Mike Gleason: It is my privilege now to welcome in Jeffrey Christian of the CPM Group, a leading commodities research consulting, investment banking and asset management company. Since its founding in 1986, CPM has provided fundamental analysis of global commodity markets and it's perhaps best known for its research and analysis of the metals markets, along with its overall economic analysis of a number of different commodities and offers its research for commercial hedgers and for institutional and high net worth individual investors.

Jeff, thank you very much for coming on today and welcome.

Jeff Christian: It's good to be here. It's good to connect with Money Metals Exchange.

Mike Gleason: Well, Jeff, as we begin our conversation here, I'd like to have you talk a little bit about what you've seen in in the metals markets this year. We've had a real strong move in gold, while silver has lagged for the most part. It has perked up a bit here of late. So, assess the price action if you would and share your thoughts about why you believe we've seen what we've seen here in 2019 in the metals, as gold is up nearly 17% year to date and silver is up about 10 or 11%. What have been the key drivers here as you see it? Let's start there if we can.

Jeff Christian: Yeah, that's an interesting area because, as we've been saying for some time, there are different groups of investors in gold and silver. What we've seen in late June and then again in July and early August is that you've gotten a lot of short term investors coming into the futures market, options, forward and ETFs. You really haven't seen a big follow through on longer term physical investors. So, that's one of the things that we've seen. Now, what we have been saying for some time was that there are these major economic and political and financial market issues that are going unresolved. And in many cases, they're getting bigger and worse as time goes on and the governments and the financial regulators have not really addressed these issues, but those issues haven't had a major impact on actual economic activity, in terms of being particularly destructive.

They've obviously had limiting factors on growth in a number of places, although they've also helped boost growth and so forth, there’s been easy money and massive fiscal stimulation in the United States and Europe and Japan and China. What we've been saying is that we thought that those long term issues ultimately would drive gold and silver prices sharply higher because they'd come home to roost, but they're not coming home to roost. And over the last couple of years, what we saw were longer term investors backing away from buying gold and silver and shorter term investors trading ranges. We started to see that going into this year too. I think to some extent we're continuing to see that. It's a little bit worrisome to us because we haven't seen the long term investors say, "No, the economic and political environment's getting scarier. It's time to be buying more gold and silver."

We've seen very low purchases of gold and silver coins in most parts of the world, for example, even as the prices have risen. So, I think what we're seeing is a lot of shorter term investors and a lot of those guys are now technically oriented, so when the price breaks above $1,400 they look for a break above $1,440. When it goes above $1,440, the next stop is $1,480 and then the next stop is $1,540. So, I think what we've seen over the last couple of months is a lot of that short term stuff. And we're worried that that might dissipate and that the long term investors haven't really come back into the market yet.

Mike Gleason: Yeah. Obviously you want to see, I guess both some of the speculative money that's chasing the trends and then also the longer term investors and then kind of get that double whammy of demand.

Jeff, in some of the CPM Group reports I've been looking over in preparation for this interview, some things stood out to me and I wanted to get your comments. First off, while you believe most people are woefully under invested in gold, you also believe that investors who invest or trade in gold are more successfully, and it looks like they also buy more gold as well, than those who buy gold merely for the purpose of holding it while waiting for financial Armageddon. Talk about that please.

Jeff Christian: Yeah, we advise mining companies and other organizations in the precious metals business about what we see going on in the market. And one of the things that we've done over the years or decades is we've studied who makes the most money in these markets. And frankly, the investors who not only buy and hold gold and silver and to some extent platinum group metals as long term investments and safe haven portfolio diversifiers, currency diversifiers, growth diversifiers, but also trade back and forth, they tend to do very well. I mean, we had a multi billionaire, a very prominent gold bull, who came to us as an investor in I think 1989. And we had a sell recommendation on gold from an intermediate perspective. From the perspective of 1989 to 1991, we were saying don't buy gold, if you're a two year or longer investor, if anything go short. This guy came to us. He was very prominent bull.

He said, "I want to retain you guys as advisers." So, we started talking about what his portfolio was and yes, he had long term gold but he also had a lot of options that he was short gold. I said, I thought you were long term bull. He goes, "I am, but on a short term basis, let's be realistic, the gold prices have it lower.” And he was right. In 1992, we started seeing signs that caused us to turn bullish. He lightened up on his short positions and he bought a lot of long dated call options, which people were giving away because the gold price had fallen from January, 1988 into early '93, so there was a lot of bearishness in the market. A lot of bullishness had disappeared and people were giving away the upside with the call premiums and he made a lot of money in gold.

