Can Fed’s big-gun response work?
Posted on — Leave a commentWe woke up to a Monday like no other.
Daily life around the world is grinding to a halt as the virus crisis spreads. The Federal Reserve stepped in on Sunday with a dramatic, all-out attack on the growing economic and health crisis spurred by COVID-19.
In the second emergency rate cut this month, the Fed slashed interest rates to 0% – 0.25%, the lowest level since the 2008 global financial crisis.
In recent days, the U.S. stock market crashed into a bear market in a stunning 22 calendar days, making this the quickest collapse since WWII.
Despite the Fed’s emergency action, stocks continue to plunge, hitting “limit down” in pre-market action Monday. Even circuit breakers and 0% interest rates can’t stop the carnage and the market appears ready to fall further today.
The Fed also announced it is restarting “quantitative easing” also known as bond buying, in an attempt to keep markets moving.
What Lies Ahead?
The country is facing an economic challenge of gargantuan proportion.
While economists expect a recession given the health-inspired required closures around the country. From restaurants and bars to schools, the country is closing down.
The U.S. economy hasn’t even officially entered a recession, yet the Fed is already out of bullets. It used up its stimulus powers and hit the zero level before we even registered a fall in GDP in two consecutive quarters (the official definition of a recession).
On the fiscal side, policymakers already enacted a huge tax cut in recent years, which increased the U.S. debt. The Fed is out of bullets. The government has already cut taxes. The only options left are negative interest rates, more money printing and expensive bailout packages that will need to be paid back by tomorrow’s workers.
The failure of the government to improve the country’s financial situation in good economic times, leaves our country faced with bleak options during bad economic times.
What lies ahead will mortgage the next generation’s economic future and further tie the hands of policy makers to spend on programs that matter most, as an increasing amount of funds will be required to go to interest on debt.
In this Environment, Gold Shines Brightly
Gold is a hard asset that can’t be devalued by the Fed’s printing presses. As investors across the country watch their net worth fall by the minute, owning gold makes more sense than ever in order to preserve and protect our wealth.
Yes, gold is selling off now. In large part because investors are selling what they can right now to meet stock market margin calls.
The recent stock market gains were leveraged to the hilt with margin buying. The stock market crash has brokerage firms around the country calling in their chips. Investors who own gold – are selling to meet their margin requirements.
Gold is acting as the insurance policy that it is – a financial instrument that provides liquidity during times of crisis.
In these uncertain times, it can be helpful to talk with a trusted advisor. Blanchard is here for you. Please call us today if you have questions. We have answers.
Stay safe.
PS: News is rapidly evolving. For the latest on precious metals, be sure to follow us on Facebook and Twitter, read our latest articles and download our app.
Strategizing Investments as The Global Economy Enters a Pandemic
Posted on — Leave a commentAs of this article there have been 121,061 confirmed cases of the coronavirus worldwide resulting in 4,368 deaths. Recently, the World Health Organization declared the coronavirus a pandemic. As a result, businesses have begun to feel the effects. Supply chains have been disrupted, consumers are distracted, and equity markets are in steep decline. Since the start of the year the S&P 500 has plummeted more than 15%.
In the opening remarks of the March 11th World Health Organization (WHO) briefing we learned that “In the past two weeks, the number of cases of COVID-19 outside China has increased 13-fold, and the number of affected countries has tripled.” This message, and the numbers behind it, have incited fear in equity markets. Goldman’s chief equity strategist, David Kostin has taken this recent upheaval as a clear indication that “the S&P 500 bull market will soon end.” Their research has led them to conclude that the S&P 500 will decline by 3%, 15%, and 12% in the first, second, and third quarter of this year respectively.
The essential problem facing both medical professionals and investors is the same: uncertainty. There is still much that is unknown about the coronavirus. As a result, the future is difficult to predict. This obscurity has left investors fleeing to assets that are more durable stores of value during turmoil. For many, gold is such a place.
In response to this strategy, experts at the World Gold Council have referenced gold pricing data from the 2003 SARS epidemic as a corollary. While there are many differences between the coronavirus and SARS, both share the characteristics of being a health crisis that looms large in the global psyche. During the SARS epidemic gold, at one point, reached an “intra-quarter maximum of 16%.” Moreover, as recently as late February the Wall Street Journal reported that gold reached a “fresh seven-year high as investors flee riskier markets.” Like any crisis, the coronavirus has presented investors with reasons to be fearful, while also offering opportunities.
