Jeffrey Christian is the Managing Director and founder of the CPM Group, one of the most respected precious metals and commodities research companies in the world.
During the interview, Jeffrey shares his outlook on the US dollar, his secular bullish call on gold and silver and the current demand for physical gold. He further discusses his outlook on the fundamentals for the platinum, palladium, which in his eyes do not have the same upside potential.
Erik and Jeffrey then move on to discuss the lithium markets. Jeffrey expresses his views that a lot of the lithium exploration and development programs that are being launched and marketed on a stock exchange make little economic sense. He feels that there is a nasty secret in the lithium battery market, that the batteries are recyclable, even though they are not being recycled right now.
Further, they wrap things up during the interview with Jeff's macro outlook on the economy, the European Union and outlook for China and Russia.
Erik: OK, let's move on to gold and silver. Gold has been performing quite well in the last few weeks in this small amount of dollar weakness that we've seen. Looks to me like we may have actually had a cycle high overnight on Wednesday night at 1253 spot 30 back down to 1248 as we're speaking on Thursday morning. Where do you see gold from here, is the bottom in or we got maybe some more turbulence ahead of us?
Jeffrey: Yeah, I think the bottoms in. we had been expecting the gold price to move sort of sideways maybe a low around 1180 possibly as low as 1150 but then also you know a high around 1260, 1280 in the first half of this year and then start moving higher later but frankly the dollar has been better supported since January than we had expected.
The quick and dirty story on gold is we think good prices moved slightly higher in the first half of this year that the increase starts accelerating in the second half of this year and we expect gold to be at nominal record high prices by 2020, 2021.
So, we're looking for much higher gold prices over the next three or four years but a little bit of base building here but that said the base building has been at a slightly higher level than we had expected three months ago, I think reflecting concerns about the economy and the political systems worldwide.
Erik: Now you're saying a new nominal high, I assume you mean new all-time highs above the 19 whatever it was within the next three or four years and it's surprising for me to hear that from you because you're one of the few precious metals guys in the business who's not constantly telling the story about how precious metals can only go up. You've actually been quite a lot more conservative in our past interviews so why the change?
Jeffrey: There are a couple times when I've done this from 1980 to 2000 I was, I guess, the voice of reason and 68% of the time I said you know I thought that gold prices would be lower two years from now than it is today in November of 2000 I gave a speech in which I said, I think that the economic and political environment over the next many years will be much more hostile than the economic and political environment that existed in 1978, 1980 when the gold price went from a $100 to $850 and given that I expected gold prices to rise sharply to levels above $850 in the next many years.
And then I talked about what we saw as an upward shift in the investment demand curve that was going to emerge in the world as investors around the world sort of said I should have more wealth in gold given the hostile political and economic environment and unfortunately over the last 17 that's all come true.
So, in November 2000 we said we think gold prices rise to new records, in January of 2012 we said we think the peak is in and we would sell gold and look for the price to fall on a cyclical basis for three to five years before it starts rising again and we think that the investment demand curve has shifted upward and will remain upward, that investors will continue to buy historically large amounts of gold out of concerns over the economic and political environment.
And what I'm saying today is everything that we've said over the last 17 years seems to be holding true. We think the cyclical low was probably made in December of 2015. Everything that we've seen politically and economically and in the gold market over the last two years supports that view.
There are fundamentals in the gold market, investors are buying more gold again than they were in 2013, 2014, a lot more gold like 27 million ounces instead of 18 million ounces to three years ago. Central banks continue to buy gold and mine production which continues to rise probably is approaching a plateau.
So, you've got fundamentals in the gold market that are supportive of the gold market but in addition to that you've got the big fundamentals in investment demand and that's driven by economic concerns and you've got investors around the world looking at the world saying I think I should have more of my wealth in gold than I do right now and I think that that's the main reason why we think that the gold price will rise and as investors buy more and more gold what they're going to find is tighter and tighter supplies and the price is going to rise.
