Why Widespread Uncertainty Is Great News for Us
Editor's note: Nobody knows what to expect in the short term.
And that's great news for people who own gold.
As Porter explains in today's edition of our weekend Masters Series – excerpted from the February issue of Stansberry Gold & Silver Investor – any weakness in gold prices offers a fantastic opportunity for investors...
Why Widespread Uncertainty Is Great News for Us
Seeking shelter from the storm...
With fear and uncertainty brewing around the world again, investors have started piling back into gold... pushing it to a three-month high in early February of more than $1,240 per ounce.
So far, gold is up more than 9% in 2017. The NYSE Arca Gold BUGS Index ("HUI") and the VanEck Vectors Gold Miners Fund (GDX) have both gained about 10% in that span.
After three straight months of declines, total holdings of gold-backed exchange-traded funds (ETFs) climbed 1% through the end of January, according to the World Gold Council. That represents a 7% increase in value over the previous month.
And holdings in the SPDR Gold Shares Fund (GLD), the world's largest gold-backed ETF, rose to more than 840 metric tons two weeks ago – their highest level since December 15.
The U.S. Labor Department's weekly jobs report indicated jobless claims fell by 12,000 through the week ending February 4. That's a better result than analysts expected.
Typically, this would be a bearish sign for gold... But this time, prices held firm. That speaks to the level of uncertainty and nervousness around the world right now.
A few weeks ago, we attended the Vancouver Resource Investment Conference. During the two-day event, we listened to a variety of presentations from investors, newsletter writers, and mining executives.
The overall message was clear... Nobody knows what to expect in the short term. And that uncertainty is great news for gold.
Plus, no one is sure which way President Trump will lean with his economic policy...
His promises of deregulation, infrastructure spending, and tax cuts could jump-start a temporary growth spurt. But his threat to impose tariffs on imports could mean higher prices for U.S. consumers. This may cause inflation to spike and stall economic growth.
The markets also remain jittery because of concerns over the growing populist movement in Europe. Buoyed by the "Brexit" vote and Trump's surprise victory, far-right nationalist parties are gaining ground in major powers like France and Germany.
The sentiment among voters is similar... frustration amid shrinking opportunities, as well as anxiety over immigration and a loss of national identity. If more countries follow Britain's lead and choose to exit the European Union, it could dissolve.
That could send the markets spinning – and gold soaring.
And despite a recent increase in U.S. interest rates, central banks around the world continue to use loose monetary policies. Many still have negative interest rates.
You will recall that these policies are a big part of why we launched Stansberry Gold & Silver Investor last April. These irresponsible policies have created a gigantic credit bubble around the globe. Someday, this bubble will pop. When it does, you will be glad you own gold.
The declining strength of the U.S. dollar has added stronger tailwinds to gold in recent weeks.
According to the Bloomberg Dollar Index, the U.S. dollar has fallen 3% since January 3... the day when it hit its highest level since the index started at the end of 2004. Trump has publicly discussed his intention to weaken the U.S. dollar – an unprecedented statement for a U.S. president.
Some question if Trump's remarks are simply posturing toward China. On the campaign trail, he routinely chastised our largest trading partner for manipulating its currency.
Regardless, this confusion and unpredictability bodes well for gold prices.
While these statistics and developments seem to paint a rosy picture for precious metals, you need to remember that gold and silver are extremely volatile – even in bull markets.
We saw this happen last year. Gold rallied roughly 30% from the beginning of 2016 to its summer peak before falling more than 15% to close the year.
With this early surge to start 2017, we might soon see investors taking profits off the table. That could lead to a selloff in gold stocks, which would create additional opportunities for us to expand our Hard Rock Portfolio in the coming months.
For now, you should build your positions slowly. Buy on "down" days in the market. Use limit orders. Watch your position sizing (don't get greedy). And follow your stop losses.
In other words, invest wisely.
An Important Trend to Watch This Year
The "War on Cash" punished another major gold consumer last year...
In a report released earlier this month on gold-demand trends in 2016, the World Gold Council said that India – the world's second-largest consumer of gold – saw demand plummet 21% to a seven-year low.
While higher gold prices played a role in the decline, the country's recent self-imposed ban on cash also factored into the drop. We detailed this development in our December issue. In an attempt to curb tax evasion and corruption, the Indian government banned what amounted to half of the cash in circulation.
Much of India's gold demand is for jewelry. And the country's jewelry industry relies heavily on cash because most retailers aren't equipped to accept credit cards. Many rural residents have had to postpone weddings because they can't buy rings.
This gold-demand slump in India will continue into 2017. A recent Bloomberg article suggests that the country's gold imports this year may amount to half of those in 2015.
As more countries attempt to reduce the amount of cash in circulation, it remains unclear how it will affect the overall global economy. We will continue to watch this trend closely.
Other highlights from the World Gold Council's 2016 report include...
- Despite fourth-quarter outflows, it was the second-best year for gold-backed ETFs on record. The total demand of 532 metric tons was the highest since 2009.
- For the seventh consecutive year, we saw net purchases of gold by central banks. However, total demand declined 33% from 2015. And it was the lowest amount since 2010, partially due to pressure on foreign-exchange reserves.
- Demand from China, the world's largest gold consumer, fell 7% due to high prices and a weakening economy.
- Global demand for jewelry set a seven-year low, largely because of high prices.
- Despite the slump in demand from the world's top consumers, the price of gold still finished the year up 8%.
A Bearish Forecast for Gold in 2017
Not everyone is bullish on precious metals...
Last month, the World Bank released its "Commodity Markets Outlook" quarterly report.
The organization forecasts an average gold price of $1,150 per ounce in 2017. That's even lower than the average of $1,160 per ounce in 2015... what many consider the bottom for gold.
The World Bank report predicts a 7% drop in precious metals this year due to weak investment demand, a stronger dollar, and rising real interest rates. The organization also expects an 11% rise in base metals because of increased demand and supply restrictions.
As contrarian investors, we love this bearish news. As we said in last month's issue, this type of environment gives us the opportunity to buy at cheaper prices.
Editor's note: Porter and his team of analysts created Stansberry Gold & Silver Investor to maximize your upside potential during the bull market in gold. And right now, one rare signal is flashing, suggesting gold prices could skyrocket higher in the weeks and months to come. Learn more about this opportunity right here.