Gold may provide short-term appreciation amid turmoil. However, for many, the benefits are downstream. An investment in gold today represents a way to potentially limit volatility that is likely to persist for some time. Two days ago, the CBOE Volatility Index (VIX), a popular measure of investor sentiment, reached its highest point since the global financial crisis. The VIX rises when investors are fearful and falls when investors are confident.
The Bottom Line:
Medical professionals are unclear on what lies ahead, but they have seen enough to know it is not good and that the situation will likely worsen before improvements begin. As the WHO Director-General remarked, “This is not just a public health crisis, it is a crisis that will touch every sector – so every sector and every individual must be involved in the fight.”
Taking a cue from this uncertainty, equity and bond markets have reacted with plummeting values and soaring volatility. While frightening, investors have an opportunity to reconsider their strategy and reevaluate their asset allocation in the context of what will prove to be “the new normal” in the coming months. Gold should be part of that allocation model.
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1806 Draped Bust Silver Half Dollar
Posted on — Leave a commentShe is a busty beauty with flowing long hair.
This 1806 classic silver half dollar, the Draped Bust, has outstanding eye appeal and a natural heft to hold in your hand.
Congress first authorized the creation of a half dollar in April, 1792. The Draped Bust version was struck from 1796 through 1807.
Collectors have numerous varieties to choose from when selecting 1806 half dollars. The one in our current inventory is one of the rarest: a Pointed 6 and, on the reverse, with stems through claw.
These coins were engraved by the very first Chief Engraver of the U.S. Mint – Robert Scot. The obverse features Liberty with long flowing hair facing right. LIBERTY and the date are featured at top and bottom with 13 stars encircling the coin.
The reverse reveals a heraldic bald eagle design. The eagle as it holds arrows and an olive branch with its talon, our version shows the stems through its claw.
Silver half dollars from the Flowing Hair motif to the Draped Bust version to the Barber half dollars have attracted a large and active collector base. This outstanding specimen will appeal to numismatics of high quality rarities as well as those specializing in early half dollar varieties.
A Year to Remember
Thomas Jefferson was president in 1806. This year also marked the date when the Lewis and Clark expedition reached the Pacific Ocean and began traveling home. Congress authorized the first National road, which became today’s Federal Highway system. Andrew Jackson fought his second duel in this year, killing Charles Dickinson who accused Jackson’s wife of bigamy.
Looking Back
In 1792, Congress passed a law stating that American money must be made of gold, silver and copper. In the early years, the U.S. Mint used gold to create the $10, $5, and $2.50 pieces. The dollar, half dollar, quarter, dime, and half dime were made of silver and the cent and half cent were made of copper.
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Is the Fed Panicking?
Posted on — Leave a commentThe Fed can’t stop the spread of COVID-19. But, it’s doing what it can.
In a shocking and aggressive move designed to boost consumer and business confidence, the Federal Reserve slashed interest rates by 50 basis points Tuesday morning, acknowledging economic risks from the fast-spreading coronavirus.
This is the first emergency interest rate cut since the 2008 Global Financial Crisis and only the ninth emergency cut in history.
Never before has the Fed responded to a health crisis with a monetary policy move, which continues to call into question the independence of the central bank in the current environment. The 0% level is closer and closer. The fed funds rate now stands in a range between 1% and 1.25%.
Gold prices shot nearly $50 an ounce higher on the emergency move, trading as high as $1643.90. Stocks rallied in a knee-jerk response, but then fell back to lower levels. The stock market remains in the midst of the sharpest sell off since the 2008 financial crisis.
Fed Chairman Jerome Powell admitted in a press conference Tuesday, “We do recognize a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain.”
With financial markets in turmoil, the emergency rate cut was designed to inspire confidence. But, can it?
Public health officials are now warning that the global spread of the coronavirus cannot be contained. Economists are warning that a full-blown epidemic, which infects one-third of the American population, could push the US into a recession.
The Fed’s rate cuts may buy some time. But, with the zero-bound level closing in, the central bank is increasingly impotent, out of bullets and beginning to lose credibility on Wall Street.
Who does this hurt? Lower rates hurts savers and interest rates near zero weaken the fundamentals of the banking system. Driving rates to zero failed to rescue Japan and Europe’s economies in recent years. Can it really help here?
Investors are panicking. The Fed is panicking. Remember a quote from economist John Maynard Keynes: “The market can stay irrational longer than you can stay solvent.”
The Fed’s next scheduled meeting is March 17-18. Economists expect the Fed may slash interest rates another 25 basis points mid-month.
Gold is a safe haven in an increasingly irrational world. Even prior to this outbreak, it was clear that gold was in the early stages of a dramatic new bull market. Many on Wall Street are saying gold could climb above $2,000 an ounce over the next year.
