Recent headlines have been a constant reminder of destabilized relations with North Korea. As CNN reports, “The country has fired 21 missiles during 14 tests since February.” This frequency signals a powerful drive by North Korea to gain attention as a nuclear capability on the world stage. “Less than six years into his reign, Kim Jong Un has tested more missiles than his father and grandfather combined,” continued the reporting.

This development has alarmed Americans fearful that North Korea leader Kim Jong Un will soon reach a level of engineering sophistication necessary to incite a war. Meanwhile, the United Nations Security Council adopted a new resolution from the U.S. to impose new sanctions on the country. The move aims to limit oil imports, ban textile exports and stop joint efforts with other nations. Investors are taking notice.

In recent weeks, we’ve seen financial markets move in step with rising and falling fears stoked by Kim Jong Un. At the same time, gold has seen a rise as investors turn the the “safe haven” characteristics of the currency. Simultaneously, cryptocurrencies have risen for similar reasons. These tandem movements have led some to compare the two investments. “Approximately $155 billion in cryptocurrencies are in circulation around the world right now. Bitcoin by itself is at $78 billion, which is close to the $90 billion invested in all gold ETFs,” remarked Forbes. Some investors are asking where their assets are best held, in bitcoin or gold?

Proponents of bitcoin often advocate that the “supply is mathematically metered” and therefore much more likely to grow in value over time whereas “the global gold supply has inflated steadily over the last hundred years,” according to authors at ARK Invest and Coinbase Inc. While these statements are true, they ignore an important counter argument. Bitcoin is still exposed to “counterparty risk.”

We have previously discussed counterparty risk at Blanchard. In short, counterparty risk is the risk inherent in an investment, like equities, that involves another party. If this group doesn’t hold up their end of the deal you, as the investor, can be left holding the bag. A publicly traded company (like Enron) might reveal themselves as fraudsters losing millions of shareholder investments. The technological marvel and novelty of bitcoin often leads investors to forget that with such an investment counterparty risk is very real.

However, if the transactions behind bitcoin are purely democratic, peer-to-peer, and on a shared, open ledger, how does counterparty risk enter the picture? This is where we return to North Korea’s saber rattling.

Bitcoin needs the internet to live, gold doesn’t. In a full military strike, infrastructures like the country’s internet are likely to be a primary target. Gold survives even without the supporting structure of technology.

Bitcoin, like the fiat currencies it eschews, is man-made. Technology is such a ubiquitous presence in our lives we often forget that it’s even present. Bitcoin investors would do well to temper their support for such a new asset that has not yet been tested against the leveling effect of warring nations especially in the nuclear age.

In the U.S. investors are often fixated on the S&P 500, the Nasdaq, or the Dow Jones. Few know of the Caixin Purchasing Managers Index (PMI). Even fewer pay attention to it, but they should. Why? It’s an important industrial metal indicator for one of the world’s economic powerhouses.

China’s Caixin Manufacturing Index is expressed as a number. The figure represents the outcome of a survey of small and mid-sized businesses in China and their appetite for industrial metals like copper and nickel. Why does this matter? China is the world’s largest metal consumer and the second largest economy on the planet and the number is rising.

In August the figure reached a six-month high of 51.6. This value beat all expectations signalling a more robust than expected Chinese economy. The head of strategy for Asia Pacific and emerging markets at Merrill Lynch remarked, “The world economy is in a pervasive growth mode where 85 percent of the countries that we track in the world have PMIs that are above 50. That’s very, very high and I expect that to continue.” China’s healthy demand comes not only from industrial expansion and favorable economic tailwinds but also renewed focus on environmental improvement.

Recently, China committed to the average concentration of airborne particles by over 15 percent a year in 28 northern cities. As Reuters explains, “China’s efforts to control pollution have often roiled the prices of steel, iron ore and coal with output routinely curtailed as a result of emergency smog regulations and inspection campaigns.”

While industrial metals are used for infrastructure projects the measurement has implications for gold. Part of this reason stems from the fact that a strong Caixin PMI figure represents a strong Chinese economy. With a strong Chinese economy comes reinvigorated gold purchases. This is evidenced by an 11% year-over-year increase in coin and bar demand led, in part, by China. These numbers represent not only a commitment to building bullion reserves but enabling growth within the tech sector. The World Gold Council reported that in Q2 of 2017 “Technology demand registered its third consecutive quarter of growth: up 2% to 81.3t. Growth in wireless charging and development of features that use LEDs boosted demand. New smartphone handsets supported chip production.”

Components like memory chips are in constant demand. Meanwhile, LEDs, PCBs, and bonding wire are all common electronic parts requiring some amount of gold for production. Simultaneously, “Research into new applications for gold continued to grow” reported The World Gold Council.

Industrial metals build the factories. The factories build components that require gold. This connection underscores the value of a deeper interpretation of the

Caixin Purchasing PMI. The latest measurement comes amid the fastest expansion seen in 37 months.

As the world continues to evolve into a global economy we’re witnessing the pervasive effects of China’s industrial growth. While supply and demand have enormous influence our “flat earth” economy is so interconnected that even China’s environmental policy can impact prices.

