By FS Staff
When we last spoke to Jeff in December of 2015, he told listeners that CPM Group was expecting a moderate increase in the price of gold in 2016 with the possibility of some dramatic upward moves as record high short positions flip to the long side. Jeff's analysis turned out to be quite accurate. Three months into 2016 and the price of gold was up 20% at one point with the gold mining ETF, GDX, up close to 70% just recently.
Given the recent big move and Jeff's consistent accuracy on the gold market, we caught up with him again to get an update on his view. Here's some of what he had to say in Wednesday's podcast:
Did this very large move in gold starting off the year take you by surprise or was this largely in line with what you expected when we spoke to you in December?
"To be honest, the upward move has been a little higher and a little bit longer than we had expected... our expectation had been the price would probably rally in the first quarter but by the time you get into the middle part of April the price would subside back toward $1170-$1180 and, as we're speaking, the price is around $1220 and it's gone up as high as $1280. So I think it's been a little more bullish than we thought - a little bit higher and a little bit longer - and I think that reflects one of the things that you mentioned earlier - short covering - but it also reflects a greater amount of economic and political concern on the part of investors than we had anticipated four months ago."
Given what's taken place, what's your current outlook for gold? Is it off to the races or do you see it pulling back a bit from current levels?
"We're looking for the price to come off over the second and third quarters... I think if the price stays above $1170-$1180, that's very, very bullish. If it goes down to $1130, I'm not surprised. I don't think that we'll go back and test $1100 or even $1050, which was the low last December. But I also don't necessarily think that we're necessarily off to the races here... [Heading] into the final four months of the year, we think investors will be rekindling their concerns about the economy, their concerns about the financial markets, and rekindling their interest in gold..."
What's one thing in particular that you and others are watching closely that may have a large impact not just on gold, but on the market as a whole this year?
"[One] thing that has become more important... is concern over the British exit from the EU. They have a referendum on June 23rd and the opposition to EU membership within England is much greater than either the establishment in England or CPM Group thought - even a month or two months ago. And the risks to the global financial markets...are greater now and so I think that is keeping investor interest in gold higher than it otherwise would be and it may keep investors interested in gold into June. So, the gold price may be supported higher than we expected... and then, if they do vote to exit, then that could be very positive for gold too."
You have mentioned that you believe gold will continue to move higher in the years ahead. Why do you believe that to be the case?
"I think there are three factors. What we have said all along - we issued a long-term buy recommendation in November of 2000 and then we issued a sell recommendation in January of 2012 - and when we said that we said, look, we think that we are at a near-term cyclical peak and that the gold price and other commodity prices could fall for the next 3-5 years in what we called a cyclical downward move within the context of a longer-term secular bull market. In other words, from a long-term perspective, commodities - and especially gold and silver - are in a long-term upward shift and that shift, which has been reflected in higher prices, is really in demand...and since 2000, you've seen more investors buying more gold at higher prices and from more types of investors in different parts of the world for a longer period of time than ever before in history...
Our expectation is that going forward, beyond 2016, you will see economic, financial, and political concerns rising once again and investors will go from purchasing 17-20 million ounces of gold per year back toward 30 or even 40 million ounces and that rise in investment demand back to the levels we saw, really from 2007 to 2012, will push gold prices higher. It will be joined by the fact that central banks are now buying more gold...and, after, 2017, mine production peaks and starts falling sharply..."
Listen to this full 40-minute podcast interview with CPM Group's Jeff Christian by clicking here