Panic equals opportunity.
Before the Fed acts again, make some moves to ensure you portfolio is properly diversified with an allocation to tangible assets. Gold is heading even higher this year. Count on it.
Fear Drives Stocks Into Correction Territory
Posted on — Leave a commentThere is an old market saying: Stocks take the stairs going up and take the elevator down.
That was evident last week as the Dow Jones Industrial Average collapsed as much as 12.4%, falling into so-called correction territory (declines of 10% or more). The eye-popping stock selling marked the worse week since the 2008 Global Financial Crisis. Apple and Microsoft lost a combined $300 billion.
The coronavirus has now spread to 60 countries around the globe. Economists highlighted concerns about how quarantined towns reduce economic activity and global growth forecasts have been downgraded to 2.4% from closer to 3% in 2020. But, if the coronavirus officially becomes a global pandemic, economists warn the economic impact could be much worse with the potential for the U.S. to fall into a recession.
If you were rattled by the shockingly massive losses on Wall Street last week, you aren’t alone.
No one likes to see the account balance on their 401k or investment accounts fall by 10% in a week.
Successful investing involves a thoughtful diversification plan that is uniquely tailored to your risk tolerance level and takes into account your time horizon (when do you want to use the money) and your long-term financial goals.
If you became fearful last week, it could be a sign that you don’t have proper asset allocation in place for your portfolio.
One of the key benefits of portfolio diversification is the choice to own non-correlated assets. That simply means when one asset goes down (stocks for example), another asset goes up (gold for example).
The Dow Jones Industrial Average closed last week 10.96% lower for the year. After climbing to a new 7-year high, gold gave back a portion of its gains finishing last week about 3% higher for the year. That is what non-correlated assets means. Stocks down 10.96% and gold up 3%.
Investors who held a portion of their portfolio allocated to tangible assets like gold lock in better long-term return with less volatility during stock market declines.
Gold has what is known as a “low beta.”
From 1987-2019, a stern test, which included the 1987 and 1989 stock market crashes, the dot.com collapse, 9/11 and the subsequent recession and the 2008 Global financial crisis found that the volatility of returns on gold relative to the stock market was relatively low. The 4.9% average annual return on gold means that investors would have reduced the volatility of typical portfolios without sacrificing returns, according to a February 2020 study by Penn State University’s RL Associates.
If last week’s volatility was too much for you, it could mean your portfolio isn’t properly diversified. It’s not too late to adjust your allocation to allow you to successfully manage volatility going forward. If you’d like personalized recommendations, call a Blanchard portfolio manager at 1-800-880-4653 today.
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Celebrating Mardi Gras: The History of the New Orleans Mint
Posted on — Leave a commentIt was the year 1835. Large quantities of gold were being shipped overland to the East, only to be waylaid by bandits en route. So the U.S. Congress, in a moment of wisdom, declared that branch mints be established in three southern cities, including the grand dame herself: New 
Orleans.
From its beginning, the New Orleans Mint was vitally important. One reason is New Orleans’ location at the mouth of the Mississippi River, which made it pivotal for trading throughout the Midwest. Additionally, more foreign trade was transacted in New Orleans at the time than in any other city in America. Vast quantities of gold and silver minted in Mexico and South America flowed into the city. And then there’s the fact that there was simply a woeful shortage of coins at the time. The Philadelphia Mint had been our nation’s only mint before 1838, the U.S. was rapidly growing, and—as we all know—paying for stuff in gold dust gets cumbersome after a while.
Things cranked along without great incident at the New Orleans Mint until, in 1861, the Confederate States of America seized the facility from the state of Louisiana, which had seceded from the Union. This was one of the South’s first acts of defiance (if you want to make an impact, hit ’em in the purse strings). The mint struck four half dollars with a Confederate design on one side, but all coin production quickly stopped, as the facility suffered from dwindling resources and increasing disarray.
After a little over a year of Confederate rule, the Union captured New Orleans and instituted a severe and unpopular period of martial law. The two-way hostility is perhaps best exemplified by this incident: a riverboat gambler climbed onto the roof of the mint, tore down the U.S. flag that hung there, and ripped the flag into shreds. The Union military governor of the city then had him hung—from a flagstaff projecting horizontally from the mint building.
The mint building served as an assay office for a while, until coin production resumed in 1879 with the Morgan Silver Dollar and continued until 1909. Today, the mint building houses a museum.