Stocks in the US finished last week mostly lower as investors braced for impact from Hurricane Irma in Florida and eyed a renewed missile threat from North Korea.

The S&P 500 booked a weekly loss of 0.58%, with nine of its 11 sectors trading in negative territory on Friday alone. Dow Jones Industrial Average futures declined 0.86% for the week. Trailing behind the pack was the Nasdaq 100, which closed 1.29% lower for the week.

Despite slowly declining stock prices, the real talk of Wall Street was the continuing weakness in the US dollar. The US Dollar Index, which measures the greenback against a basket of 6 rival currencies, closed 1.54% lower for the week. This stout weekly loss brings the US dollar’s 3-month performance to -5.53% and its 6-month performance to -10.36%, putting it in correction territory.

During Friday’s trading session, the US Dollar Index briefly touched 91.06, which put it on track for the largest weekly decline since May 19, according to data compiled by Factset.

Generally speaking, a weak US dollar is a direct benefit to commodities that are primarily traded in US dollars, because US dollar denominated commodities become cheaper to purchase for foreign investors. The extremely weak US dollar certainly aided gold last week, as gold soared to $1,362.40 per troy ounce during Friday’s trading; a level not seen in two years.

Similarly, spot silver traded above $18.10 per ounce for the first time in seventeen weeks, marking its third consecutive weekly gain.

Analysts noted last week that a strong rally in precious metals is not unusual amid lingering North Korean missile tensions and a string of unprecedented natural disasters in the US.

“Risk aversion is creeping back into the markets on Friday as traders prepare for what could be another troubling weekend in the continuing standoff between the U.S. and North Korea,” said Craig Erlam, senior market analyst at Oanda Corporation, a foreign exchange data company.

When looking at the market from a macro perspective, the US dollar is in free fall, North Korea is still loosely threatening to launch nuclear warheads, the stock market has lost most of its momentum, and gold is absolutely soaring.

Moreover, as earnings season is officially over, there seems to be a lack of fundamental bullish market events that have the possibility of pushing the market higher in the next couple of months.

With this said, all of the ingredients seem to be present for a big spike in precious metals. Natural disasters, potential nuclear war, a flat stock market running on fumes, and Washington in political deadlock are all significant factors to market participants around the world.

Additionally, gold analysts noted last week that many institutional investors are not heavily invested in risk-averse assets.

“Wall Street is heavily under invested in precious metals, and even a little bit of capital flowing into these markets can spark a much larger price run,” said Peter Spina, president and CEO of precious-metals data firm Gold Seek.

This is truly fantastic news to gold bulls, because institutional investors on the Street arguably have the most influence on market prices. And if even one of the current issues facing the market takes a turn for the worse, an institutional flight to safety could easily send gold soaring even more than it already has.

Stocks in the US closed out the final week of August with a bang. Major stock indices rose the most on a weekly basis for all of 2017 amid signs of a strengthening economy and favorable economic data.

Although stocks initially sold off on Tuesday of last week, markets quickly rebounded on an intraday basis and managed to close positive for the entire week.

The Nasdaq Composite Index had its best weekly rise of the whole year as it finished with a weekly gain of 2.7%. Most of the Nasdaq’s gains came from the biotech sector. The Nasdaq Biotechnology Index finished the week nearly 8% higher following groundbreaking FDA approvals and bullish industry merger news involving one of the largest biotech companies, Gilead Sciences (GLD).

Following in the footsteps of the Nasdaq, the S&P 500 closed the week with a nice gain of 1.4%. The Dow Jones Industrial Average, however, trailed behind with a weekly gain of 0.8%.

Many analysts were impressed yet equally cautious with last week’s gains because of the extremely low liquidity ahead of Labor Day weekend.

“It’s hard to draw any real conclusions on the activity in the market this week because volumes are just so low,” said Art Hogan, chief market strategist at Wunderlich. He went on to note how “you could basically see volume decrease by the hour,” when referring to last week’s gains coupled unusually light trading volume.

Since economic data was the primary focus of last week’s market moves, gains weren’t just limited to stocks.

Although the hiring pace slowed and the unemployment rate rose slightly, job wages rose less than expected. According to the Labor Department, hourly average earnings ticked up just 0.1% from the prior month. Market participants were expecting a wage increase of 0.2%.

Slower than expected wage growth is particularly bullish for stocks, but it’s also bullish for precious metals. This is primarily due to the fact that wages are still rising at what seems to be a perfect rate.

Continued wage growth will likely cause more consumer spending, which is a direct boon to the economy, but this level of low wage growth may alter the Federal Reserve’s rate-hike agenda.

“It’s right now in the sweet spot where it’s enough to drive consumption but not enough to lead inflation jumping up so the Fed feels it needs to be more aggressive. It’s also not affecting profit margins yet,” said Sameer Samana a global quantitative analysts at Wells Fargo Investment Institute.

Lingering nuclear drama from North Korea and a plausible delayed rate-hike path was enough to send gold for September delivery soaring 2.5% for the week; it’s largest weekly rise in well over a year. September gold futures traded as high as $1,334.5 per ounce on Friday before closing at $1,329.90 to make a new YTD high.

