The threat of a Black Swan event seems ever-present as the COVID pandemic worsens. Before the term black swan entered the modern lexicon most knew this phenomenon as “tail risk.” A tail risk is the probability of a rare event occurring. The tail is the left and right portion of a normal distribution bell curve.

In a previous Blanchard article we discussed this characteristic of the market and the observation that the world presents risk that often goes unseen until it is too late.

The fact that Palantir made this decisive bet on the future of gold should rally investors to consider their own investments. Is it possible that Palantir is aware of a looming heightened risk? It is impossible to know. It is likely that they have acted on some information that is more than a passing impulse.

Palantir’s software enables businesses to become more efficient and more effective at leveraging what the data they have. This benefit resonates more deeply in a COVID and post-COVID world where gains through traditional business growth are hampered. For this reason more people are likely to take notice of Palantir’s recent investment.

Put simply, when Palantir speaks it is wise to listen. Their additional contracts with the HHS, the Department of Defense, the Justice Department, the Department of Homeland Security, and the SEC are giving Palantir deep roots within the US government infrastructure. Palantir is in the business of seeing just a little bit further down the road, and right now it appears that they see tail risk.

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Gold’s price retreat this month offers long-term investors an opportunity “to buy on the dip.” Yet, you may be wondering what could be the trigger for the next swing higher in gold prices.

Wells Fargo Investment Institute analysts addressed that very question in an August 9 research note to clients. Here’s what they said: “We suspect gold will soon resume a leadership position.”

What could send gold prices higher again?

Chinese and Indian gold buying, Wells Fargo said. “The two largest country buyers, China and India, have been picking up purchases.”

In fact, gold imports moving from Hong Kong to the Chinese mainland surged from 38 metric tons a month to 154 metric tons a month, over the past three months, according to their report.

“Chinese gold purchases appear to be picking up. In the end, we think gold has much going for it, from negative real interest rates to quantitative easing to a new commodity bull super-cycle. All gold prices need, it seems, is a spark of interest, and we may be seeing it out of China,” Wells Fargo head of real asset strategy John LaForge wrote.

Another factor that could support long-term Chinese gold buying is the nation’s new “three-child policy,” according to World Gold Council Goldhub research.

In case you missed the news, recently China eased its decade’s long restriction on how many children Chinese couples can have. On May 31, China announced that married couples could now give birth to up to three children.

China’s current population of 1.41 billion – the largest in the world, could begin to rise even faster with the new policy.

What does this have to do with gold, you may ask?

While many Americans buy gold for investment purposes: portfolio diversification, a safe-haven, and a hedge against the devaluation in the dollar – the Chinese population buys gold for very different reasons.

In the East, buying gold is cultural tradition honed over time. Gold has a long-standing cultural importance in Asia that may be difficult for some Americans to even comprehend. For example, Chinese citizens commonly buy gold for the Chinese New Year. It is considered a sign of good fortune for what the New Year will bring. Also during China’s Spring Festival, the Chinese people also buy gold to bring themselves and other’s good luck. Many Chinese families also hold their wealth in physical gold as well – a longstanding tradition for hundreds of years.

Looking ahead, there is also a link between birth rates in China and long-term gold consumption – which brings us back to the new 3-child policy.

“The tradition of gifting gold – in various forms – to newborns, supports gold demand in China with the birth rates rising,” Goldhub research said on Aug. 3.

“We believe that the country’s efforts to boost the birth rate should be good news for Chinese gold retailers. First, it is tradition to gift gold to new-born babies in the form of locks, bracelets, anklets or zodiac-themed pendants for good luck. And sales of these gold products fluctuate with the number of new births each year in China. Second, as previously stated, a higher birth rate has the potential to lead to stronger economic growth in the long run, supporting retailers’ gold product sales,” Goldhub wrote.

What this means for you

If you’ve been considering increasing your allocation to gold, the recent price retreat gives you an excellent opportunity to buy even more gold with your dollars than just a month ago. The markets are moving every day and prices this low won’t last for long. Call Blanchard today at 1-800-880-4653 to ask about current pricing and availability.

Read the Goldhub research and see a photo of traditional baby gifting gold products here.

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The biggest surprises always come in the third act. Covid is no exception.

The Delta variant continues to cause a surge of infections and deaths as 30% of those in the US still remain unvaccinated. As Dr. Anthony Fauci put it, “things are going to get worse.”

As the seven-day average of new daily cases rises businesses and investors are tempering their outlook. Previously the U.S. was experiencing approximately 10,000 cases a day. By early August that figure grew to about 84,000 and continue to increase. Recent estimates suggests that the number could get as high as 200,000 cases a day.

