There’s no question that 2016 has been one of the most interesting and surprising years for every market across the globe. In US equity markets during the beginning of the year, January and February were home to some of the most consecutive violent selloffs and volatile trading days in history.

Major US indices plunged 10% in a matter of days, and this launched everybody’s favorite precious metal, gold, into a tremendous month long rally before it finally plateaued.

About five months later, in the early hours of June 24^th, the United Kingdom voted in favor of withdrawing from the European Union which caused the British pound to suffer its worse intraday loss in history. Major US, European, and Asian stocks also suffered brutal beatings before US index futures temporally halted trading on the CME due to the relentless selloff.

Because an event like the UK leaving the EU (Brexit, as its colloquially called) has never happened before, volatility and gold saw some of their biggest rallies since the infamous collapse of Lehman Brothers in the midst of the 2008 financial crisis. After it was determined to be highly implausible for the UK to remain in the EU, gold rallied more than 8% while volatility spiked a whopping 70%.

Shortly after this Brexit induced selloff in global stocks and currencies, almost every large cap index fully recovered and made new highs within a matter of weeks; to many investors, this rally displayed the tremendous strength and resilience of an almost decade long bull market. Moreover, despite much of the fear rapidly draining out of the marketplace during the global equity rally, gold continued to make new yearly highs and stayed well above $1,300 until the beginning of October.

Markets around the world were fairly quiet until November 8^th came around. Throughout the night of November 8^th as votes slowly poured in to determine the next president of the United States, the main US stock index futures (S&P, Nasdaq, & Dow) began free-falling in unison before trading was eventually halted to stop the carnage; the similarities between Brexit and the US election are shocking.

Of course, investors flocked to gold for safety, and gold futures traded all the way up to $1,338, which was 20 dollars higher than the final closing price during Brexit. However, something very interesting happened in the middle of the miniature stock market crash that night. Sentiment completely changed when news broke that the famous billionaire activist investor Carl Icahn left a celebration party early to buy $1 billion in US stocks.

Like a volcano erupting from the ground, the S&P 500, Nasdaq 100, and Dow Jones futures all shot up with so much velocity that investors didn’t physically have enough time to cover their hedges and short positions. This 5% reversal in only a few hours was likely one of the biggest in recent history besides the flash crash in 2010. Needless to say, the rally in gold was short lived and the precious metal barely finished positive for the trading day. Additionally, in the fixed income market, the 30-Year US Treasury Bond futures plummeted as a result of the unexpected election outcome.

Since then, US stocks have enjoyed quite a healthy month-long rally with only a few negative days. As for the precious meals, gold and silver pared most of their event driven gains. For all of 2016, however, gold is still up around 9% which is an extremely decent year-to-date ROI.

Moving forward, many analysts and market pundits are completely unsure of what effect the new year and new president will have on markets. It is interesting to note, however, that in times of widespread uncertainty, like starting a new year with unprecedented political and economic forces, it pays (quite literally) to own risk averse assets like gold.

There is a psychological phenomenon known as “Recency Bias.” Financial advisers have discovered that investors often fall prey to this tendency, where individuals remember most easily something that has recently happened as opposed to circumstances from awhile back. 

How does this relate to investing and the markets? Investors sometimes have short memories.

Here’s a Quick Quiz: What do you remember most about the stock market in 2016?

The dramatic stock market plunge in January 2016 which saw the S&P 500 drop like a rock from the opening bell amid fears the Chinese economy could trigger a global recession?

A. The S&P 500 plunged from 2043 on Dec. 31, 2015 into the Feb low at 1810 a swift 11.40% decline in roughly six weeks

or

B. The rally to new all-time highs in the S&P 500 in December 2016

If you answered “B” you aren’t alone. For most investors the stock plunge 12 months ago is distant history.

Here’s another question: What do you remember most about the gold market in 2016?

A. The 29% rally in gold prices from January-July 2016

or

B. The post-presidential election sell-off in gold which tugged the market from a high at $1,341.00 per ounce on Nov. 9 to a low at $1,124.30 on December 15

Don’t fret. If you answered “B” you aren’t alone.

Investors easily remember the most recent history and sometimes erroneously make decisions about their portfolio based on that.