Besides the perfect amount of wage growth, other economic data also points to a likely delayed rate hike. August’s job creation of 156,000 with an unemployment rate of 4.4% is leading many analysts to speculate that the Fed might actually hold off on rising rates another time in 2017.

The current consensus is that the Fed will hike rates one more time in 2017. However, if this doesn’t happen due to economic data that has the perfect balance of helping the overall economy but causing the Fed to hold off on interest hikes, it will likely be a direct boon to both stocks and everybody’s favorite precious metal – gold.

After an ominous sell-off on Monday of last week, markets in the US mostly recovered from two consecutive weeks of losses. S&P 500 futures made a three-week low of $2,215.75 on Monday morning, and market participants were evidently waiting to buy the dip.

After all three major benchmark indices made their respective low points on Monday, prices immediately started climbing again. The rally carried into Tuesday, where the Dow Jones Industrial Average had its best one-day rally in months. The Dow, Nasdaq, and S&P 500 all closed with more than a 1% gain. This rally gave stocks the boost they needed to snap a two-week losing streak.

Despite the very strong gains in stocks, there were also several sharp sell-offs last week that caught investors off guard. And although stocks finished largely higher for the week, the significant sell-offs that came after the sharp rallies resulted in a lack of clear direction and an overall mixed trend in the markets.

Volume on the on the New York Stock Exchange and Nasdaq fell to the lowest level of 2017 on Wednesday. Analysts attributed the lower than usual volume to the lack of economic events and the end of summer. The lower than usual volume provides a possible explanation for the gyrating market moves last week.

“Most people are away, so moves tend to be amplified for no good reason. Technical analysts may point to the 50-day moving average of the S&P 500, which the index keeps failing to break through,” said Michael Antonello, an equity sales trader at Robert W. Baird & Co.

Despite the lack of economic reports last week, the were a few speeches and key events that influenced the markets. The annual central bank symposium in Jackson Hole caused a somewhat mixed reaction. Most of the gains that came immediately after Federal Reserve Chair Janet Yellen’s speech at Jackson Hole, which was supposed to outline monetary policy.

However, Yellen refrained from talking bout fiscal policy and the economy and instead focused on the substantial progress towards full employment and improved banking regulations. With a lack of additional bullish drivers, stocks pulled back shortly after Yellen’s vague comments.

Yellen was not the only Federal Reserve member to influence the markets last week. Remarks from Dallas Fed President Robert Kaplan regarding the effect a stock market correction would have on the economy instigated a huge spike in safe haven assets.

Gold rapidly spiked to $1301.40 per ounce before declining to $1,282.30 and then recovering just below the $1,300 level. 

Although nobody truly knows if a stock market correction is looming around the corner, the mere mention of a market correction by a Fed President was enough to cause gold to surge.

Since 1975, Blanchard has successfully helped 450,000+ clients invest wisely in precious metals and rare coins. Our team of experts are always here to help you make the right investment decisions and capitalize on opportunities in the precious metals market.

Call us today at 800-880-4653

Stock market volatility screamed higher last week as the CBOE Volatility Index (popularly known as the Fear Index) soared over 30% in just one day.

Political turmoil in Washington D.C., combined with a lack of any substantial policy achievements are taking a toll on the stock market.

After all, a large part of the optimism that drove the stock market sharply higher in the months after the November 2016 U.S. presidential election were expectations that the new White House, combined with the Republican Congress would be able to push through significant economic-stimulating legislation.

Let’s look at what’s happened so far in Congress:

• Health care legislation has stalled.

• A major infrastructure spending bill is on the back-burner.

• Tax reform remains a possibility, but likely at a lower scale than previously expected.

Q: What does this mean for investors?

A: Brace for a correction

The Stock Tide Is Turning: It’s Official

The stock market took it on the chin last week. The S&P 500 closed lower on the week and fell below its early August swing low. In technical trading terms – the sell-off broke the daily uptrend pattern. A new minor downtrend is evolving on the daily chart and it is only a matter of time before investors know how deep the correction will become.

Bear Market Basics

When stocks are going up, it is all too easy to forget about the down market cycles.           

• A Pullback = 5-10% decline in the stock market

• A Correction = 10-20% decline in the stock market

• A Bear Market = 20%+ decline in the stock market

Here are some important historical points or “bear market basics” from Sam Stovall, chief investment strategist at CFRA. 

In the stock market, since WWII, there have been:

• 56 Pullbacks
• 21 Corrections
• 12 Bear Markets

Recent History

A 50% decline in the U.S. stock market occurred from 2000-2002 and again in 2007-2009.

Is Your Portfolio Prepared? 

Gold has historically performed the best, when the stock market cycle is at its worst.

The average gold return hit 14.2%, when the S&P 500 fell 20% or more – going back to 1968, according to a recent Wells Fargo Investment Institute report.

Now Is the Time to Act

Gold prices are already rising. If you are looking for a way to hedge your portfolio against a stock market correction or even worse, historically gold rises when equities fall.

Call Blanchard today at 1-800-880-4653 to speak with a portfolio manager about personalized recommendations that make sense for you and your financial future.