Investors and businesses are already taking action.

How do we know? Money-markets funds and banks are seeking ways to earn a safe and predictable return on their excess cash. They are doing so with a transaction called a reverse repurchase agreements, or “repos.”

In this kind of transaction, the lender purchases an asset like equipment or shares from the seller with an agreement to sell those same assets back to the seller at a set future date for a higher price. Today, money-market funds and banks are engaging in repos to the tune of $1 trillion in cash. This amount is the highest on record since the Federal Reserve allowed these kinds of transactions in 2013. The main reason for the influx of cash is likely the central bank’s decision to inch up their interest rate from 0% to 0.05%.

What is more concerning is the fact that this increase in repos might suggest that more institutions are in need of cash to fund short-term operations.

Meanwhile Moody’s Analytics has designed a “Back-to-Normal Index” intended to track the latest economic data. These metrics include things like the number of people flying, restaurant bookings and initial claims for unemployment benefits. This figure is beginning to look troubling for certain areas of the US, especially the south. Today, the index has fallen from it’s high reached in late June of this year.

Additional nation-wide lockdowns remain unlikely, and many experts believe the increase of hospitalizations will encourage at least some vaccine skeptics to get the shot. Despite this, the expectation for a booming summer and phenomenal second half to 2021 for investors is beginning to dim.

Proactive investors are taking this opportunity to read the road and make their smart moves before it is too late. For many this means keeping a significant amount of dry powder so that they can act when opportunities, like dropping asset prices, are presented. For others it means exploring the possibility of “safe haven” assets like gold that tend to benefit in climates of uncertainty and falling economic and business confidence.

It is too soon to know the extent of Delta’s economic impact. What we do know is that the situation is escalating and creating a picture much different than what most forecasted even one or two months ago. Medical professionals have also warned of the possibility that further variants can develop as we move into the winter months. The covid pandemic will end, but investors need to be prepared for a longer third act.

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On Monday, the Dow Jones Industrial Average plunged 1.72%, marking its biggest one-day drop since October. While the market bounced back Tuesday, stock market breadth has been declining, which is a warning signal that a correction may be near.

Wall Street defines a stock market “pullback” as a retreat of 5-10% and is a short-term dip. A “correction” phase is more serious and is defined as a 10-20% retreat from the recent high and can last several months.

Bear markets in stocks occur after a 20% decline or more that lasts two months or more.

One of the difficulties is that no one really knows if a pullback will turn into a correction, and if that correction will turn into a bear market. Panic selling, financial news stories and even social media can intensify investor fear, which in turn creates fresh stock selling and downside momentum.

Is your portfolio ready for a stock market correction, or something even more severe?

Consider this:

Bear markets tend to last on average approximately 16 months – or well over a year. During the 2007-2009 bear market, the S&P 500 crashed 57%.

Yet here in the U.S., Wall Street’s worst bear market occurred after the Great Depression. The Dow Jones Industrial Average took 25 years to recover to its previous peak.

In Japan, the Nikkei stock index still hasn’t fully recovered from the infamous stock market crash in 1991 – and it’s now thirty years later!

Japan’s Nikkei stock index hit its all-time high at 38,915 in December 1989 during an asset-inflated economic boom there (sound familiar?). The Japanese stock market crashed after the Japanese Central Bank was forced to tighten monetary policy, and it still has not fully recovered.

From 1991 until 2009, the Nikkei stock index etched a dramatic 81% decline.

Have you heard George Santayana’s quote?

“Those who cannot remember the past are condemned to repeat it.”

According to Santayana’s philosophy, history repeats.

More recently, the U.S. stock market has recovered from bear markets in a matter of years. But, history shows it can take decades to get back to breakeven.  Case in point – the U.S. stock market after the Great Depression and the Japanese Nikkei stock market crash.

In the U.S. we are currently in the midst of an equity asset boom – driven in large part by experimental Federal Reserve monetary policy with zero percent interest rates. The Federal Reserve has never before expanded the money supply like it has during the Covid crisis, unleashing the potential for inflation and possibly even severe inflation.

The recent jittery behavior in the stock market, combined with technical signals like declining market breadth (fewer and fewer stocks are making new highs), flashes a big red warning signal that volatility may lie ahead.

How would you fare if the stock market crashed 60% or 80% and then took decades to get back to breakeven? It happened before here in the U.S. and more recently in Japan.

Have you considered increasing your allocation to tangible assets like rare coins and gold and silver bullion? Both these asset classes historically delivered double-digit gains during inflationary periods and big stock market declines.

The canary in the coal mine is singing now. Are you listening?

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