Apple Revenue Warning Sends Stocks Skidding, Gold Soaring
Posted on — Leave a commentApple’s (AAPL) unexpected warning to investors was bleak. The tech giant issued guidance last week that it won’t meet its first quarter revenue goals because of the coronavirus.
Gold surged to a 7-year high as investors around the globe began dumping stocks and buying precious metals as fears around the coronavirus economic impact, now known as COVID-19, spread further.
While economists have warned about the potential economic disruption from the pandemic, 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. COVID-19 has forced the closure of manufacturing operations and also retail stores in China.
Apple is far from alone. Many multi-national U.S. corporations do big business in China. UnderArmour and Canada Goose also warned that the coronavirus will damage their profits.
Gold is showing the beginnings of a runaway bull market as a bullish breakout is emerging on the daily technical chart. Significantly higher levels are forecast, with gold over $1677 an ounce at the time this article was written.
Last week, 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.
“We see such a rally being driven by the continued search for yield, increased demand for portfolio diversification and higher political uncertainty” with gold being “a strategic allocation to protect a portfolio from geopolitical risks such as the current outbreak, de-dollarization and negative real yields,” Goldman Sachs analysts wrote.
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.
It’s not just gold that is benefiting from the stock market selling and economic uncertainty, silver climbed sharply higher last week also, topping the 18.70 cents zone.
The coronavirus outbreak is still an unfolding situation. It’s unclear if it will continue to spread more rapidly outside of China. But, initial economic damage has already been done, as Apple told investors last week. How much more economic damage remains to be seen.
Is your portfolio fully diversified? Blanchard recommends holding up to 15% of your portfolio in tangible assets to protect and grow your wealth through all market cycles. The bull market in gold is just getting started. Gold climbed 18% last year. Don’t miss out on another round of gains this year. It’s not too late to add more gold to your portfolio. Get started here.
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Three-Cent Silver: Solving the problem of scarcity
Posted on — Leave a commentThe US three-cent silver coin was one of the many repercussions of the California gold rush. The country experienced a surging supply of gold as new discoveries opened in the east. This development created an economic scenario in which the price of gold relative to silver dropped. Thus, silver could be traded for ever increasing amounts of gold. As a result, a shortage of silver developed in the country. This was the new setting in which the three-cent silver coins emerged.
To solve this problem of scarcity, New York Senator Daniel S. Dickinson, drafted legislation calling for a new coin. The piece would consist of .750 fine silver meaning that the composition would be three parts silver and one-part copper, making it the first American coin to contain metal valued significantly less than its face value. There were fractious debates over the legislation. However, the idea found momentum once Congress began considering dropping the postage rate from 5 cents to 3 cents. By 1851 the bill passed.
When it was time to design the piece, many considered simple images best. The reason: the coin was so small in size that it could only feature basic shapes, otherwise no one would be able to appreciate such small detail. For these reasons, it was decided that the obverse side of the coin would feature a star in reference to the national crest with the shield of the Union in the center, and the reverse side was an ornamental “C” with the Roman numeral “III” in the center. The perimeter featured a ring of thirteen stars.
Officials minted three types over the years. The bulk of the minting occurred in Philadelphia. At first, many recoiled from the uncommonly small size. Type I (1851-1853) was originally minted with 75% silver and 25% copper to discourage melting down of the coins for their silver content…and they quickly became dirty and discolored. This led to the nickname “fish scales” at the time. Type II (1854-1858) came as officials increased the portion of silver in the piece to .900. Other changes were aesthetic. The star featured a triple line around the perimeter, and an olive branch and bunch of arrows. Type III (1859-1873) included only minor changes to one side of the coin most likely to improve the striking process.
By 1870 President Ulysses S. Grant signed the Coinage Act of 1873. The direct result was the abolishment of two-cent, and three-cent pieces and other coins. This de-authorization meant that the US Treasury would need to withhold the piece they had already minted. Instead of circulating the currency they would melt the coins and use the metal for other pieces of currency.
Today, the 1851-O three cent silver remains one of the more sought-after versions of the coin because it was one of the few minted outside of Philadelphia. It is the only coin of this type struck at the New Orleans Mint. 720,000 pieces were issued. For most collectors the uncommon “O” mint mark is what makes the coin so collectable. Additionally, the coin represents an unusual period in US history in which the country was still finding its way and, in the case of the Type III coin, navigating the impending Civil War.
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Is Your Portfolio Ready For Super Tuesday?
Posted on — Leave a commentSenator Bernie Sanders still has a long way to go before he’d get the green light to move into the White House.
Yet, the recent Iowa Caucus, which appears to be a tie between Sanders and moderate Pete Buttigieg, reveals strong support for the Vermont Senator’s progressive policies.