Solid Yearly Gains In Gold And Silver

Gold scored a solid 8.68% gain year-to-date through Dec. 30, while silver gained almost double that at up 16.04% on the year. It might not feel like that though since the markets have tumbled off their summer highs.

It is worth acknowledging the existence of the Recency Bias and more importantly using the information to make objective decisions about your portfolio.

Gold: The Long-Term View

While nearby gold futures traded in a range from $1,055 -$1,387 per ounce in 2016 that is a far cry from where it traded in 2000 and 2011. Let’s take a look at Figure 1 below a monthly chart of nearby gold futures.

Gold is near levels where heavy physical buying emerged from long-term investors in 2015. That means metals could be approaching a good buying opportunity. Don’t get tripped up by the Recency Bias. Take the long-term view, especially when it comes to your investments.

Despite the pullback in gold and silver prices in the second half of 2016 both precious metals are still ringing up year-to-date gains for the year.

-Silver is the leader in 2016 scoring a 13.90% ytd gain

-Gold is closing out the year with a solid 6.75% increase

Precious metals investors may be disappointed by the price slide in the second half, but it is useful to take a look at the long-term view.

The significant rally which took gold from a low at $1,065 per ounce at the start of 2016 to a summer high just above $1,385 per ounce revealed a resurgence of long-term bullish investor in both gold and silver.

Gold had been declining from its all-time high above $1,900 per ounce (hit in September 2011) and 2016 was the year that broke the multi-year downtrend in the metals.

What Does This Mean For 2017?

Gold and silver are retreating to a long-term “value area” for buy-and-hold physical metals investors. The multitude of factors that woke up gold and silver bulls in 2016 largely remain intact and will provide a floor for the markets in 2017.

6 Factors That Will Support Metals Prices Ahead

-The Federal Reserve May Not Raise Rates As Much As The Market Expects
-Inflation Is Expected To Rear Its Ugly Head Next Year
-A Variety of Geopolitical Flash Points Are Heating Up
-A Number Of European Elections Could Leave The Stability and Future Of the EU In Question
-Negative Interest Rates Remain Intact in Europe and Japan
-Increased US Protectionism Policies Could Restrain American and Global Growth

2017 Growth May Under perform

Morningstar released its quarter-end insights report and projected an anemic 1.9% Gross Domestic Product pace in 2017. Has Wall Street overshot reality?

Don’t forget the current U.S. economic expansion phase began in June 2009 and is old at 73 months. That is well above the average 58.4 months of expansion seen during the 11 cycles since 1945, according to the National Bureau of Economic Research. It’s simply getting late in the cycle and markets will need to adjust in 2017.

As the year comes to a close, gold and silver have tumbled off their mid-year highs as stocks climb in what some say is another bout of irrational exuberance.

Investors should brace for a stock market correction in the first quarter of 2017. When those pullbacks in equity markets around the globe begin to unfoldthe rush toward silver and gold will begin anew.

No surprises at Wednesday’s Federal Reserve meeting. The U.S. central bank team headed by Chair Janet Yellen pulled the trigger on the first interest rate increase in 12 months, nudging the Fed’s benchmark rate to a still ultra-accommodating 0.50-0.75%.

In the minutes after the widely expected interest rate hikes:

• Gold prices ticked slightly lower.
• The U.S. dollar jumped higher.
• Treasury yields gained.
• Financial stocks turned broadly higher.

While this week’s interest rate move was widely expected, a bigger question heading into 2017 is what will President-elect Trump think of the rising interest rate environment? The Fed now projects a total of three interest rate hikes in 2017, up from a previous two.

Higher Borrowing Costs for Consumers

This could begin to trigger a rise in borrowing costs throughout the economy impacting individual consumers with slightly higher rates on mortgages, car loans and credit card rates.

No doubt some traders will be monitoring President-elect Trump’s Twitter feed, which has become a market mover as of late.

A Trump tweet earlier this week which called Lockheed Martin’s F-35 Joint Strike fighter costs “out of control” triggered a quick sell-off in Lockheed Martin’s stock, initially wiping out $4 billion of the company’s market value.

President-elect Trump did suggest that Janet Yellen was keeping rates low during the campaign to support the outgoing administration. He also suggested that low rates were creating a “false economy.”

Historically, United States presidents have avoided interest rate talk in deference to the Federal Reserve’s independence. The incoming President, however, has already shown a willingness to break tradition on other matters during his transition.