So, what we've found is that those investors who treat gold for what it is, which is A, it's a long term store of wealth and a portfolio diversifier and a hedge against major financial, economic and political problems, but it's also a currency and a financial asset that you can trade back and forth. And people who treat it as an asset that has a multitude of uses for individual investors tend to make more money in gold and silver. And when they make more money in gold and silver, they tend to buy more gold and silver. It's really a simple equation there, this is what we've observed since the 1970s. We've been telling gold producers and silver producers, "This is what you really should be focusing on is helping investors understand the multitude of uses and functions of gold and silver for investors because a lot of investors don't get that."

Mike Gleason: Yeah, very interesting analysis there. Talk about the central banks here Jeff. What has stood out to you with respect to central bank buying of gold? What does your research show about the countries who buy it? Why they're buying it and then anything else you found that stood out to you when studying the demand for gold coming from central banks?

Jeff Christian: Well, I guess we divide central banks into two broad groups. There's Russia and Kazakhstan and then there's everybody else. Russia and Kazakhstan have particular issues why they're buying a lot of gold, and most of the gold they're buying is domestic mine production, domestic refined production. But they're diversifying their portfolio, their monetary reserves away from the dollar and the euro as fast as possible. Russia's got all sorts of sanctions against it. Kazakhstan tends to follow Russia's cue in these matters. And with the hostilities between the United States government and the Russian government, and to a lesser extent, the European governments and Russian government, you're seeing Russia say, "We should have fewer dollars, fewer euros and more gold."

Everybody else takes a slightly different view. They say, "We have most of our assets in currencies, and most of those currencies are gold." If you look at monetary reserves, foreign exchange reserves, at central banks, about 60, 62% of the foreign exchange reserves are in U.S. dollars. And that's just for a variety of reasons. And one of the reasons is that most trade is still settled in U.S. dollars. There's this massive dollar liquidity that just doesn't exist in other currencies. Most central banks say, "We'd like to reduce our dollar exposure, but the liquidity doesn't exist in euros and yen and gold to make a massive wholesale shift away from the dollar at this point.” It's got to be a long, slow process. So, you find a lot of central banks that want to buy gold, but they're very cautious about doing it. They're also much more price sensitive than investors. If you go back like three years ago, central banks were buying five, six, seven million ounces of gold a year for addition to their monetary reserves.

Then, in 2017, gold price started 2017 at $1,380 an ounce. Investors bought a lot of gold in late 2017, early 2018 and then they pulled back from the market and the price went from $1,380 to $1,180. And investors were actually selling gold and silver as opposed to buying it. And the central banks said, "Okay, we weren't really interested in buying at $1,380 because that seems like a kind of high price. But if investors don't want the stuff and they bid the price down to $1,180, we'll take it." So, you saw about 16 million ounces of gold bought by a number of central banks last year, a larger number of central banks than you had seen in previous years. China, Russia and Kazakhstan were probably the three biggest, but you had a number of other central banks in there buying gold to diversify their portfolio or their monetary reserve base and add some gold there.

And you're seeing continued strong increase earlier this year. Now, we haven't seen numbers for July yet, but through June, central banks were buying more gold at a faster pace than in the first half of 2019 than they had in 2018 and the price of gold was weak. As the price of gold has risen, we haven't seen whether or not they’ve pulled back yet. But one of the points that we warn people about is that central banks are very price sensitive. They're much more price sensitive than are private investors. And so, if private investors start buying physical gold and they drive the price much higher, you may see central banks pull back from their gold. The thing to understand is that's the normative analysis. If I can use obscure terms. That's the normative analysis. And one of the things that's going on is that all of the rules of intergovernmental behavior are changing. So, it may well be that central banks are much more disturbed about the U.S. government's behavior toward Mexico, toward China, toward Canada, toward Venezuela, toward everybody and their uncle, now Denmark.

So, it may be that central banks become less price sensitive in their diversification into gold. But the reality is that in 2018 and again in the first half of 2019, central banks have been buying a lot of gold. They've been taking up the slack that those long term investors let into the market by not buying as much physical gold as it did. Central banks bought a lot of gold last year. Investors bought about 12 million ounces of gold last year, which was down from about 18 million ounces the year before and with the lowest level since 2001 or so.

Mike Gleason: Turning to silver here, Jeff. Do you think its performance in the next few months will match what we've seen recently? How does silver breakout of this year's long trading range between say $14 or $15 on the low end and $17 to 17.50 on the top end? What do you see ahead for silver from here?

Jeff Christian: Yeah, silver, it's a similar story to gold. What we've seen is a good increase in the price of silver over the last several weeks. That increase has been driven primarily in futures options, forwards and to a lesser extent, ETFs. We haven't really seen a lot of coin buying and physical buying by longer term investors. It's really going to take those longer term investors to get back into the market, push the silver price significantly higher than say $18. I think it can go to $18 in the second half of this year. I'm not sure that we'll see $19 or $20, but what's really required is for physical investors to start buying more silver. They have bought significantly less silver over the last several years than they were buying in the period say 2002 to 2013 when the silver price was rising.