The stock market continues to edge to new all-time highs and for now is shrugging off the Sanders surge.
Are stock investors complacent about the potential risks that lie ahead? Maybe.
Many on Wall Street warn that a Sanders presidency could be bad for the stock market, inflation and the deficit.
What about gold?
Gold had a great year in 2019, up 18%. But, that rally is far from over.
Wolfe Research recently predicted that gold would break out to a new all-time high. Others on Wall Street believe gold could shoot above $2,000 an ounce on Election Night if Sanders wins the presidency.
What’s behind these predictions?
- Raise corporate taxes. Sanders wants to reverse the Trump corporate tax cuts. He wants to hike the corporate tax rate back to its pre-2017 level of 35%, which could be a major drag on the stock market.
- Break up big firms. He wants to break up big firms like technology companies. Sanders backs stronger anti-trust policies and breaking up big companies could weigh on profit margins and would be negative for stocks.
- Extreme wealth tax. Sanders has called for an extreme wealth tax on the highest income Americans that would start at 1% on those with net worth over $32 million and rise to 8% on wealth over $10 billion.
- Cancel student debt and make college free. Sanders proposes to make tuition free at public colleges and to wipe out the $1.6 trillion in student loan debt.
- Medicare for all. All healthcare would be free for all Americans.
No matter your political leanings or views on the above issues, Wall Street and economists warn that policies like these could trigger a major sell-off in the stock market and create uncertainty.
Here’s what Capital Economics wrote on Feb. 7 about Sanders: “Several of his policies look very negative for US equities. If his support continues to climb that could start to weigh on the US stock market.”
How will our nation already saddled with $22 trillion in debt cover the ambitious proposals like health care and college for all? Less corporate friendly policies could sink stocks and mark an end to the current 10-year bull market in equities.
If you are looking to protect and grow your assets ahead of the 2020 U.S. presidential election, gold remains in an uptrend and could skyrocket higher if the Democrats appear to be gaining ground. Super Tuesday is just around the corner. Have you fully diversified your portfolio with tangible assets? We can help.
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The Future of Gold Mining
Posted on — Leave a commentGold mines are becoming more difficult to source and maintain.
Consider that the global nonferrous exploration budget remains below the 2014 level. Moreover, between 2012 and 2016 this figure dropped each year.
The S&P Global Market Intelligence Report adds color to these numbers by explaining that, “our research has long shown that the mining industry is allocating an increasing proportion of its exploration spending to advanced projects and mines. This tends to become more pronounced during downturns, as juniors opt to spend scarce funding on proven assets rather than on riskier early stage exploration.”
It’s not surprising to learn that some of the biggest earners in the mining industry are allocating only small portions of their budget to exploration. In recent years there has also been a drop in the ratio of exploration spending to adjusted revenue. The S&P report continues, “it seems unlikely that the ratio will improve going forward, as consolidation at the top of the industry generally results in lower exploration.” Many major mining operations are in agreement that the best strategy is to become better at leveraging the value of mines they already have rather than source increasingly scarce deposits.
Put simply, the future of gold mining appears to be one of diminishing returns.
This forecast makes intuitive sense. After all, gold is a finite resource. Eventually, waning deposits will fall at a faster rate than the ascendance of the technological capabilities behind exploration and mining. This dynamic becomes even more acute as factors surrounding the industry experience upheavals of their own. Examples include the Coronavirus, geopolitical tensions, and waning fiscal stimulus.
These factors explain, in part, why the largest mining companies have allocated less than half of 1% of their budgets to what they call “grassroots” exploration. These are exploratory efforts aimed at finding fresh, new deposits. In fact, this portion of mining budgets is at a record low.
Those who monitor this industry often look at something called the Exploration Price Index (EPI). This number “measures the relative change in precious and base metals prices, weighted by the percentage of overall exploration spending for each metal as a proxy of its relative importance to the industry at a given time.” More simply, it is a single number offering insight into the state of the mining industry. For example, the EPI falls when financing activity declines in the mining industry as a result of diminished metal prices.
The dynamic between a record low grassroots exploration budget and the continued growth in the value of gold might explain why Thomas Rutland, the research analyst behind the S&P Global Market Intelligence Report stated “metal prices should trend upward during 2019, although volatility is likely.” A look back on 2019 shows that sentiment to be true.
As gold investors look to the future, they should look beyond market sentiment, and trending gold purchases. While important, these factors are only part of the picture. The S&P research, and data points like the Exploration Price Index are reminders that the eventual depletion of in-ground gold will also create influence on long-term process.
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