Blanchard Index
Exclusive Precious Metals Market Outlook and Recommendations
Index updated November 1, 2022
The Blanchard Monthly Index is a roll-up of industry news and economic trends affecting the precious metals market and trading world.
Check back each month for insights and commentary from our leading experts and contributors.
The Blanchard Economic Report
Heading into 2022’s Final Stretch: Gold Demand Soars 28% in 3Q
Demand for gold is rising in the current environment with record high inflation, rising interest rates, climbing U.S. debt levels and the potential for a recession. In the third quarter, gold demand soared 28% year-over-year, while total demand for 2022 so far has climbed an impressive 18%, according to the World Gold Council.
Investors, hedge funds, pension funds and family offices are turning to gold in these uncertain times – seeking capital preservation in a time of wealth destruction across the stock and bond markets. As we head into the final stretch for 2022, let’s take a look at the current state of the economy and what it means for gold.
Gross Domestic Product Growth
The latest GDP report revealed that the U.S. economy grew 2.6% in the third quarter, following the second quarter’s negative 0.6% decline. Improving export sales helped fuel the better-than-expected report. However, digging inside the data reveals a mixed view as consumer spending on goods fell for the third straight quarter – which reveals that the record high inflation is taking a toll on American’s everyday spending.
While third quarter GDP managed to trend higher, the fourth quarter and 2023 may not be so lucky if the Fed keeps its pedal on pushing rates higher – punishing Americans who are borrowing to buy homes, cars or even those with consumer debt. The growth in the third quarter is masking deep fragility on the economy, which many economists believe is about to fall into a recession.
IMF Cuts World Growth Forecast
Amid central bank interest rate hikes around the developed world, the International Monetary Fund (IMF) cut its global growth forecast for 2023, saying world growth should slow to 2.7%. However, the IMF warned: “The worst is yet to come, and for many people 2023 will feel like a recession.”
US on the Verge of a Recession in 2023
On the heels of aggressive Federal Reserve interest rate hikes in 2022, which are intended to slow growth and fight inflation – a majority of U.S. economists believe the rate hikes will choke off growth and send the economy tumbling into a recession in 2023.
A survey by the National Association for Business Economics in late October, revealed that more than half of respondents (64%) said the U.S. is either in a recession already, or headed toward a recession in the next 12 months.
Inflation Still Rising
Despite the Fed’s voracious interest rate hikes, inflation is still climbing at a brisk pace. The widely watched Personal Consumption Index jumped 6.2% through September, while the U.S. Consumer Price index gained 8.2% in September.
Fed on Track to Raise Rates Again
The Federal Reserve already hiked interest rates five times in 2022 and is on track for another super-sized rate hike in early November. Americans are getting hit on multiple fronts with the stock market careening lower, home prices falling and the price of consumer goods at a 40-year high. Inflation is destroying the purchasing power of your wealth and savings, while the value of financial assets including stocks and bonds is falling sharply this year.
What This Economic Data Means for Gold
Gold demand is expected to remain high in this environment as investors look for safe havens in the current economic storm. While precious metals have slipped slightly lower, gold remains one of the best performing asset classes in 2022.
Looking Ahead: Policy Areas to Watch after the Midterms
Americans are going to the polls in early November to decide the fate of numerous gubernatorial and Congressional races, which will set the stage for a potential divided government in 2023. Historically, the sitting president’s party loses Congressional seats – and the Republicans have a chance to regain control of the House of Representatives and even the Senate this month.
What will this mean for the economy and the gold market? Split government rule increases the risk of a government shut-down and a bruising fight over the debt ceiling in 2023. The deadline to increase the debt ceiling will be required around the summer of 2023 to cover previous spending already approved by Congress.
The U.S. Treasury is expected to hit its mandated $31.4 trillion borrowing limit in the summer of 2023. Sitting Republicans including far-right conservatives to moderates view the debt ceiling increase as an opportunity to fight back against Democratic spending programs.
However, in the current contentious political climate, there are early signs that the 2023 debt ceiling passage could prove difficult. Why does this matter? “If the US does not raise its debt ceiling and defaults on its debt, that is an Armageddon moment,” Kathleen Day, a lecturer at Johns Hopkins University who has studied the history of financial crises, told CNN Business.
Looking back, it was the debt-ceiling standoff in 2011 that triggered a run to the then all-time high in gold prices over $1,900 an ounce – as global investors turned to gold as a safe haven. The Debt ceiling fight also resulted in Standard & Poor’s downgrading the U.S. credit rating. Could it happen again?
In a Reuter’s article, Representative Buddy Carter, a contender for House Budget Committee chairman, said the debt ceiling would be key to a new Republican majority’s hopes of reining in federal spending. “Getting people’s attention about our debt is very difficult. The debt ceiling is going to be an important tool,” Carter told Reuters.
The Bottom Line
While the U.S. stands at this tipping point of recession, there are steps you can take to preserve and even grow your wealth – with an increased allocation toward physical gold. At Blanchard, we recommend investors allocate 10-15% of their investment portfolios to gold. If you haven’t yet, consider doing it soon.
Our Recommendations
The high-end rare coin market remains an attractive buying opportunity for long-term investors. Rare coins offer investors an opportunity for significant price appreciation in the current environment.
The appeal of rare coins to investors is their impressive historical price appreciation, which has outpaced the level of the underlying precious metal.
Buying Rare Coins
For investors able to hold 5–10 years, ultra-rare acquisitions offer the safest store of wealth and the strongest growth potential. Accumulate the highest-quality coins that you can afford. This strategy will pay off handsomely as rarity tends to appreciate the fastest.
Buying Precious Metals
An accumulation strategy is probably the best option for clients wishing to add to holdings.
Trading Precious Metals
Silver continues to offer a better value than gold. Generally, readings above 65 signal that silver is undervalued and is a strong buy signal for the metal.
The gold/silver ratio is a way for investors to measure the relative value of these two metals. The ratio indicates the number of ounces needed to buy one ounce of gold. Investors have long turned to this ratio to identify attractive long-term entry points for precious metals purchases. A high ratio is generally viewed as a signal that silver is undervalued relative to gold. That is what we’re seeing now.
Current Ratio: 83 oz. silver = 1 oz. gold
You may want to consider converting some gold holdings into silver.
Popular silver products: 10 oz. & 100 oz. silver bars, Silver American Eagles in monster boxes.