Mike Gleason: Jeff, I know you don't necessarily see things the same way when it comes to the topic of manipulation in the metals markets and the accusations there, but I did want to get your comments and have you share that with our audience and then also discuss whether any of the recent accounts and charges brought up against several different traders at some of the large banks over the last few years – charges that implicate these individuals of manipulating gold and silver prices through various means, including the spoofing of trades and other methods – has that changed your opinion at all about the potential that we have had widespread manipulation in the metals markets over the past decade or even longer? Give us your thoughts there, please.

Jeff Christian: No, it really hasn't changed our opinion. I know a lot of conspiracy people don't listen to what I'm saying. They listen for confirmation not for comprehension. We have always said that all financial markets have a great deal of this petty manipulation. Traders talking to each other and jerking the market around, eking out a few cents. They do it in the stock market, they do it in currency markets, they do it in interest rate markets, they do it in across commodities. And we've always said that that kind of petty manipulation is there. The bigger types of manipulation and the grand conspiracies that a lot of conspiracy theorists market, we don't see and we don't see them for a number of reasons. And people who have studied this from a legal perspective don't see either.

What they see is a lot of evidence that such grand conspiracies don't happen. And it's interesting because if you listen to the guys who make their living marketing conspiracy theories, 15, 20 years ago they were talking about these grand conspiracies involving the Fed and a network of banks to suppress the price of gold and the price of silver. Then there was, well, no, no, no, it's not a grand conspiracy, it's major manipulation with the capital M. And now they're talking about minor manipulation with a lowercase M, the Fagens of the world, picking the pockets of their clients. And that kind of manipulation, as I said, it goes on a cost financial markets and it's going on for decades and it's a far cry from these grand conspiracies and we don't see grand conspiracies and we see a tremendous amount of evidence that these grand conspiracies do not exist.

Mike Gleason: With that said, obviously we've got a tremendous amount of fundamental reasons to own precious metals out there. All this negative interest rate environment that we're in right now, maybe the Fed starting to reverse course in this race to the bottom of all these paper currencies. Do the powers that'd be here, even have the ability to manipulate and suppress the price if they wanted to? What's your view there?

Jeff Christian: I don't know if they have the ability, but I don't think they have the desire. If you go back to the 1920s and 1930s, gold represented something outrageous like a third or a half of the world's wealth was denominated in gold. When we got into the depression, people were buying, getting rid of their currencies, getting rid of their bank deposits and buying gold. And that exacerbated the financial crisis and limited government's abilities to buy their way out of the Great Depression. But today, the amount of wealth that's held in gold is half a percent of the world's wealth. So, if you're trying to stimulate the economy and keep us out of a depression and show strength in the financial system, gold is a meaningless moniker. It's a footnote there and you're going to be doing things that they are doing, which is pumping money into the stock market, pumping money into the banks so that the banks can buy stock index derivatives, because that's where all the money is.

A couple of years ago there were all these people saying, "Well, cryptocurrencies are killing gold because all this money's coming out of gold and going into cryptocurrencies." And we have this chart that we used, which was, "No, cryptocurrencies are like a half a trillion-dollar market. Gold is like a three or four trillion-dollar market and the stock market's like a 80 trillion dollar market." The money that was being distracted from investing in gold when the gold price was flat to lower, was going into the stock market where the prices were going consistently higher because all this money was being funneled in from the central banks to the banking industry into the equity markets.

That's where you see the inflation. You see no real inflation in the real economies in terms of the cost of goods and such. What we have seen is a massive asset inflation and that's because the money that has been pumped into the system has not gone into the real economy of goods and services, it's going into the financial markets and it's pumped up real estate and stocks and bonds. So, do they have the capacity to manipulate gold and silver prices? I don't know if they do or not, but I don't think they have any desire to because gold and silver are meaningless to them.

Mike Gleason: Well Jeff, before we go, I want to have you expand a little bit about medium to longer term forecast for gold and silver. Sounds like maybe you backed off a little bit some of the bullish comments I've heard you say earlier this year just because you're waiting to see some of those longer term investors get back in. So, maybe expand upon that and then talk about what you're expecting over the balance of the year and into 2020 and beyond. Are you still bullish moving forward? And then give us any final comments or maybe list some of the reasons you think investors should consider building a position in gold and silver here or adding to what they already own.

Jeff Christian: We're actually more bullish sooner now than we were earlier in the year. What we have been saying for several years that we thought that prices would rise modestly in 2017, 2018, 2019, 2020 but that at some point we would get to a point where the financial and economic factors and maybe political factors too, around the world, became extremely problematic for individuals. And at that point, like as in 2008, 2009 you would see the gold price and the silver prices rise sharply. So, what we were saying, in terms of our gold price forecast was, modest increases for the next few years and at some point, we get into a major recession and a major financial crisis and gold prices go to record levels. And we were saying that with silver modest price increases for the next few years, and then when things get nasty in the economy and political environment, that silver prices would rise, maybe not to record levels, but they would rise sharply.