At the heart of the matter is that President-elect Trump’s proposals to boost economic growth through lower taxes, deregulation and billions of dollars of infrastructure spending will also likely boost inflation.

One of the main jobs tasked to Janet Yellen and the Fed is to keep inflation under control and their main method for doing so would be a shift to a more aggressive interest rate hiking cycle.

Are Stocks Near A Climax?

The stock market is shouting out a great big hurrah right now. Stocks are cheering as the Dow Jones Industrial Average approaches the 20,000 mark for the first time in history. However, analysts are also warning that the market is extremely overvalued, which leaves it vulnerable to a turn.

As the calendar prepares to flip to 2017 in just a few weeks, not only are stock prices in the nose-bleed section, but a developing brew of inflation and higher interest rates could be the trigger the brings the stock market bear back out of hibernation.

Is your portfolio properly hedged? Gold and other tangible precious metals assets have the proven ability to diversify and protect a portfolio against stock market declines. We, at Blanchard and Company, believe that gold and silver bullion in physical form is an appropriate asset for a small portion of any properly diversified investment portfolio. Call us today at 1-866-827-4314 for a confidential consultation with one of our portfolio managers.

Many investors are aware that the stock market has surged to new all-time highs since the presidential election.

What you may not know is that many on Wall Street are beginning to issue warnings that the stock rally is overextended on the upside. Stocks are gaining in anticipation of infrastructure spending, tax cuts and deregulation. There remain many hurdles to the implementation of these proposals and stocks will fall in disappointment if delays unfold.

Investor Alert: Many clients are using the recent strength in stock prices to take profits out of equities and diversify into metals.

Asset Performance

Despite the recent pullback in metals, gold and silver still beat stocks (data through November 30):

Gold up 10%
Silver up 19%
The S&P 500 up 7.7%.
10-Year Treasuries yield 2.36%

Looking Into the Crystal Ball For 2017

The big picture, long-term macro view remains gold-bullish.

As the stock market sits at all-time highs, valuations are overstretched. The stock market remains ripe for a corrective pullback, or even a cycle turn. Gold and silver have a negative correlation to stocks, which means as stock prices fall metals prices historically have climbed often significantly. If a bear market cycle in stocks begins in 2017, metals would benefit strongly.

Other potential bullish drivers for gold in 2017 include:

Protectionist trade policies: If trade frictions with other nations begin to unfold on the global stage, gold will benefit in 2017.
Geopolitical concerns: A number of hot spots around the globe, including Syria, are ripe for disruption, which would generate strong demand for metals as a safe-haven and amid flight-to-quality.
Inflation is already rising. Gold and silver are traditional inflation hedges and tend to rise in value during inflationary periods.

US Coin Demand

Weekly sales of U.S. Mint gold and silver coins spiked during November, climbing to their highest levels since January when the new 2016 dated coins were launched. Individual investors both in the U.S. and abroad continue to diversify portfolio holdings with physical gold. The physical demand outlook remains extremely strong.

Predicted Price Trading Bands, Next 90 Days

Gold $1,125-$1,250
Silver $16.00 – $17.80

Our Recommendations:

Buying Rare Coins:

The high-end rare coin market continues to grow
For investors able to hold at least 10 years, ultra-rare acquisitions offer the safest store of wealth and strongest growth potential

Buying Precious Metals:

The price retreat off the summer highs offers long-term investors a better entry point
An accumulation strategy is probably the best bet for clients wishing to add to holdings

Trading Precious Metals:

Silver continues to offer a better value than gold
Ratio: 71 oz. silver = 1 oz. gold
This ratio has averaged 55 to 1 over the past five years
You may want to consider converting some gold holdings to silver
Popular silver products: 10 oz & 100 oz. silver bars, Silver American Eagles in monster boxes.

The recent price retreat offers investors an excellent entry point for both gold and silver investments. Give your portfolio manager a call today at 1-866-827-4314 to discuss current market conditions and potential shifts you may want to consider to your investment picture.

President-Elect Trumps victory on Election Day served as an inflection point in the financial markets. U.S. stocks have surged in the month since the election, with the major large-cap indexes hitting record highs in late November.

On the flip side, bond prices have dropped with the jump in bond yields. Rates on benchmark 10-year U.S. Treasury notes have climbed in the four weeks since Election Day, from 1.8% to nearly 2.4%. Gold prices are also down over 8% over this time.

