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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A 2021 Central Bank Gold Reserves survey concluded that 21% of central banks plan to increase their gold reserves over the next 12 months. The question is why.

The one-word answer: uncertainty.

The same body of research found that 84% of the respondents cited uncertainty arising from the post-COVID recovery as a major influence over their decision to bolster their gold holdings. Interestingly, 52% of the survey participants indicated that they think global central banks will increase their gold holdings in the coming year. The World Gold Council explains that these moves highlight “the importance of maintaining liquid, uncorrelated assets in a reserve portfolio.”

Put simply, central banks are purchasing more gold today due to its performance during periods of crisis. The events of the last 15 months have made risk a central focus for businesses, governments, and institutions planning for the future. Central banks have made it a strategy to build their gold reserves not only to safeguarding against uncertainty, they also hold gold due to its lack of default risk, its ability to store value over the long-term, and its freedom from political risk.

The increase of gold purchases in central banks across the globe are also likely in response to fears of rising inflation. Previous research from the World Gold Council shows that “gold had an annual average return of 15% in years when the US Consumer Price Index (CPI) was higher than 3%.” Additionally, as international trade slowly resumes more countries are equipped with the capital to boost their gold reserves.

Gold has a heightened relevance in a world where uncertainty looms large. When gold is included as part of a diversified portfolio it serves as an uncorrelated asset and can provide additional protection as the value of the US dollar falls. This characteristic of gold has a strong influence over central bank stakeholders. Consider that the survey found that half of the responders believe the dollar will drop in value in the near-term.

However, the uncertainty that worries central banks is not just about the US. While, nearly 70% of those 18 and older in the US have received at least one dose of the vaccine leading to a strengthening economic recovery this return to normalcy is not evident across the globe. Many countries continue to struggle. Some of the most devastated areas are suffering their worst case count since the pandemic began. This environment has major implications for central banks everywhere including the US because gold is an asset used in international trade and has value that is universally understood.

Simply put, while the economic outlook improves in the US, the situation remains dire elsewhere. This is the reason central bank gold holdings are set to grow over the next 12 months. These anticipated purchases may bolster the value of gold due to both supply and demand dynamics and a heightened awareness of the safeguarding effect gold has on a diversified portfolio.

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