What we're saying now, just over the last two months, really since late June, early July, is that the long term is becoming shorter term. And while we had been saying we thought it might be 2023, 2025 before we saw those economic problems come home to roost, we're now saying, "Well no, they may come home sooner." And more importantly, we think that any number of investors who are looking out over the horizon are also saying, "No, they may come sooner." So, we've actually increased our projections for where we think the prices of gold and silver could go in 2020. We have higher prices now in 2020, 2021 that we were looking for in 2022, 2023. So, we've actually moved up in time when we think that the things come home to roost.

In terms of why investors should own gold and silver, it's a way of diversifying your wealth. Most people have all of their wealth denominated in their own domestic currency. Some sophisticated or wealthy people or cosmopolitan people have their wealth denominated in two or three different currencies. Gold is a way to take part of your wealth and diversify it away from exposure to your domestic currency. And I think that that's important even if you don't have a currency that is overvalued and likely to decline in the long run. In addition to diversifying your wealth, you want to diversify your investment portfolio. And one of the things that we always talk to our clients about is an investment portfolio is a subset of your wealth, right? And then within that investment portfolio gold is good as a currency hedge, as a safe haven, and understand, as a safe haven gold prices and silver prices are just as volatile as stock prices, but they have a very low correlation to both stock price moves and bond price, virtually zero correlation over time with bonds and a very low correlation, probably less than 15%, to stocks.

So, they're great portfolio diversifiers. They are inflation hedges, they're also hedges against other forms of economic problems including deflation, disinflation and recessions and depressions. So, it just makes sense to have some of your wealth and some of your investment portfolio in gold and silver. In addition to that, I like to think gold and silver are unique because they have much more utility for investors than say stocks and bonds. Stocks and bonds do one or two things: capital appreciation, potential, and dividends in the case of stocks and coupons in the case of bonds. But gold and silver have these long term values and utilities and they also have shorter term values and utilities. And you can make a lot of money by buying gold and silver when the price is low and selling it when it's high.

We've seen a lot of people who bought silver at $7 in 2003 or 2005 and when the price got the $50 in 2011 and we were saying, "You should sell," they go, "No, I heard on the internet it's going to $200." And then it got back to only $11 or whatever, and they were saying, "Boy, I was rich back then and I guess I'll be rich again someday if I live that long." But if they had bought at $7 and sold at $50 and bought back at $11 they'd be so much farther ahead of the game. And I think that that's one of the things that a lot of people overlook when they're investing in precious metals. You should have that core insurance holdings of physical gold and silver, but you should also have another chunk of gold and silver that you're trading based on where the price is and whether it's a reasonable buyer or seller any given time.

Mike Gleason: I think that's very good advice. And thanks for clarifying. Where you guys are at in terms of your outlook for metals, I think it's a very level headed approach and one thing I'll say about you, Jeff, is that you're not a permabull and I appreciate that about you. You take a very steady view of these metals markets and it was great having you on. We'll leave it there for now. And thanks very much Jeff for your time and sharing your analysis with us today. Before we let you go, please tell people a little bit more about the CPM Group and how they can follow your work more closely if they'd like to do so.

Jeff Christian: We have a website, www.CPMgroup.com. We have annual yearbooks, gold yearbook, silver yearbook and platinum group yearbook, which are available via our website or by sending an email to info@CPMgroup.com for a $160 each. And these are really definitive works on precious metals and they're bought by central banks and governments and producers and investors around the world. They're really worth having and those are the entry level point.

We have trade recommendations and trade signals that people can get for short term buying and selling (of gold). Other ones on silver, platinum, palladium, copper and oil and option strategies, we charge a subscription fee for those kinds of short term strategies. And then we have longer term studies and we do a lot of work on non-precious metals commodities too. So, we're involved in the energy markets, we're involved a lot with hydrogen right now and we're doing a lot in what they call battery metals, manganese and then specialty metals like molybdenum, which are used in transmission pipes for natural gas and petroleum. So, we have a tremendous range of services, everything from research to advisory services and you can learn about us at CPMgroup.com.

Mike Gleason: Great stuff. Next time we have you on, I definitely want to ask you about the platinum group metals, we didn't have a chance today, but obviously there's a lot going on there too and I know you know that market as well.

Well thanks, Jeff, very much appreciate your time today and hope you have a good weekend and take care.

Jeff Christian: All right, thanks. Thanks for having us on.

Mike Gleason: Well, that will do it for this week. Thanks again to Jeffrey Christian. 

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