Erik: Let's bring silver into this story, I'm just looking here, we had a high back around the beginning of March which really, you'd have to go back to November of last year to find silver trading above 1850 where it just barely touched in March. We've been back down to 17 in the last few weeks we're back up to 17 spot 62 as we're speaking now.
Give us the picture of where Silver fits in, the role of the industrial versus monetary metal, tell us where it fits into the story.
Jeffrey: We're less bullish on silver than we are in gold but you've seen a same kind of buying patterns in silver to a lesser extent than you are in gold. I mean gold is the ultimate financial asset.
Gold and the dollar are the safe havens to which people run and sometimes they'll run to both of them and you'll see gold and the dollar rising simultaneously, sometimes they'll run to one or the other.
I think the dollar as high as it is six years into upward trend I think you've got a lot of people who are saying I don't necessarily want to add to my dollar exposure for that and for other reasons so I think that people are focusing on gold.
Silver is less important in people's minds as a financial asset. We're seeing a lot of demand for silver from investors but it's very important to understand that part of what we're seeing in terms of E.T.F. and coin demand for silver is actually people shifting out of large bars, thousand ounce bars, and five thousand ounce bars, into smaller units of investments in silver.
But you are seeing some investment demand it's not as dynamic as gold. We think that that probably supports prices above $16, 17 an ounce going forward. We wouldn't be surprised to see the price go back up and test $20 as it did in the middle of 2016 at some point over the next couple years we're not necessarily looking for it anytime soon.
We don't necessarily see silver prices rising to record levels the way we see gold prices rising to record levels unless something much more dramatic and drastic happens in the economic and political environment that we're currently expecting.
Erik: Now something I noticed recently and in the news is a few years ago there was a big fashion trend if you will that physical metal was the place to be, you didn't want to own GLD or any of the other ETFs because I forget what the conspiracy theory was but something was wrong with it and you had to have physical and you would think if that was the medium it would continue but it seems like what's happened is now we're seeing a resurgence of interest in paper gold trading products whether it's futures or ETFs or what have you but it looks to me like the demand for physical coins and retail bars has dropped off, what's going on there?
Jeffrey: I'm not sure that the demand for physical bars and coins has dropped off what you're seeing I think is you have different constituencies of people interested in gold and there are people who are buying gold because they're concerned about the stability of their own their bank or the financial system in general and those people want some gold on a private basis and they want to physically own it and physically hold it in their own possession or they want to have it physically possessed and stored in a non-bank depository in a secure unknown secretive place.
I think that reflects the increased governmental surveillance regulation and oversight and intrusion in everybody's lives but there are a lot of other investors who they may still be upset with the intrusive behavior of governments but they're comfortable with the idea of holding at least some of their gold in ETFs and in paper gold.
Then there are other investors who are a much shorter term opportunistic types of investors and they don't necessarily buy gold because they think the world is collapsing, they're buying gold because the price is rising and the fundamentals suggest higher prices and every time someone in Washington opens their mouth, the price of gold goes up and those people are much more comfortable with paper assets, A, because they're in an out and B, because they like the leverage that for example futures and options give them as opposed to physical gold or ETFs.
So, I think what you've got are different constituencies, different people buy gold for different reasons and some investors actually have some physical gold in their own possession, they have physical gold stored elsewhere for them in a non-bank facility and they actively trade ETFs futures options and other paper gold.
So, I don't necessarily see-- and in fact as I said physical gold demand has risen sharply over the last couple years, 15, 16 into 17 so I don't necessarily see people shifting away from physical gold but what I do see is a resurgence of investors across gold assets compared to where we were a couple of years ago and I should add a lot of the investors that are coming to us and buying our research and consulting services are new to gold these are investors who formerly didn't invest in gold or were very opportunistic, they bought gold in 2006, they sold in 2011, 2012 and now they're coming back.
Jeffrey puts together a great macro outlook for gold, silver, platinum, palladium and lithium.
His macro outlook on the stock market and the economy puts red flags out on the markets into the 3rd quarter of the year where he feels there will be a dose of reality coming to the Trump euphoria.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.