Investor trends are clearly rotating, away from relatively safe haven asset classes such as bonds, precious metals and hard assets, and toward riskier assets such as stocks. But how much of this shift is for real?

There has been a lot of emotion in the move toward equities since the election. Investor optimism seems to have turned on a dime as Wall Street largely cheered Trumps pro-business perspectives.

Many investors anticipate market-friendly policies from the incoming Trump administration, including lower taxes and higher government spending on defense and infrastructure. But how much of Trumps agenda comes to pass is for the most part unknown, depending on how much opposition he may face from the traditional deficit hawks among Congressional Republicans.

Seasoned investors know that investor sentiment can often be fickle. Many have seen emotionally charged market rallies fizzle when confronted with reality. Thats certainly could happen in this latest bull market run.

But emotion isnt the only factor driving the divergent paths of stocks, bonds and precious metals. Strong economic conditions are also underpinning the recent trends toward risky assets such as equities and the flight away from the relative safety of bonds and hard assets.

It wouldnt be surprising to see the stock rally lose some steam once investors emotions cool off. But the following factors may help keep momentum moving in the direction of stocks, with an inverse effect in the bond and precious metals markets.

Recharged economic growthAnnual growth for U.S. Gross Domestic Product (GDP) was revised up to 3.2% for the 3^rd Quarter. Thats the strongest pace of economic growth since the 3^rd Quarter of 2014. Plus, its well above the average quarterly GDP growth of 1.8% since 2015.

Much of the surge in economic activity was attributed to personal spending, including an 11% increase in durable goods orders. Exports also gained at the fastest pace in nearly three years.

The jump in GDP growth is a welcome signal for future expansion, especially after nearly two years of sluggish growth and concerns about economic stagnation.

Easing deflation fearsThe sharp rise in bond yields came as investors reset their expectations about inflation. In recent months, market worries had focused more on the threat of deflation, especially as the trend of negative interest rates swept through the global government debt markets.

Now it appears prices are on the upswing and fears of deflation on the wane. Headline inflation in the U.S. is at a two-year high of 1.6% in October. Recent inflation reports from Japan, China and the Eurozone also showed a trend of rising prices.

Higher prices usually spell bad news for an economy. But after a long spell of little to no inflation, the recent upward pressure may in fact be a positive sign for future global growth.

Job and income gains Employment has been a consistent bright spot in the current economic expansion. Job market growth in November was on par with recent reports, with 178,000 jobs added during the month. The unemployment rate in the U.S. touched a nine-year low at 4.6%, although a drop in labor force participation was a factor in this decline.

Wages and income have been slower to recover, but in recent months both have shown improvement. Personal income rose 0.6% in October, its best monthly gain since April. Average hourly wages declined slightly in October, but were up 2.5% on an annual basis for the month.

Brighter consumer optimismImproving prospects for employment and income tend to make consumers feel more confident about the future and more comfortable about spending money. Both areas have seen rising strength in recent months.

Consumer confidence jumped to a nine-year high in November according to The Conference Board, exceeding many analysts expectations. This confidence was apparent at the nations cash registers, where retail sales grew at an annual 4.3% rate in October 2016.

The rebirth of the consumer is critical to future economic growth, because consumer spending typically represents two-thirds of the U.S. economy. As the job market expands and income grows with the humming economy, higher consumer spending should help keep the momentum going.

What could throw a wrench into the works for this scenario? Again, the risks go back to the uncertainty over Trumps economic proposals. While plans for cutting taxes and ramping up infrastructure spending should provide a boost to the U.S. economy, any improvement could be undercut by his hard line on trade.

Tariffs and other restrictions on global trade may offer relief to some areas of the economy, but it will likely come at the expense of another. President-Elect Trump and his GOP allies in Congress will need to pull off a balancing act between promoting economic growth and protecting the interests of U.S. workers and businesses.

The good news is, they can start from a strong foundation of economic expansion. This will likely sustain current market trends for the near term. But the prevailing risks to the economy require investors to pay some attention toward wealth preservation. The recent dip in precious metals prices is a good opportunity to put a strategy in place at lower costs.

Call your Blanchard portfolio manager today to discuss the current outlook and options that may be right for you at 1-800-764-9135.